ENQUEST PLC ANNUAL REPORT AND ACCOUNTS 2021
ENQUEST PLC ANNUAL REPORT AND ACCOUNTS 2021
Providing creative
solutions through
the energy transition
Strategic Report
02 Highlights
03 Key performance indicators
04 Business model
06 Stakeholder engagement
08 Our Purpose and Values
10 Chairman’s statement
12 Chief Executive’s report
16 Operating review
24 Oil and gas reserves and resources
25 Hydrocarbon assets
26 Financial review
32 Environmental, Social
andGovernance
34 Environmental
39 Community
Corporate Governance
58 Board of Directors
60 Executive Committee
62 Chairman’s letter
64 Corporate governance statement
69 Audit Committee report
76 Directors’ Remuneration Report
94 Governance and Nomination
Committee report
97 Safety, Climate and Risk
Committeereport
99 Technical and Reserves
Committeereport
100 Directors’ report
Financial Statements
105 Statement of Directors’
Responsibilities for the Group
Financial Statements
106 Independent Auditor’s Report
totheMembersofEnQuestPLC
118 Group Income Statement
119 Group Balance Sheet
120 Group Statement of Changes
inEquity
121 Group Statement of Cash Flows
122 Notes to the Group Financial
Statements
163 Statement of Directors’
Responsibilities for the Parent
Company Financial Statements
164 Company Balance Sheet
165 Company Statement of Changes
inEquity
166 Notes to the Financial Statements
170 Glossary – Non-GAAP measures
174 Company information
The energy
transition
Upstream
Safely and efficiently extracting existing oil
andgas resources through established
infrastructure while minimising emissions
remains our core business.
Read more about our performance on
pages
16 to 19
EnQuest is well positioned to play
animportant role in the energy
transition. It will do so by responsibly
optimising production, leveraging
existing infrastructure, delivering a
strong decommissioning
performance and exploring
newenergy and further
decarbonisationopportunities.
01
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Infrastructure and New Energy
Maintaining high-quality services at the lowest cost
and transforming strategically positioned existing
infrastructure into a hub for renewable energy.
Read more about our opportunities on
pages
22 to 23
Decommissioning
Managing end-of-life production and
delivering safe, cost-efficient and low-carbon
decommissioning is a natural next phase to
our Upstream operations.
Read more about our capability on
pages
20 to 21
Find out more online
www.enquest.com
For a description of the Group’s segmental
reporting see note 3 Segment information on
page 128.
02
Highlights
Strong free cash flow
generation, a value-
enhancing acquisition and
continued debt reduction.
Production in the year was primarily
impacted by a combination of
well and topside integrity-related
outages at Magnus and natural
declines across the portfolio.
The Group’s adjusted EBITDA increased
34.9% to $742.9 million, primarily
reflecting materially higher revenue.
Profit before tax of $352.4 million is
primarily driven by higher crude
oil revenue and a net non-cash
impairment reversal (2020: loss before
tax of $566.0 million primarily driven
by a non-cash impairment charge).
The material increase in realised oil
price underpinned strong free cash flow
generation, which enabled the payment
of $249.7 million cash consideration
for the Golden Eagle acquisition,
repayments of the BP vendor loan and
Sculptor Capital facility and an overall
reduction in net debt to $1,222.0 million.
The Golden Eagle acquisition has
strengthened the portfolio, adding
significant cash generating capability
to the Group, while the Bressay
and Bentley acquisitions provide
EnQuest with longer-term potential
development opportunities.
Notes:
1 See reconciliation of alternative performance measures within the ‘Glossary – Non-GAAP measures’ starting on
page 170. In 2020, the Group highlighted free cash flow per barrel of oil equivalent as an alternative performance
measure to enable a reader to assess the Group’s resilience in the unusually low oil price that prevailed in the
immediate aftermath of the COVID-19 pandemic
2 Comparative information for 2020 has been restated. For more information, see note 2 Basis
ofpreparation–Restatements
ALTERNATIVE PERFORMANCE MEASURES
1
Operating costs
($ million)
321.0
-2.3
%
Adjusted EBITDA
($ million)
742.9
+34.9
%
Free cash flow
($ million)
396.8
+88.5
%
Read more in the Finance review
See page 26
STATUTORY PERFORMANCE MEASURES
Revenue and other operating income
($ million)
2
1,265.8
+46.5
%
2020 (restated): 863.9
Profit/(loss) before tax
($ million)
352.4
2020: (566.0)
Basic earnings/(loss) per share
(cents)
2
21.7
2020 (restated): (29.0)
Net cash flow from operating activities
($ million)
2
674.1
+29.3
%
2020 (restated): 521.4
Net assets/(liabilities)
($ million)
2
520.8
+471.1
%
2020 (restated): 91.2
Read more in the Financial
statements
See page 118
03
2020
0.22
2021
0.21
2019
0.57
2020
1 ,279.7
2021
1,222.0
2019
1,413.0
2020
59,116
2021
44,415
2019
68,606
2020
15.2
2021
20.5
2019
20.6
2020
567. 2
2021
756.9
2019
993.4
2020
173.0
2021
117.6
2019
248.6
2020
189
2021
194
2019
213
2020
1,342,765
2021
1,145 ,2 73
2019
1,511,650
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
A: HSEA
Group Lost Time Incident frequency rate
1
-4.5
%
F: Net debt
2
$ million
-4.5
%
B: Net production
Boepd
-24.9
%
C: Unit opex
2
$/Boe
+34.9
%
D: Cash generated by operations
$ million
+33.5
%
E: Cash capital
2
and abandonment expense
$ million
-32.0
%
G: Net 2P reserves
MMboe
+2.6
%
H: Scope 1 and 2 emissions
tCO
2
e
3
-14.7
%
In occupational safety, Lost Time Incident
(‘LTI’) performance was good, with many
assets recording an LTI-free year.
Strong free cash flow generation was
partially offset by consideration paid for the
acquisition of Golden Eagle and the early
voluntary repayment of the BP vendor loan.
The Group has continued voluntarily to
make early repayments of its senior secured
credit facility.
Production at Kraken and PM8/Seligi was
inline with expectations, but Group
performance was impacted by well integrity
and topside issues at Magnus, outages due
to planned maintenance and a subsea
power umbilical failure at the Greater
Kittiwake Area, the impact of the detached
riser at PM8/Seligi and natural declines
across the Upstream portfolio. This was
partially offset by the contribution from
Golden Eagle.
Average unit operating costs were primarily
impacted by lower production. Absolute
operating costs were broadly in line with
2020, with increased maintenance and
integrity spend at Magnus, lower lease
charter credits at Kraken and higher
emissions trading scheme costs offset
bylower tariff and transportation costs.
Strong cash generated by operations was
driven by higher revenue reflecting higher
realised oil prices.
Cash capital expenditure in 2021 primarily
related to licence to operate activities, the
Magnus production enhancement
campaign and pipeline replacement costs
at PM8/Seligi.
Cash abandonment expenditure increased,
reflecting decommissioning activities at
Heather, Thistle and the Dons.
During the year, the Group produced 8.2%
ofits year-end 2020 2P reserves base. This
reduction was more than offset by the 2P
reserves added through the Golden Eagle
acquisition.
With power generation and flaring major
sources of emissions, lower production does
not always lead to reduced emissions.
In2021, emissions were reduced through
operational improvements, such as:
compressor remapping at Kittiwake
reducing flaring; and the commissioning
ofa waste heat recovery unit at Kraken
reducing diesel usage.
Notes:
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 170
3 tCO
2
e: tonnes of CO
2
equivalent
Key performance indicators
04
Business model
We are EnQuest
An independent energy company with operations in the UK and Malaysia. We aim
toextend the useful lives of existing infrastructure in a responsible manner, helping
fulfilenergy demand requirements as part of the transition to a low-carbon world.
ASSETS
Operational excellence
This underpins everything we do,
withafocus on SAFE Results.
In our Upstream operations, we strive
to responsibly enhance production
efficiency and oil and gas recovery
through focused improvement
programmes.
In our Decommissioning directorate,
we aspire to be the experts in
managing end-of-field life production
and the delivery of safe, cost-efficient
and low-carbon decommissioning
programmes.
In our Infrastructure and New Energy
business, we aim for safe and reliable
performance at the Sullom Voe
Terminal and its related infrastructure.
Differential capability
We have significant in-house technical
and operating experience across
Upstream, Infrastructure and
Decommissioning operations.
As an industry leader in drilling and
subsea tie-backs, we are able to
realise value from existing producing
assets by adding reserves and
extending their useful lives.
STRATEGIC PILLARS
Our people
Our people are critical to our success. With diversity and inclusion central to our
ways of working, we aim to attract, retain and develop a wide range of talent in
the organisation. We pursue growth and learning opportunities to unlock our full
potential as individuals, teams and the Group as a whole. We have an
experienced and long-tenured management team with a proven track record
ofvalue creation and growth.
Read more in our People, Board of Directors
and Executive Committee sections
See pages 40 to 41, and 58 to 61
Established infrastructure
With our focus on responsibly managing existing assets, weaimtooptimise
production, leverage existing infrastructure, deliver a strong decommissioning
performance and explore new energy and decarbonisation opportunities.
We have five core offshore producing hubs (four of which we operate), one
strategically advantaged onshore processing terminal and are responsible for
decommissioning four non-producing assets.
Read more in our Operating review
See pages 16 to 23
Capital providers
We have supportive equity and debt investors who provide capital through
traditional and innovative financing structures to enable management to
execute the Group’s strategy in a responsible manner.
Read more in our Finance review,
Director’sreport and notes to the accounts
See pages 26 to 31, 100 to 104,
and 122 to 162
Partners and suppliers
We aim to build long-term relationships with suppliers based on respect and
collaboration, including the development of mutually beneficial creative
solutions. We work with suppliers who maintain the highest level of HSE
leadership, exceed our expectations in delivering the best quality at competitive
pricing, and are committed to our corporate code of business conduct.
05
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Our people
Employee and contractor
staff costs ($ million)
137
Employee and contractor staff
(#)
734
Growth and learning opportunities
included conscious inclusion,
leadership and job-specific training.
Investors
Free cash flow generation
1
($ million)
397
Cash interest and net debt repayments
($ million)
122
Financial discipline
We focus on capital allocation
thatprioritises positive cash flow
generative investment and the
effective management of EnQuest’s
capital structure and liquidity,
including an active hedging strategy
that underpins resilient cash flows
even at lower oil prices.
With a focus on short-cycle projects,
we can adjust our capital allocation
decisions to match the prevailing oil
demand and price environment,
balancing debt reduction, the
development of our existing portfolio,
the acquisition of suitable growth
opportunities and returns
toshareholders.
Value enhancement
We employ a cost conscious
approach and implement innovative
initiatives to add value to our
operations. Innovative transaction
structures facilitate getting the right
assets into the right hands.
We are also exploring opportunities to
leverage theexisting infrastructure in
the pursuit of renewable and
decarbonisation opportunities.
We are disciplined in our assessment
of acquisition opportunities, taking
ourtime to find the right ones that fit
our portfolio and capabilities at the
right price.
VALUE CREATION IN 2021
STRATEGIC PILLARS
Governments, regulators and communities
Scope 1 and 2 emission reductions
(ktCO
2
e
2
)
197
Charitable donations
($000)
184
Suppliers and customers
Operating
expenditures
1
($ million)
321
Capital and abandonment
expenditures
1
($ million)
118
Sales
volumes
1, 3
(MMboe)
18.4
Notes:
1 See reconciliation of alternative performance measures within the ‘Glossary – Non-GAAP measures’
starting on page 170
2 ktCO
2
e: thousand tonnes of CO
2
equivalent
3 Includes volumes related to onward sale of third-party gas purchases not required for injection activities
at Magnus
06
Stakeholder engagement
Stakeholder groups
Direct Board level
Other engagement activities in 2021A. 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
ourstrategy.
Global employee forum meetings with
designated Non-Executive Directors;
video messages; subject matter expert
virtual and physical attendance at
Board and Board Committee meetings;
physical and virtual safety leadership
engagement visits; and interactive
virtual town halls.
See the accompanying principal decisions on page 7
and pages 40 to 41 of the ESG section which detail the
various people-related initiatives implemented during
the year, including the employee survey 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
todeliver returns in a responsible manner.
Virtual and physical meetings (including
the Annual General Meeting and
multiple investor conferences), calls and
direct correspondence with a wide
range of equity and debt investors in
relation to the Group’s delivery against
its strategic objectives.
See the accompanying principal decisions on page 7
and the Strategic report on pages 2 to 57, which
explains the Group’s performance and investment
decisions during 2021.
Pages 66 to 67 of the Corporate governance
statement outline in more detail how the Group
engages with its investors.
C. Partners
We collaborate with our 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.
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 offormal
interactions, governed by joint operating agreements,
and via informal engagement.
See pages 16 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 52.
D. Host governments and regulators
EnQuest works closely with the host governments
and regulators in the jurisdictions in which it
operates. The Group complies with the
necessary regulatory requirements, including
those related to environmental matters such as
reducing emissions, to ensure the Group
maintains a positive reputation and licence to
operate, enabling the effective delivery of the
Group’s strategy.
Video meetings and calls with the North
Sea Transition Authority (‘NSTA’) in the UK
and Malaysian Petroleum Management
in Malaysia.
See the Strategic report on pages 2 to 41 and the
Group’s Principal risks and uncertainties on pages
42to53, which outline EnQuest’s strong relationships
with governments and regulators. Pages 36, 38 and 57
of the ESG section and pages 100 to 105 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 manpower, to assist in the delivery
ofSAFEResults.
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 42 to 53, 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.
Ourcommunities provide a potential source of
employees, contractors and support services,
and are important in supporting EnQuest’s
sociallicence to operate and maintaining
apositive reputation.
A virtual presentation from the
Chairman of the MyKasih Foundation
inMalaysia was held during the year.
See the accompanying principal decisions on page 7
and pages 32 to 35, and 39 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 52.
G. Customers
Our customers help facilitate the provision of
hydrocarbon-related products to meet a variety
of consumer demands and, as such, require
areliable supply of hydrocarbons to meet
theirneeds.
None
The Group has maintained strong relationships with its
existing customers, including fuel oil blenders to whom
it supplies Kraken oil as an unrefined constituent of
IMO 2020 compliant low-sulphur bunker fuel.
Section 172 Statement
The Directors have always had regard for the potential impact of the Group’s activities on its various stakeholders. In the majority
ofcases, information and feedback is 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.
When appropriate, the Directors may advise further engagement is required, which could potentially be direct engagement by
therelevant Director, and/or request additional information to ensure they have a full appreciation of a given situation 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 Company.
The Directors consider principal decisions (outlined on the following page) on the basis of materiality with regard to the incremental
impact these are anticipated to have on the Company’s stakeholders and/or the Company itself.
07
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Principal decision and
impacted stakeholders
Stakeholder considerations and impact onthe long-term sustainable success
oftheCompany
Refinancing the Group’s
senior secured lending
facility with a new reserves-
based lending (‘RBL’) facility
Impacted stakeholders:
A, B, C, E and G
Historically, significant leverage has been used to fund the Group’s growth, which has included periods of low
oil prices, and this has enabled the Group to maintain liquidity to fund capital expenditure and working
capital. The Group has materially reduced its overall debt position since the peak of 2017.
Around the end of 2020, the Group was assessing the Golden Eagle asset acquisition, which would require
funding from both the lending market and the equity market. Consequently, the Board considered the most
appropriate debt structure that would best allow the Group to meet these needs. The agreed RBL facility
ensured that the Group was able to meet its maturity obligations with previous lenders, simplify its overall
debt structure, underpin the Golden Eagle acquisition to generate material value for equity shareholders and
ensure that the Group maintained adequate liquidity to meet its ongoing working capital and capital
expenditure requirements.
For further information, see pages 26 to 31 of this Strategic report and note 18 to the financial statements.
Golden Eagle acquisition
Impacted stakeholders:
A, B, C, D, E and G
EnQuest’s growth since inception has been through a combination of organic developments and strategic,
disciplined acquisitions. In considering the acquisition, the Directors demonstrated it would provide the
Group with the opportunity to gain a material interest in a high-quality, low-cost, mid-life asset with a strong
safety record and low emissions intensity that would materially enhance production and cash generation
and accelerate the partial use of the Group’s significant UK tax assets.
The funding of the acquisition was undertaken through a combination of proceeds raised from the new RBL
facility, equity investors, existing cash balances and interim period post-tax cash flows from the Golden Eagle
asset. The Directors considered that the firm placing, placing and open offer would result in some equity
dilution to those shareholders who were not able to, or chose not to, participate in the offer, but that all
shareholders would be able to benefit from material value creation expected from the acquisition, with
post-acquisition net present value estimated at c.$170 million
1
.
The Board was also cognisant that the acquisition diversified the Group’s production base without requiring
significant changes to the organisation to manage the Golden Eagle asset. Working alongside an
established UK North Sea operator, CNOOC, EnQuest’s employees will have the opportunity to contribute to
the existing joint venture partnership through their proven expertise and capabilities in drilling and subsea
tie-backs.
Since completion of the acquisition, the Golden Eagle asset has contributed to the Group’s performance and
with a supportive macro environment is anticipated to deliver enhanced cash flows and value, contributing
to a rapid reduction in the Group’s overall debt position.
For more information, see pages 10 to 31 of this Strategicreport and note 10 of the Financial Statements.
Diversity strategy and
associated policy
Impacted stakeholders:
A, B, C, D and F
EnQuest’s Values incorporate Respect and Openness and the Group is committed to providing an inclusive
culture that enables the development of creative solutions to deliver performance and value, allowing
employees to have enjoyable and fulfilling careers.
The Board recognises that successful companies are diverse and inclusive, where different perspectives are
proactively sought and heard and agreed that implementing a formal strategy and associated policy will
embed actions into the Group’s workplace policies and procedures to drive positive change. Clear targets for
improving the organisation’s diversity, which at a Board level are aligned to the recommendations of the
original recommendations of the FTSE Women Leaders (formerly known as Hampton-Alexander) and
Parkerreviews, demonstrate to current and future employees and other stakeholders the Group’s
commitment in this regard.
For more information, see the ‘Our people’ section on pages 40 to 41.
Establishment of an
Infrastructure and
NewEnergy business
Impacted stakeholders:
A, B, C, D, E, F and G
The establishment of the Infrastructure and New Energy business, with responsibility for EnQuest’s existing
operations at SVT, delivering the Group’s emissions reduction targets and unlocking long-term renewable
energy and decarbonisation opportunities, is aligned to the Group’s purpose. The new business will focus
onstrengthening and extending the life of operations at SVT and assessing and delivering new energy
opportunities through innovative commercial structures over the medium to long term to create a hub
ofgrowth in infrastructure and renewables at SVT. The Board considered this an important step in attracting
and retaining investment and talent, potentially providing long-term employment opportunities in Shetland.
For more information, see the ‘Infrastructure and New Energy’ section on pages 22 to 23.
Setting a Scope 1 and 2
absolute emissions
reductiontarget
Impacted stakeholders:
A, B, C, D and F
To balance many stakeholder interests, EnQuest believes in a measured approach to absolute emissions
reductions from its operated assets. As such, the Group set a target, linked to Executive Directors’ and
applicable employees’ reward, to reduce absolute Scope 1 and 2 CO
2
equivalent emissions from its
existingoperations by 10% over the period 2021 to 2023.
For more information, see the ‘Environment’ section on pages 34 to 35.
1 Per Gaffney, Cline & Associates Competent Persons Report estimates and oil price assumptions
of: 2021: $51/bbl, 2022: $54/bbl, 2023: $57/bbl, 2024+: $60/bbl
08
Our purpose
OUR PURPOSE
As an oil and gas company we
are focused on
providing
the
energy
society needs.
We think
creatively
across our
business... from operations...
to contracts and procurement...
to asset transactions.
We focus on SAFE Results and
reducing our environmental
impact as society
transitions
to a cleaner world.
Through harnessing the creative energy from all its staff, the Group will safely and sustainably produce existing oil and gas
resources through established infrastructure, develop a world-class decommissioning capability and advance new energy
andother decarbonisation opportunities.
Providing creative solutions
through the energy transition
iswhat EnQuest focuses on
across all its operations.
PURPOSE IN ACTION
In recognition of the creative solutions our
teams can produce, EnQuest launched
the Purpose in Action Award in March 2021,
announcing two winners at the Global
Town Hall in September.
Accelerated Seligi B wells reinstatement
The offshore team adopted an innovative
approach to provide an alternative gas
lift source to enable production to be
restored well ahead of the planned
SeligiA to B riser replacement.
Kraken tether replacement
A multi-function team implemented
a creative approach to the riser tether
replacement programme at Kraken
which resulted in no impact to production
and reduced vessel support time, saving
millions of pounds and avoiding the
deferral of 30 kbbls of production.
09
WORKING
COLLABORATIVELY
GROWTH
& LEARNING
DRIVING
A FOCUSED
BUSINESS
RESPECT
& OPENNESS
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
OUR VALUES
Our Values embody everything the
Company stands for and our purpose
isintrinsically linked with our Values.
Safety sits at the core of everything
we do as we strive for SAFE Results
with no harm to people and respect
for the environment. We conduct
our business and our professional
relationships with respect and openness,
ensuring a diverse range of ideas
are shared and considered. We work
collaboratively to achieve strong
results, driving a focused business
to achieve success, always pursuing
growth and learning opportunities to
unlock our full potential as individuals,
teams and the Group as a whole.
10
Chairman’s statement
Well
positioned
Overview
Our rapid response to the challenges
of 2020 ensured the Group entered 2021
in a good position to capitalise on the
positive momentum in macroeconomic
conditions throughout the year. Global
restrictions relating to the COVID-19
pandemic were eased, resulting in
increasing global oil demand. At the
same time, strong levels of supply
agreement compliance by OPEC+,
reduced inventory levels and limited
other spare capacity saw oil prices
increase materially, reaching a high of
c.$86/bbl in October 2021. The improved
oil price enabled EnQuest to generate
material free cash flow, facilitating the
Golden Eagle acquisition and a further
reduction in the Group’s net debt. This
strong cash flow performance also
allowed the Group to simplify the debt
structure, to draw down less than was
anticipated from our new reserve-
based lending facility and make early
voluntary repayments in line with our
strategic objective of deleveraging.
Operationally, the Group faced some
challenges, particularly with the Magnus
asset and the backdrop of the COVID-19
pandemic, which required our people to
be focused and flexible in the formulation
and execution of work scopes across our
operations. While there was a general
easing of COVID-19 related restrictions, we
remained dedicated to protecting both
our people and our operations, aligning
procedures to the evolving government
and industry guidance and maintaining
robust working practices to minimise risk.
In what was another busy and
productive year, I would like to thank our
people for their ongoing commitment
and professionalism throughout.
Reducing emissions
2021 saw a continuation of stakeholder
and regulator focus on the need for
companies to do more to decarbonise
society. With the COP 26 being held in
Scotland, the UK Government, working
alongside the industry body Offshore
Energies UK, announced a series of
Scope 1 and 2 emission reduction
targets through to 2030 against which
we are committed to deliver. As you
will read later in this report, at the end
of 2021, we were ahead of both our
own internal reward-linked emission
reduction targets and those set out in the
UK Government’s North Sea Transition
Deal. In support of the Group’s long-
term energy transition ambitions, an
Infrastructure and New Energy business
was established during 2021 with overall
responsibility for delivering the Group’s
emission reduction targets and assessing
potential decarbonisation opportunities.
EnQuest remains fully committed
to playing its part in the drive
towards global decarbonisation.
Committed to improving diversity
There also remained a drive for
companies to be more diverse and
inclusive, from the boardroom to the
workforce, and I am pleased with the
progress we have made in this respect.
There is a strong commitment across
the organisation to creating a more
diverse workplace and EnQuest was
recognised for its efforts in this area as
a finalist at the 2021 OGUK awards in the
category of Diversity and Inclusion.
Diversity has always been a key
consideration for our recruitment
and, during 2021, the Board approved
the Group’s diversity and inclusion
strategy and associated policy, within
which several diversity targets have
been set at both Board and senior
leadership levels to be achieved by
2025. The Board has voluntarily adopted
the original recommendations of the
FTSEWomen Leaders Review (formerly
the Hampton-Alexander Review) and the
recommendations of the Parker Review.
As part of our succession planning
process, we will continue to review the
composition of our Board, taking account
of evolving stakeholder guidelines.
Governing well
The externally facilitated Board evaluation
showed the Board continues to be
effective and performs well. In particular,
the skills and diversity of the Board
were highlighted as a positive. This
reflects positively on our succession
planning process, which remains an
important part of both the Governance
and Nomination Committee and the
Board’s deliberations. In February 2021,
we welcomed Liv Monica Stubholt to our
Board and in January 2022 we have been
joined by Rani Koya. As part of our orderly
succession planning, Philip Holland will
be leaving the Board in May 2022. On
behalf of the Board, I would like to thank
Philip for his valuable contribution to the
Group, particularly in his role as Chair of
the Safety, Climate and Risk Committee
where he has overseen improvements to
our risk management processes and our
response to the various climate change-
related risks faced by the Group. Following
Philip’s departure, the Board will be in
line with the original recommendations
of the FTSE Women Leaders Review
recommendations, noting it already
meets targets set by the Parker Review.
11
Board
female members
(%)
30
%
Board members of colour
(%)
30
%
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Martin Houston
Chairman
“Steering energy
companies in today’s
environment requires
great skill, patience and
determination. At
EnQuest, we are well
positioned for the
challenges ahead and
we will continue to focus
on being the best we can
possibly be, for all our
stakeholders.”
Looking ahead
The start of 2022 has seen another
dramatic change in the global
geopolitical landscape with the
unfolding tragedy in Ukraine. The ensuing
humanitarian crisis is an atrocity and
our thoughts are with all those affected.
As a responsible company, we have
reviewed our commercial arrangements
and do not consider we have any
adverse exposure to the situation.
Wewill continue to monitor our position
to ensure we remain compliant with,
and support, any sanctions in place.
This crisis has further heightened
awareness around the need for
affordable and secure energy supplies,
coming so swiftly after the rapid
escalation in gas prices over the winter.
While such drivers of change are
not those anyone wanted to see, it is
important there is a more balanced
debate with regard to the energy
transition. There is now an increasing
recognition of the part the oil and
gas industry will play in a responsible
transition to a lower-carbon society.
EnQuest is well positioned as a transition
company, operating responsibly across
upstream and decommissioning while
developing options within the new
energy landscape. I am confident the
energy transition will provide us with
several opportunities to create value
for our stakeholders. We will continue
to be disciplined in our assessment of
these opportunities, taking our time to
find the right ones that fit our portfolio
and capabilities at the right price.
The acquisition of Golden Eagle has
strengthened the business, adding a
highly cash-generative asset to the
portfolio. At prevailing oil prices, we
have the ability to balance investment
in our existing asset base while
further accelerating the Group’s debt
reduction objectives. As part of this,
we continue to explore options to
refinance our retail and high yield bonds
ahead of maturity in October 2023.
I am excited about our future.
Martin Houston
Chairman
The Sullom
VoeTerminal
12
Chief Executive’s report
A transition
company
Overview
We continued to make good progress
against our strategic objectives of deliver,
de-lever and grow. The acquisition
of the Golden Eagle asset has further
strengthened our portfolio, while the
low-cost acquisitions of material
resources at Bressay and Bentley provide
us with future near-field development
opportunities that can utilise our heavy
oil expertise and differential capability in
subsea drilling and tie-backs. Production
in the year was primarily impacted
by a combination of well and topside
integrity-related outages at Magnus
and natural declines across the portfolio.
AtKraken, the floating production,
storageand offloading vessel continued
to performwell and production at
PM8/Seligi was in line with expectations.
We demonstrated our decommissioning
project capability with significant levels
of activity throughout 2021 and have
established an Infrastructure and New
Energy business with overall responsibility
for advancing renewable energy and
decarbonisation opportunities. During
2021, the Group also made excellent
progress in reducing its absolute Scope
1 and 2 emissions, with CO
2
equivalent
emissions reduced by 14.7%. Since 2018,
UK Scope 1 and 2 emissions have been
reduced by 43.5%, which is significantly
ahead of the UK Government’s near-
term North Sea Transition Deal targets.
As always, the safety of EnQuest’s people
and assets remained an absolute
priority. I was particularly pleased to
see the Group’s Lost Time Incident (‘LTI’)
performance remained ‘top quartile’
with a Group LTI frequency
1
of 0.21.
We also continued to evolve our
approach to managing COVID-19 to keep
our people safe. However, we received
a number of improvement notices
from the UK Health & Safety Executive
(‘HSE’) relating to our Magnus and SVT
operations. We continue to improve
further our process safety arrangements
and all notices have been or will be fully
complied with in accordance with the
agreed activity set and timetable.
2021 also saw strong demand for oil
which, when combined with supply-
side constraints, led to oil prices
recovering strongly. The Group’s average
realised oil price in 2021, including
the impact of its commodity hedge
programme, was $68.6/bbl, up 66.4%
from $41.3/bbl in 2020. This improved
commodity price environment
enabled the Group togenerate strong
free cash flow of$396.8 million, an
increase of $186.3million from 2020,
and lower net debt to $1,222.0million,
its lowest level since 2014.
Operational performance
EnQuest’s average production decreased
by 24.9% to 44,415 Boepd, primarily driven
by topside and well integrity related
outages at Magnus and expected
natural declines across the portfolio,
partially offset by the contribution from
Golden Eagle following completion of
the acquisition on 22 October 2021. The
natural declines were to a large extent
a consequence of the necessary pause
in the Group’s drilling programme
following materially lower oil prices
experienced in 2020 and into 2021.
Kraken continued to perform well,
delivering top quartile production
efficiency of 88% and gross production
in line with guidance. During the fourth
quarter of 2021, the asset reached the
milestone of more than 50 MMbbls
(gross) produced since first oil; a great
achievement by the combined EnQuest
and Bumi Armada team. The 3D seismic
gathered during the summer will allow the
Group to evaluate fully the development
potential of the western area of the
field in addition to supporting ongoing
optimisation of the main Kraken field,
including potential infill opportunities.
At PM8/Seligi, initial production recovery
activities were accelerated, offsetting
the delayed riser replacement, while at
the Greater Kittiwake Area the power
umbilical supporting the Mallard and
Gadwall wells was successfully replaced
in September, restoring both wells to
production. However, production at
Magnus was disappointing. Performance
was impacted by well integrity and
topside issues, an unplanned third-party
outage and natural decline. During
the year, a production enhancement
programme was undertaken, restoring
four wells to production, although a
compressor gearbox failure in September
resulted in single compression train
operations for much of the fourth quarter.
1 Lost Time Incident frequency represents the number
of incidents per million exposure hours worked
(based on 12 hours for offshore and eight hours
foronshore)
13
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Amjad Bseisu
Chief Executive
During the year, we produced 8.2% of our
year-end 2020 2P reserves base. However,
with the acquisition of GoldenEagle
adding c.18 MMboe at the end of 2021,
the Group’s 2P reserves at the end the
year were around 194MMboe, marginally
higher than the c.189 MMboe at the
end of 2020. Following the acquisitions
of interests in the Bressay field and the
Bentley discovery in the UK, 2Cresources
increased by 145.1% from the end
of 2020 to around 402 MMboe, with
both fields each adding more than
100MMboe of net 2C resources. Other
material 2Cresources are located at
MagnusandKraken in the UK and
PM8/Seligi and PM409, offshore Malaysia.
Following our decisions in 2020 to
permanently cease production at several
of our highest cost assets, 2021 saw an
associated increase in decommissioning
activity enabling the Group to
demonstrate its decommissioning
project capability. Activities were
focused on well abandonments at
Heather, platform re-habitation and
other preparatory activities ahead
of the planned well abandonment
programme at Thistle, and cessation
of production at the Dons field,
including the removal of the Northern
Producer Floating Production Facility.
In August, the Group established
an Infrastructure and New Energy
business to support the ongoing
transformation of SVT and EnQuest’s
energy transition ambitions. The new
business will focus on strengthening
and extending the life of operations and
assessing and delivering new energy
opportunities over the medium to
long term to create a hub of growth in
infrastructure and renewables at SVT.
Production
Boepd
44,415
Free cash flow
$ million
396.8
Net debt
$ million
1,222.0
Constructive initial engagement
with a variety of stakeholders,
including potential technical and
financial partners, is ongoing.
Financial performance
The Group’s adjusted EBITDA and
statutory gross profit increased by
34.9% to $742.9 million and 453.0% to
$358.2 million, respectively, reflecting
the material increase in realised
oil prices partially offset by lower
production. Operating costs for the
year of $321.0million were slightly lower
than 2020, although reflected higher
emissions trading scheme costs and
additional remediation expenditures at
Magnus. Unit operating costs increased
to $20.5/Boe primarily reflecting lower
production. Cash generated by
operations increased to $756.9 million,
up 33.4% compared to 2020, with free
cash flow generation of $396.8 million.
During the year, we successfully
refinanced our previous senior credit
facility (‘RCF’) into a new senior secured
debt facility (‘RBL’) of up to $750.0 million.
The strong cash flow performance and
refinancing ultimately led to a simplified
debt structure, with a lower than expected
utilisation of the facility, an early voluntary
repayment of $70.0 million, repayments of
the BP vendor loan and SculptorCapital
facility, and enabled the payment
of $249.7 million cash consideration
for the Golden Eagle acquisition.
Kraken FPSO vessel
14
Environmental, Social and Governance
Environmental
Managing existing assets in a responsible
and sustainable manner is a key part of
the energy transition. We recognise 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. We are
committed to playing our part in the
achievement of national emissions
reduction targets, with the Infrastructure
and New Energy business having overall
responsibility for delivering the Group’s
emission reduction objectives. As
outlined earlier, we have made excellent
progress in reducing absolute Scope 1
and 2 emissions during the year and are
significantly ahead of the Group’s targets
and those set by the UK Government’s
North Sea Transition Deal. We continue to
optimise sales of Kraken cargoes directly
to the shipping fuel market, avoiding
emissions related to refining and helping
reduce sulphur emissions in accordance
with the IMO 2020 regulations.
EnQuest’s Infrastructure and New Energy
business is assessing renewable energy
and decarbonisation opportunities
using the existing infrastructure at the
Sullom Voe Terminal. We are working
collaboratively with Shetland Island
Council, Project ORION and the Net Zero
Technology Centre, to better understand
how we can contribute further to the
industry approach to achieving net-
zero, whilst remaining aligned with
EnQuest’s strategy and Values.
Social – Health and safety
EnQuest’s absolute priority has
consistently been SAFE Results, no
harm to our people and respect for
the environment, and there remains
a strong safety culture throughout
the organisation, clearly evidenced
by recording a Group LTI frequency
1
of 0.21, an improvement on 2021 and
slightly better than the International
Association of Oil and Gas Producers
benchmark of 0.22. We also continued
to reduce the number of reportable
hydrocarbon releases in both the UK
and Malaysia. The Group-wide asset
integrity review has brought additional
focus to cost allocation in key risk areas
that could impact asset integrity.
Social – People
Improving workforce diversity and
inclusion (‘D&I’) across the organisation
remains a key focus area for the Group.
Good progress has been made with
the Group-wide D&I strategy and
associated policy now embedded in
the overall strategy of the business.
The D&I strategy includes several
targets to improve female and ethnic
minority representation in leadership
and executive roles by 2025. A number
of initiatives continued throughout
the year and I was delighted to see
EnQuest nominated as one of three
finalists for the 2021 OGUK Diversity
& Inclusion Award. Recognition as
a finalist has further reinforced our
commitment to our strategy and
direction of travel in relation to D&I.
Social – Communities
In 2021, we extended the remit of the
Remuneration Committee to include
social responsibility, covering the Group’s
external support of charitable works and
education initiatives. In Malaysia, we
continued to sponsor university students
to study STEM-related subjects and
supported the ‘IChemE’ accreditation of
the Chemical and Process Engineering
programme at the National University
of Malaysia. We also sponsored and
participated in the programme to
replant 380 mangrove trees covering
an approximate wetland area of 900m
2
within the Kuala Selangor Nature Park.
In the UK, local community support
included financial contributions to
charitable organisations throughout
the year and the provision of internship
placements in roles from Upstream
to Communications to young student
engineers connected to the Association
for Black and Minority Ethnic Engineers.
We also extended our partnership with
the University of Bradford‘s Professor
of Practice in Sustainability and
Energy Futures within the School of
Management, Law and Social Sciences.
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
foronshore)
15
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Richard Hall, Managing Director –
Malaysia, with team members
ontheSeligi Alpha platform
Longer-term development
EnQuest’s business has been strengthened by the acquisition of the
GoldenEagle asset which has added significant cash-generating capability to
the Group, while the supportive macro environment and higher oil prices provide
the opportunity for continued debt reduction while selectively investing in its
low-cost, short-cycle, quick payback well portfolio to offset natural declines.
Theacquisitions of Bressay and Bentley have added almost 250 MMboe of
2Cresources, adding to those already in place at Magnus, Kraken, PM8/Seligi and
PM409, providing EnQuest with longer-term potential development opportunities.
At the same time, the Group will continue to be disciplined with respect to M&A
opportunities to grow the business further.
With a focus on short-cycle projects, EnQuest can adjust its capital allocation
decisions to match the prevailing oil demand and price environment, balancing
debt reduction, the development of its existing portfolio, the acquisition of
suitable growth opportunities and returns to shareholders. EnQuest’s business
isstrongly positioned to play an important role in the energy transition by
responsibly optimising production, leveraging existing infrastructure, delivering
astrong decommissioning performance and exploring new energy and further
decarbonisation opportunities.
Amjad Bseisu
Chief Executive
Production guidance
Boepd
44,000-
51,000
“The acquisition of the
Golden Eagle asset has
further strengthened our
portfolio, while the low-
cost acquisitions of
material resources at
Bressay and Bentley
provide us with future
near-field development
opportunities linked to
our core capabilities.”
2022 performance and outlook
Production performance to the end of
February was 50,408 Boepd. Our full year
net production guidance of between
44,000 and 51,000 Boepd is underpinned
by our largest well programme since
2014, including infill drilling and workover
campaigns at Magnus, Golden Eagle and
PM8/Seligi which are expected largely to
mitigate natural declines at these fields.
With an enlarged portfolio, increased
activity set and higher emissions
and diesel costs as a result of higher
market prices, operating costs
are expected to be approximately
$430million, while capital expenditure
is expected to be around $165 million.
Abandonment expense is expected to
total approximately $75 million, primarily
reflecting well P&A decommissioning
programmes at the Heather/
Broom and Thistle/Deveron fields.
16
Operating review
Upstream operations
Daily average net production:
Boepd
39,220
-22
%
(2020: 50,334)
1 Includes Magnus, Kraken, Golden Eagle, the
Greater Kittiwake Area including Scolty/Crathes
and Alba
UK Upstream operations
1
2021 Group performance summary
Production of 44,415 Boepd reflected a
strong performance at Kraken and the
contribution from Golden Eagle following
completion of the acquisition, offset by
topside and well integrity related outages
at Magnus, planned maintenance and
a subsea power umbilical failure at
the Greater Kittiwake Area (‘GKA’) and
expected natural declines across the
portfolio. The natural declines were to
a large extent a consequence of the
necessary pause in the Group’s drilling
programme following materially lower oil
prices experienced in 2020 and into 2021.
UK operations
Magnus
2021 performance summary
Production in 2021 was lower than
expected at 11,870 Boepd. Performance
was impacted by well integrity issues,
topside power and compression failures,
third-party infrastructure outages
and natural decline. A production
enhancement programme was
undertaken in the second quarter,
including a coil tubing campaign,
returning four wells to service. Repairs
to a compressor gearbox failure which
resulted in single train operations
during much of the fourth quarter
of 2021 were completed, bringing
both trains back into operation.
2022 outlook
A shutdown of around three to four
weeks is planned in the third quarter
to complete scheduled safety-critical
activities along with plant equipment
upgrades, while further asset integrity
maintenance and plant opportunities
will continue to be assessed and
implemented throughout the year.
It is anticipated that three wells will be
drilled in 2022, largely mitigating natural
decline at the field, with a further two
wells expected to be drilled during
2023. With 2C resources of c.35 MMboe,
Magnus offers the Group significant
low-cost, quick pay-back drilling
opportunities in the medium term.
Kraken
2021 performance summary
Average gross production was within the
Group’s guidance range at 31,155 Boepd
(21,964 Boepd net). Overall subsurface
and well performance was good with
aggregate water cut evolution remaining
in line with expectations and the Floating,
Production, Storage and Offloading
(‘FPSO’) vessel continued to perform well
throughout the year, with top quartile
production and water injection efficiency
at 88% and 89%, respectively. During
the first half of the year, a number of
opportunistic maintenance activities
were successfully undertaken, allowing
for the deferral of the planned shutdown
to 2022. However, production was
impacted by short duration shutdowns
related to the repair of a subsea tether,
an oil heater failure and natural decline.
During the fourth quarter of 2021,
Kraken production reached the
milestones of over 50 million barrels
(gross) produced since inception
and the 100th cargo offload.
The Group continues to optimise Kraken
cargo sales into the shipping fuel market
with Kraken oil a key component of
IMO 2020 compliant low-sulphur fuel
oil. As such, the Group has benefited
from strong pricing in the market and
avoids refining-related emissions.
Near-field drilling and subsea tie-
back opportunities continue to be
assessed. A successful 3D seismic
campaign was completed in July,
providing valuable data for the Group
17
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
18
to evaluate fully the development
potential of the western area of the
field, in addition to supporting ongoing
optimisation of the main Kraken field,
including potential infill opportunities.
2022 outlook
Over the summer, a two-week
shutdown is planned to undertake
safety-critical maintenance work.
For the full year, Kraken production is
expected to be between 22,000 Boepd
and 26,000 Boepd (15,500 Boepd to
18,500 Boepd net), reflecting the planned
shutdown and natural decline.
Evaluation of the 3D seismic is ongoing.
The Group is currently assessing main
field side-track drilling opportunities
along with further opportunities within
the Pembroke and Maureen sands.
Golden Eagle
2021 performance summary
The acquisition of a 26.69% interest
in Golden Eagle was completed on
22 October 2021, contributing 1,701 Boepd
to EnQuest on an annualised basis
(10,220 Boepd on a pro forma basis). This
reflected high uptime and continued
good well performance following the
infill drilling campaign earlier in the year.
2022 outlook
A two-well drilling campaign is scheduled
late in the year and preparations
are being undertaken for further
infill drilling in 2023. The asset offers
further development opportunities
subsea and platform infill drilling.
Other Upstream assets
2021 performance summary
Production in 2021 averaged 3,685
Boepd, slightly below expectations.
AtGKA, which includes Scolty/Crathes,
the reduction was driven by a planned
four-week shutdown, the failure of a
power umbilical to the Mallard and
Gadwall wells, gas compression
outages and natural decline. The power
umbilical was successfully replaced
as planned in September, restoring
Mallard and Gadwall to production.
At Alba, performance continued in
line with the Group’s expectations.
At Bressay, detailed analysis of existing
reservoir data and an assessment
of potential development options,
one of which is a potential tie-back
to Kraken, continued with strong
partner engagement throughout.
2022 outlook
At GKA, a two-week shutdown is planned
during the second quarter, in line with a
short shutdown of related infrastructure.
At Alba, the partners expect to begin
a continuous 2022-2024 drilling
programme during the third quarter of
2022. The first wells from this programme
are expected to come online during 2023.
At Bressay, it is expected that a field
development plan will be developed
during 2022, while at Bentley, initial
evaluation of the development
potential are due to commence
in the first quarter of 2022.
Golden Eagle
Operating review
continued
19
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
“ Having restored the Seligi
riser in early 2022 and
with extensive drilling
and workover
programmes planned,
we are confident we will
meet our 2022 targets.”
Richard Hall
Managing Director, Malaysia
Malaysia operations
2021 performance summary
In Malaysia, average production of
5,028 Boepd was 21.9% lower than 2020.
This reduction primarily reflected the
continued impacts of the detached
riser system at the Seligi Alpha platform
and the impact of COVID-19 on the
execution of various work scopes,
although production was in line with
expectations following an acceleration
of initial production recovery activities
in the early part of the year.
In December, the new riser pipeline was
successfully laid on the seabed, although
final completions were delayed by the
late arrival and subsequent availability of
the third-party dive support vessel (‘DSV’).
The riser pipeline was fully installed and
commissioned in the first quarter of 2022.
On Block PM409, an area containing
several undeveloped discoveries and
situated close to the Group’s existing
PM8/Seligi PSC hub, geotechnical
studies have been completed in
preparation for future appraisal drilling.
2022 outlook
A two-week shutdown at Seligi
to undertake asset integrity and
maintenance activities is planned for
the summer, which will help to improve
reliability and efficiency at the field.
EnQuest has significant 2P reserves
and 2C resources of c.20 MMboe and
c.86MMboe, respectively. With a number
of low-cost drilling and workover targets
having been identified at PM8/Seligi,
the Group is expected to drill four infill
wells and four workovers during 2022
and plans an annual drilling and
workover programme for a number of
years thereafter. The Group continues to
assess the opportunity to develop the
additional gas resource at PM8/Seligi
to meet forecast Malaysian demand.
At PM409, a well proposal for drilling in
2023 is being developed for approval
by the partnership, while a site survey
and other associated preparatory
activities will also be undertaken.
20
Operating review
continued
Decommissioning
Q&A
Jon Allan
Decommissioning
Director
2021 performance summary
Average production of 167 Boepd
reflected the decision to cease
production at the Dons in March 2021. In
April 2021, the Northern Producer Floating
Production Facility departed the Dons
and was handed back to its owners.
At Heather/Broom, the well plug and
abandonment (‘P&A’) programme
continued on schedule, while the topsides
decommissioning programme was
approved by the Secretary of State and
topside removal contractors submitted
initial tenders in the fourth quarter.
At Thistle/Deveron, the first phase
of the platform re-habitation was
successfully completed in June, in line
with expectations. The subsea integrity
campaign concluded in September and
platform reactivation and hydrocarbon
removal was completed in October.
The EnQuest Producer FPSO remains
in warm stack at Nigg while the Group
continues to evaluate options.
2022 outlook
At Heather, the well P&A programme is
ongoing, with 16 well abandonments
scheduled during the year. The drilling
rig at Thistle will shortly be reactivated,
with 16 wells also anticipated to be
abandoned as part of this year’s well P&A
programme which is planned to start
in April. It is expected that topsides and
jacket removal contracts will be awarded
for both Heather and Thistle later in 2022.
Following Cessation of Production (‘CoP’)
at Alma/Galia, the Dons and Broom,
preparations continue ahead of the
anticipated commencement of subsea
well P&A and infrastructure removal
at all three fields, with the target to be
execution-ready by the end of 2023.
Q: Why is EnQuest building a
decommissioning business?
A: We are already a proven operator
of late-life assets. Decommissioning
is the natural next phase in an asset’s
life-cycle for us to manage. Looking
ahead, the business opportunity is
vastand fast approaching. According
to Offshore Energies UK, there is
c.£16billion of decommissioning work to
be undertaken in the UK North Sea over
the next decade and it will take more
than £50 billion to decommission the
whole UK North Sea basin. Internationally,
the market will be even larger, creating
an opportunity for a company with
proven experience in the UK North Sea.
Q: What is EnQuest’s decommissioning
strategy?
A: Our vision is to build a world-class
decommissioning capability that
will add value to any portfolio of
projects. Our strategy is to industrialise
decommissioning as we move
through the energy transition, where
we deliver an efficient programme
of work across assets driving down
both cost and carbon emissions.
Wewant to be the partner of choice for
decommissioning, managing end-
of-field life production, working closely
with former owners and partners to
transition into safe, cost-efficient and
low-carbon decommissioning.
Q: What are EnQuest’s credentials?
A: Decommissioning is a key element
of EnQuest’s portfolio and a significant
part of the natural cycle of a company
that aims to manage sustainably and
efficiently existing assets and natural
resources. The Group operated for ten
years before any of its assets ceased
production, but now has a number of
fields and two large platforms in the
East Shetland basin where infrastructure
needs to be decommissioned.
We already have a differential capability
in drilling, and it is estimated that 40-50%
of the UK North Sea’s decommissioning
costs relate to the plugging and
abandonment (‘P&A’) of wells.
We continue to build our credibility by
delivering on the two major projects,
Heather and Thistle, which are currently
in the execution phase with extensive
well P&A programmes planned. We have
demonstrated capability in removing our
two floating production facilities which
entered the decommissioning phase in
2020 and 2021. Both were delivered on
schedule and under budget. EnQuest
is creating a vision where we become
the experts in delivering safe, low-cost,
low-emission decommissioning.
21
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Q: What approach does EnQuest take
indecommissioning its assets?
A: At EnQuest we have three goals for
our decommissioning projects: no
harm to people or the environment;
delivering at the lowest possible cost;
and minimising associated carbon
emissions. Our tactics focus on timing,
scope and execution driven by a
culture of continuous improvement.
Timing is about planning the cessation
of production (‘CoP’) and optimising the
well P&A programme around a fixed CoP
date. This minimises pre-CoP operating
costs and post-CoP abandonment
expenditures. Controlling scope means
we challenge every activity. This is not
normal production operations and hence
requires a different mindset in terms of
maintenance, integrity and preparation
for removals. Finally, execution excellence
requires our teams to work together, be
aligned on delivering clear project goals,
develop an understanding of where they
can contribute to achieving these goals
and be committed about delivery. This is
supported by a continuous improvement
culture. Decommissioning consists of
various repetitive activities like multiple
well abandonments. We learn from
each well, identifying marginal gains
with every operation and take those
learnings from one asset to the next.
Q: How does decommissioning fit into
the wider energy transition?
A: Decommissioning plays a significant
part in the energy transition as the
world seeks new sources of energy
and safely removes the extensive
existing hydrocarbon infrastructure.
At EnQuest, we aim to minimise diesel
usage and deliver the most efficient
decommissioning work programmes.
We also look for opportunities to recycle
and reuse. Millions of tonnes of steel
will be coming ashore as UK North Sea
assets are decommissioned and we
are working to find creative ways to
recycle and repurpose in line with the
principles of the circular economy.
Planned well abandonments
16
at each of Heather and Thistle
22
Infrastructure
and New Energy
Q: What is EnQuest’s Infrastructure and
New Energy business?
A: EnQuest’s Infrastructure and New
Energy operations are uniquely
positioned to deliver our new energy
ambitions and help support the energy
transition. The division was created
to focus on three main areas:
•
Strengthening and extending the
longevity of our existing operations at
the SVT by maintaining safe and
cost-efficient operations and securing
new business;
•
Delivering the Group’s emission
reduction objectives in line with Group
and industry targets; and
•
Leveraging our existing infrastructure
atSVT to unlock renewable energy and
decarbonisation opportunities through
innovative commercial structures.
Q: Why build a New Energy business at
SVT?
A: The Shetland Islands are among the
windiest places in Europe. We believe
we have a unique offering across
the renewable energy landscape,
adapting this strategically important
site to realise the ambition of creating
a renewable energy hub servicing
not only Shetland but Scotland, the
United Kingdom and Europe.
Q&A
EnQuest has an opportunity to transform
the existing site and its infrastructure
into a new hub for renewable energy.
Anengaged and adaptable workforce
with an appetite for working in new
energy, the availability of deep-water
jetties and a pipeline network, together
with the desirability from both a practical
and environmental perspective of
reusing the existing industrial site, makes
SVT, under EnQuest’s stewardship, the
right place to build a green energy hub.
Q: Why should EnQuest do this work?
A: EnQuest has operated the SVT since
2018. We are uniquely positioned to
understand both the potential of the
site and the complexity involved in
transforming it into a renewable energy
hub. Our team of highly skilled engineers
and project managers, combined with
our culture of providing creative solutions
through the energy transition, means
that EnQuest, working with the support of
potential partners, can make this a reality.
We will apply our proven ability to create
value through innovative structures,
as well as our effective cost control
and capital discipline to transform
the site, while operational excellence
will underpin everything we do.
Salman Malik
MD Corporate Development,
Infrastructure and New Energy
Operating review
continued
To support the ongoing transformation
of SVT and EnQuest’s energy transition
ambitions, the Group established an
Infrastructure and New Energy business
division in August 2021. You can read
more about this new business in the
accompanying Q&A on this page.
2021 performance summary
At the Sullom Voe Terminal (‘SVT’) and
its related infrastructure, the delivery
of safe and reliable performance
enabled 99.9% service availability
during the year. The Group continued
to work in close collaboration with its
stakeholders to ensure the terminal
meets existing and future customer
needs, while remaining focused on
simplification and cost management.
In pipelines, good progress was
made undertaking planned repair
and remediation work on delivery
infrastructure relating to Kraken, Magnus
and Thistle, in addition to in-line pipeline
inspection evaluations at GKA. These
activities will ensure continued smooth
operations across the Group’s assets.
2022 outlook
EnQuest remains focused on maintaining
safe and reliable operations at the
terminal and in its pipeline operations,
with a significant asset integrity
programme planned. Working
closely with SVT co-owners and other
stakeholders, EnQuest is developing
cost-effective and efficient plans
to prepare and repurpose the site
in line with the Group’s new energy
ambitions. Engagement with a variety
of stakeholders, including potential
technical and financial partners, Shetland
Island Council, Project ORION and the
Net Zero Technology Centre is ongoing.
23
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Scope 1 and 2 emissions
ktCO
2
e
1
1,145
-15
%
(2020: 1,343)
1 ktCO
2
e: thousand tonnes
ofCO
2
equivalent
Emissions performance
Q: What are the renewable energy and
decarbonisation opportunities at SVT?
A: EnQuest is now taking the first practical
steps to progress new renewable energy
and decarbonisation opportunities
at SVT. These are multi-year projects
that are at varied stages of maturity,
and will take several years to progress.
EnQuest is already planning the
necessary project to replace our
current power system at the site with
a renewable energy alternative and
is aiming to: develop other renewable
energy opportunities, including the
production of green hydrogen from
wind energy and the electrification of
offshore assets; while also assessing
decarbonisation opportunities such
as carbon capture and storage (‘CCS’)
in depleted offshore oil and gas fields
using the pipeline network it operates.
We are actively exploring CCS
opportunities around SVT, with existing
jetty facilities potentially enabling
the import of CO
2
from emitters in
the UK or Europe and pipeline links to
several offshore reservoirs that could
provide storage opportunities.
We will continue to work closely with
our co-owners and other stakeholders
at site to ensure the necessary work to
prepare and repurpose this industrial
location to accommodate New Energy
infrastructure is done efficiently and
cost effectively. EnQuest is engaged
with a wide variety of potential partners,
both technical and financial, to help
us realise our goal of a sustainable
energy hub for Shetland at SVT.
24
Oil and gas reserves
and resources
UKCS
Other regions
Total
MMboe MMboe MMboe MMboe MMboe
Proven and probable reserves
1, 2, 3, 4
At 31 December 2020
166
22
189
Acquisitions and disposals
5
19
–
19Revisions of previous estimates
–
(1) (1)
Transfers from contingent resources
6
3 1 4
22
(0)
22Production:
(14)
(2)
(16)
7
0 –
(14)
(2)
(16)
Total proven and probable reserves at 31 December 2021
8
174
20
194
Contingent resources
1, 2, 9
At 31 December 2020
77
87
164
Acquisitions and disposals
10
249
–
249Revisions of previous estimates
(6)
(1)
(7)
Promoted to reserves
11
(3)
(1)
(4)
Total contingent resources at 31 December 2021
316
86
402
Notes:
1 Reserves are quoted on a net entitlement basis, 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 All UKCS volumes are presented pre-SVT value adjustment
5 Acquisition of 26.69% non-operated interest in Golden Eagle
6 Transfers from 2C resources at Kraken, Magnus and PM8/Seligi
7 Correction of export to sales volumes
8 The above proven and probable reserves include volumes that will be consumed as fuel gas; including c.7 MMboe at Magnus, c.1 MMboe at Kraken and c.1 MMboe at
Golden Eagle
9 Contingent resources relate to technically recoverable hydrocarbons for which commerciality has not yet been determined and are stated on a best technical case or
‘2C’basis
10 Acquisition of 40.81% interest in Bressay, 100.00% interest in Bentley and 26.69% non-operated interest in Golden Eagle
11 Kraken, Magnus and PM8/Seligi opportunity maturation
12 Rounding may apply
ENQUEST OIL AND GAS RESERVES AND RESOURCES
25
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
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
70.5P1107/P1617
21/8a, 21/12c & 21/13a
50.0
Scolty/Crathes
50.0
P238
21/18a, 21/19a & 21/19b
50.0
Kittiwake
25.0
50.0
Mallard
30.9
50.0
Grouse & Gadwall
50.0
100.0
Eagle
n/a
P073
21/12a
50.0
Goosander
50.0P213
16/26a
8.0
Alba
8.0P234/P493/P920/P977
3/28a, 3/28b, 3/27b, 9/2a & 9/3a
40.8
Bressay
n/a
3
P1078
9/3b
100.0
Bentley
n/a
3
P300/P928
4
14/26a & 20/1a
26.7
Golden Eagle
26.7UK North Sea Decommissioning
n/a n/a n/a
Heather
37.5
n/a n/a 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
6
n/a
Don SW & Conrie
60.0
P236
211/18b
6
n/a
West Don
78.6
n/a n/a n/a
Ythan
60.0
n/a n/a n/a
Alma/Galia
65.0
Other UK North Sea licences
P090
4
9/15a
33.3
n/a
P2531
21/18c
100.0
n/a
P2599
211/12b
100.0
n/a
Malaysia production and development
PM8/Seligi
7
PM8 Extension
50.0
Seligi, North & South Raya,
Lawang, Langat,
Yong&Serudon
see note 8
50.0
PM409 PSC
PM409
85.0
Kecubung, Tinggi Timur,
Payung, NW Pinang,
Tg.Pulai,Ophir
n/a
Notes:
1 BP 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 Unsanctioned – no decommissioning liability currently realised
4 Non-operated
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 Licence areas relinquished on 13 January 2022
7 Official reference PM-8 Extension PSC, commonly referred to elsewhere as PM8/Seligi
8 EnQuest is liable for legacy (pre-2014) Seligi petroleum facilities decommissioning of 1.8% of the actual decommissioning cost during the PSC term. For newly installed
petroleum facilities, EnQuest is liable in line with working interest. Decommissioning costs will be drawn down from the abandonment cess fund
ENQUEST’S ASSET BASE AS AT 31 DECEMBER 2021
Hydrocarbon
assets
26
Financial review
Strong cash
generation
All figures quoted are in US Dollars and relate to Business performance unless
otherwise stated. Please note the below overview includes restated comparatives.
See note 2 for further details.
The Group made good progress on its strategic aims during
2021. Supported by higher oil prices and capital discipline,
EnQuest generated strong free cash flow of $396.8 million, up
88.5% compared to 2020, which, along with the signing of a new
senior secured credit facility (‘RBL’), enabled the Group to
simplify its capital structure, facilitate the Golden Eagle
acquisition and reduce overall net debt.
Production on a working interest basis decreased by 24.9% to
44,415 Boepd, compared to 59,116 Boepd in 2020. High uptime at
Kraken, the contribution from Golden Eagle and the accelerated
recovery of wells at PM8/Seligi was offset by underperformance
at Magnus.
Revenue for 2021 was $1,320.3 million, 54.4% higher than in 2020
($855.1 million) reflecting the materially higher realised prices
partially offset by lower volumes. The Group’s commodity hedge
programme resulted in realised losses of $67.7 million in 2021
(2020: losses of $6.1 million). See note 27 for further information on
the Group’s hedging programmes.
The Group’s operating expenditures of $321.0 million were
marginally lower than 2020 ($328.6 million), although unit
operating costs (excluding hedging) increased to $20.5/Boe
(2020: $15.2/Boe) reflecting lower production.
Other costs of operations of $211.5 million were materially higher
than in 2020 ($53.5 million), principally as a result of higher
Magnus-related third-party gas purchases following the
increase in associated market prices.
With the Group moving into an overlift position during the year,
acharge relating to the Group’s lifting position and inventory
of$62.3 million was recognised (2020: credit of $34.8 million).
Adjusted EBITDA for 2021 was $742.9 million, up 34.9% compared
to 2020 ($550.6 million), primarily as a result of higher revenue.
2021
$ million
2020
$ million
Profit/(loss) from operations before
taxand finance income/(costs)
443.2
(20.0)
Depletion and depreciation
313.1
445.9
Change in provisions
(13.1)
95.2
Change in well inventories
0.1
24.9
Net foreign exchange (gain)/loss
(0.4)
4.6
Adjusted EBITDA
742.9
550.6
EnQuest’s net debt decreased by $57.7 million to $1,222.0 million
at 31 December 2021 (31 December 2020: $1,279.7 million). This
includes $225.0 million of payment in kind (‘PIK’) interest that has
been capitalised to the principal of the facilities pursuant to the
terms of the Group’s November 2016 refinancing (31 December
2020: $205.8 million) (see note 18 for further details).
Net debt/(cash)
1
31 December
2021
$ million
31 December
2020
$ million
Bonds
1,083.8
1,048.3
Multi-currency revolving credit facility
(‘RCF’)
–
377.3
Sculptor Capital facility
–
67.7
Senior secured debt facility (‘RBL’)
415.0
–
SVT working capital facility
9.9
9.2
Cash and cash equivalents
(286.7)
(222.8)
Net debt
1,222.0
1,279.7
Note:
1 See reconciliation of net debt within the ‘Glossary – Non-GAAP measures’ starting
on page 170
In June, the Group announced that it had signed a new RBL of
$600.0 million with an additional amount of $150.0 million for
letters of credit for up to seven years, subject to the timing of the
refinancing of the bonds. Also in June, the Group repaid the
outstanding principal and interest on the Sculptor Capital facility
from free cash flow.
27
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Jonathan Swinney
Chief Financial Officer
In July 2021, $360.0 million was drawn down from the Group’s
new RBL facility. The proceeds were used to repay the entire
outstanding balance on the RCF, which at the time of
repayment was $354.5 million, including PIK and accrued
interest. Also in July, $58.7 million, representing the full amount
ofthe outstanding principal and interest on the Magnus vendor
loan, was repaid and the Group successfully completed an
equity raise with net proceeds of $47.2 million.
In October 2021 and following shareholder approval of the
Golden Eagle acquisition, a further $125.0 million was drawn
down against the RBL, partially to fund the $249.7 million
cashconsideration.
In December 2021, EnQuest made a voluntary early repayment
of $70.0 million on the RBL, with further early voluntary
repayments totalling $85.3 million made in the first quarter
of2022.
The Group continues to have unrestricted access to its UK North
Sea corporate tax losses, subject only to generating suitable
future profits, which at the end of the year decreased to
$3,011.0million (2020: $3,183.9 million). The Group paid cash
corporate income tax following the acquisition of Golden Eagle
by the Group and on the Malaysian assets, which will continue
throughout the life of the Production Sharing Contract. In the
current environment, no significant corporation tax or
supplementary charge is expected to be paid on UK operational
activities for the foreseeable future.
Income statement
Revenue
On average, market prices for crude oil in 2021 were significantly
higher than in 2020. The Group’s average realised oil price
excluding the impact of hedging was $73.0/bbl, 75.5% higher
than in 2020 ($41.6/bbl). Revenue is predominantly derived from
crude oil sales, which totalled $1,139.2 million, 46.1% higher than in
2020 ($779.9 million), reflecting the significantly higher oil prices,
offset by lower production. Revenue from the sale of condensate
and gas, primarily in relation to the onward sale of third-party
gas purchases not required for injection activities at Magnus,
was $244.1 million (2020: $60.5 million), as a result of the
significantly higher gas prices. Tariffs and other income
generated $4.7 million (2020: $20.8 million). The Group’s
commodity hedges and other oil derivatives contributed
$67.7million of realised losses (2020: losses of $6.1 million).
TheGroup’s average realised oil price including the impact of
hedging was $68.6/bbl in 2021, 66.4% higher than 2020 ($41.3/bbl).
Note: For the reconciliation of realised oil prices see ‘Glossary – Non-GAAP measures’
starting on page 170
Cost of sales
1
2021
$ million
2020
$ million
Production costs
292.3
265.5
Tariff and transportation expenses
39.4
63.7
Realised (gain)/loss on derivatives
related to operating costs
(10.7)
(0.6)
Operating costs
321.0
328.6
(Credit)/charge relating to the Group’s
lifting position and inventory
62.3
(34.8)
Depletion of oil and gas assets
305.6
438.2
Other cost of operations
211.5
53.5
Cost of sales
900.4
785.5
Unit operating cost
2
$/Boe
$/Boe
– Production costs
18.1
12.3
– Tariff and transportation expenses
2.4
2.9
Average unit operating cost
20.5
15.2
Notes:
1 See reconciliation of alternative performance measures within the ‘Glossary
– Non-GAAP measures’ starting on page 170
2 Calculated on a working interest basis
“ The Group made good progress onits
strategic aims during the year,
generating material free cash flow,
acquiring the Golden Eagle asset
andreducing net debt.”
Jonathan Swinney
Chief Financial Officer
28
Financial review
continued
Cost of sales were $900.4 million for the year ended
31 December 2021, 14.6% higher than in 2020 ($785.5 million).
Operating costs decreased by $7.6 million, primarily reflecting
reduced tariff and transportation costs due to lower production
in 2021. This was largely offset by higher production costsdriven
by materially higher emission allowances costs, lower lease
charter credits reflecting higher uptime at Kraken as a result of
the continued strong performance of the FPSO, and remediation
costs at Magnus. Unit operating costs (excluding hedging)
increased by 34.9% to $20.5/Boe (2020: $15.2/Boe), reflecting
lower production. Unitoperating costs including hedging were
$19.8/Boe (2020: $15.2/Boe).
The charge relating to the Group’s lifting position and inventory
was $62.3 million (2020: credit of $34.8 million). This reflects a
switch to an $18.0 million net overlift position at 31 December 2021
from a $3.0 million net underlift position at31 December 2020.
The charge for the year is also impacted by the post-acquisition
revaluation of the underlift position at Golden Eagle. Depletion
expense of $305.6 million was 30.3% lower than in 2020
($438.2million), mainly reflecting lower production.
Other cost of operations of $211.5 million were materially higher
than in 2020 ($53.5 million), principally as a result of higher
Magnus-related third-party gas purchase cost following the
increase in associated market prices, offset by a partial release
of the inventory provision.
Other income and expenses
Net other income of $23.7 million (2020: net other expense of
$85.3 million) is primarily due to a net decrease of $13.1 million
related to the decommissioning provision of the fully impaired
non-producing assets.
Finance costs
Finance costs of $169.5 million were 5.7% lower than in 2020
($179.8 million). This decrease was primarily due to a reduction
of$12.6 million in interest charges associated with the Group’s
loans (2021: $20.2 million; 2020: $32.8 million) and a $4.4 million
decrease in bond interest (2021: $69.1 million; 2020: $73.5 million).
Other finance costs included lease liability interest of
$45.4million (2020: $50.9 million), $16.9 million on unwinding
ofdiscount on decommissioning and other provisions
(2020:$15.3million), $13.6 million amortisation of arrangement
fees for financing facilities and bonds, reflecting the accelerated
amortisation of the Sculptor Capital facility fees and the fees
associated with the Group’s RBL facility (2020: $5.4 million) and
other financial expenses of $4.3 million (2020: $2.0 million),
primarily being the cost for surety bonds to provide security for
decommissioning liabilities.
Taxation
The tax charge for 2021 of $53.7 million (2020: $172.5 million tax
credit), excluding remeasurements and exceptional items, is
mainly due to the taxable profits generated in the year
exceeding the Ring Fence Expenditure Supplement (‘RFES’)
onUKactivities generated in the year.
Remeasurements and exceptional items
Remeasurements and exceptional items resulting in a post-tax
net gain of $156.7 million have been disclosed separately for the
year ended 31 December 2021 (2020: loss of $443.8 million).
Revenue included unrealised losses of $54.5 million in respect
ofthe mark-to-market movement on the Group’s commodity
contracts (2020: unrealised gains of $8.8 million). Cost of sales
included expenses of $7.3 million in relation to a provision for a
contract dispute with a third-party contractor.
Non-cash net impairment reversal of $39.7 million
(2020:$422.5million charge) on the Group’s oil and gas assets
arises from an increase in the near and medium-term oil price
and updated asset profiles.
Other income included a $140.1 million gain in relation to the fair
value recalculation of the Magnus contingent consideration
reflecting a forecast reduction in Magnus future cash flows
(2020: $138.2 million gain). Other finance costs mainly relate to
the unwinding of contingent consideration from the acquisition
of Magnus and associated infrastructure and interest charged
on the vendor loan of $58.4 million (2020: $77.3 million).
A net tax credit of $78.2 million (2020: charge of $76.4 million) has
been presented as exceptional, representing the non-cash
recognition of undiscounted deferred tax assets of $104.5 million
given the Group’s acquisition of Golden Eagle and the Group’s
higher oil price assumptions, partially offset by the tax impact of
the remeasurements and exceptional items. EnQuest continues
to have unrestricted access to its UK North Sea corporate tax
losses of $3,011.0 million at 31 December 2021, subject only to
generating suitable future profits.
IFRS results
The Group’s results on an IFRS basis are shown on the Group
income statement as ‘Reported in the year’, being the sum of its
Business performance results and Remeasurements and
exceptional items, both of which are explained above.
IFRS revenue reflects Business performance revenue, but it is
adjusted for the impact of unrealised movements on derivative
commodity contracts. Business performance cost of sales is
similarly adjusted for the impact of unrealised movements on
derivative contracts, together with various exceptional
provisions as noted previously. Taking account of these items,
and the other exceptional items included within the Group
income statement which are principally related to impairment
charges and the change in fair value of contingent
consideration payable, the Group’s IFRS profit from operations
before tax and finance costs was $580.0 million (2020: loss of
$310.1 million), IFRS profit before tax was $352.4 million (2020: loss
of $566.0 million), and IFRS profit after tax of $377.0 million
(2020:loss of $469.9 million).
Earnings per share
The Group’s Business performance basic earnings per share
was 12.7 cents (2020 loss per share: 1.6 cents) and diluted
earnings per share was 12.5 cents (2020 loss per share: 1.6 cents).
The Group’s reported basic earnings per share was 21.7 cents
(2020 loss per share: 29.0 cents) and reported diluted earnings
per share was 21.4 cents (2020 loss per share: 29.0 cents).
29
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Cash flow and liquidity
Net debt at 31 December 2021 amounted to $1,222.0 million,
including PIK of $225.0 million, compared with net debt of
$1,279.7million at 31 December 2020, including PIK of
$205.8million. The movement in net debt was as follows:
$ million
Net debt 1 January 2021
(1,279.7)
Net cash flows from operating activities
674.1
Cash capital expenditure
(51.8)
Acquisition costs
(258.6)
Repayments on Magnus financing and profit share
(74.7)
Finance lease payments
(136.7)
Net interest and finance costs paid
(62.8)
Non-cash capitalisation of interest
(36.4)
Fees related to the RBL facility
(29.1)
Net equity raise proceeds
47.2
Other movements
(13.5)
Net debt 31 December 2021
1
(1,222.0)
Note:
1 See reconciliation of alternative performance measures within the ‘Glossary
– Non-GAAP measures’ starting on page 170
The Group’s reported net cash flows from operating activities for
the year ended 31 December 2021 were $674.1 million, up 29.3%
compared to 2020 ($521.4 million). The main drivers for this
increase were materially higher oil revenue offset by lower
production and increased decommissioning spend.
Cash outflow on capital expenditure is set out in the table below:
Year ended
31 December
2021
$ million
Year ended
31 December
2020
$ million
North Sea
35.9
127.0
Malaysia
14.8
4.4
Exploration and evaluation
1.1
–
51.8
131.4
Cash capital expenditure in 2021 primarily related to Magnus
production enhancement campaigns and the PM8/Seligi
pipeline replacement.
Balance sheet
The Group’s total asset value has increased by $503.0 million
to$4,365.6 million at 31 December 2021 (2020: $3,862.6 million),
mainly due to the acquisition of Golden Eagle and an increase
intrade and other receivables. Net current liabilities have
decreased to $333.1 million as at 31 December 2021
(2020:$536.9million). Included in the Group’s net current
liabilities are $30.5 million of estimated future obligations where
settlement issubject to the financial performance of Magnus
(2020: $73.9million).
Property, plant and equipment (‘PP&E’)
PP&E has increased by $188.1 million to $2,822.0 million at
31 December 2021 from $2,633.9 million at 31 December 2020
(see note 10). This increase encompasses the Golden Eagle
asset acquisition of $386.2 million, other capital additions to
PP&E of $80.7 million, and non-cash net impairment reversals of
$39.7 million, offset by depletion and depreciation charges of
$313.0 million and a net decrease of $2.7 million for changes in
estimates for decommissioning and other provisions.
The PP&E capital additions during the year, including capitalised
interest, are set out in the table below:
$ million
North Sea
449.5
Malaysia
17.4
466.9
Trade and other receivables
Trade and other receivables increased by $177.4 million to
$296.1million at 31 December 2021 (2020: $118.7 million). The
increase is mainly attributable to the timing of receipts for
cargoes lifted in December and the impact of gas prices on
accrued gas sales.
Cash and net debt
The Group had $286.7 million of cash and cash equivalents at
31 December 2021 and $1,222.0 million of net debt, including PIK
of$225.0 million (2020: $222.8 million, $1,279.7 million and
$214.2million, respectively).
Net debt comprises the following liabilities:
•
$256.2 million principal outstanding on the £155.0 million retail
bond, including interest capitalised as PIK of $47.9 million
(2020: $249.2 million and $39.4 million, respectively);
•
$827.2 million principal outstanding on the high yield bond,
including interest capitalised as PIK of $177.2 million
(2020:$799.2 million and $149.2 million, respectively);
•
$415.0 million drawn down on the RBL (2020: $377.3 million of
the RCF, comprising amounts drawn down of $360.0 million
and interest capitalised as PIK of $17.3 million); and
•
$9.9 million relating to the SVT working capital facility
(2020:$9.2 million).
Provisions
The Group’s decommissioning provision increased by
$57.5million to $835.7 million at 31 December 2021
(2020:$778.2million). The movement is due to $119.3 million of
additions relating to the Golden Eagle acquisition and
$15.9million unwinding of discount, partially offset by utilisation
of $55.6million for decommissioning carried out in the year
andareduction in estimates of $22.1 million.
Other provisions, including the Thistle decommissioning
provision, decreased by $3.0 million in 2021 to $59.2 million
(2020:$62.2 million). The Thistle decommissioning provision
of$43.9 million (2020: $53.1 million) is in relation to EnQuest’s
obligation to make payments to BP by reference to 7.5% of BP’s
decommissioning costs of the Thistle and Deveron fields.
Contingent consideration
The contingent consideration related to the Magnus acquisition
decreased by $156.7 million. In 2021, EnQuest paid $75.0 million to
BP (2020: $74.0 million), which included the early repayment of
the entire $74.7 million outstanding balance (including interest)
of the 75% interest vendor loan. A change in fair value estimate
credit of $140.1 million (2020: $138.2 million) and finance costs of
$58.4 million (2020: $77.3 million) were recognised in the year.
The Group recognised $44.7 million contingent consideration
payable associated with the acquisition of Golden Eagle which
completed in October 2021. The balance increased to
$45.2million at 31 December 2021.
30
Income tax
The Group had a net income tax payable of $3.6 million
(2020:$5.6 million receivable) related to the net of corporate
income tax on Malaysian assets and North Sea Research and
Development Expenditure Credits.
Deferred tax
The Group’s net deferred tax asset has increased from
$653.4million at 31 December 2020 to $699.6 million at
31 December 2021. This is driven by non-cash recognition of
undiscounted deferred tax assets due to increased future
taxable profits following the acquisition of Golden Eagle.
EnQuestcontinues to have unrestricted access to its UK
corporate tax losses carried forward at 31 December 2021
amounting to $3,011.0million (31 December 2020: $3,189.9 million),
subject only to generating suitable future profits. During the year
the Group restated the 2020 deferred tax asset position, see
note 2 for further details.
Trade and other payables
Trade and other payables of $420.5 million at 31 December 2021
are $165.4 million higher than at 31 December 2020
($255.2million). The full balance of $420.5 million is payable
within one year. This increase is driven by the increase in the
Group’s overlift position and the impact of higher market prices
on UK emission allowances and Magnus-related gas purchases.
Financial risk management
The Group’s activities expose it to various financial risks,
particularly associated with fluctuations in oil price, foreign
currency risk, liquidity risk and credit risk. The disclosures in
relation to financial risk management objectives and policies,
including the policy for hedging, and the disclosures in relation
to exposure to oil price, foreign currency and credit and liquidity
risk, are included in note 27 of the financial statements.
Going concern disclosure
The Group closely monitors and manages its funding position
and liquidity risk throughout the year, including monitoring
forecast covenant results, to ensure that it has access to
sufficient funds to meet forecast cash requirements. Cash
forecasts are regularly produced and sensitivities considered
for, but not limited to, changes in crude oil prices (adjusted for
hedging undertaken by the Group), production rates and costs.
These forecasts and sensitivity analyses allow management
tomitigate liquidity or covenant compliance risks in a
timelymanner.
The health, safety and wellbeing of the Group’s employees is its
top priority and it continues to monitor actively the impact on
operations from COVID-19. The Group remains compliant with
UK, Malaysia and Dubai government and industry policy. The
Group has also been working with a variety of stakeholders,
including industry and medical organisations, to ensure its
operational response and advice to its workforce is appropriate
and commensurate with the prevailing expert advice and level
of risk. The Group is cognisant of the ongoing risks presented by
the evolving situation. At the time of publication of EnQuest’s
full-year results, the Group’s day-to-day operations continue
without being materially affected by COVID-19.
During 2021, the Group signed a new senior secured borrowing
base debt facility (the ‘RBL’) of $600.0 million and an additional
amount of $150.0 million for letters of credit for up to seven years,
subject to refinancing the Group’s existing high yield bonds. The
RBL is initially repaid based on an amortisation schedule and via
a cash sweep mechanism, whereby any unrestricted cash in
excess of $75.0 million is swept to repay outstanding amounts at
calendar quarter ends. Application of the amortisation
schedule ensures the RBL is fully repaid by June2023.
Upon refinancing of the Group’s High Yield Bond, the maturity
ofthe RBL is extended to seven years from its signing date
(11 June 2021), or the point at which the remaining economic
reserves for all borrowing base assets are projected to fall below
25% of the initial economic reserves forecast, if earlier.
At 31 December 2021, $415.0 million was drawn on the RBL, with
early voluntary repayments of $85.0 million made in the first
quarter of 2022.
The Group continues to explore options to refinance its Retail
and High Yield Bonds ahead of maturity in October 2023. For the
purposes of assessing going concern it is assumed that the
refinancing of the bonds occurs outside of the going concern
period. However, in the scenario that the Group concluded a
successful refinancing of the bonds within the next 12 months,
then the going concern basis at the date of release of this
Annual Report would also be considered appropriate.
The Group’s latest approved business plan underpins
management’s base case (‘Base Case’) and is in line with the
Group’s production guidance and uses oil price assumptions of
$75.0/bbl for 2022 and $70.0/bbl for 2023, adjusted for hedging
activity undertaken.
The Base Case has been subjected to stress testing by
considering the impact of the following plausible downside risks
(the ‘Downside Case’):
•
10.0% discount to Base Case prices resulting in Downside Case
prices of $67.5/bbl for 2022 and $63.0/bbl for 2023;
•
Production risking of c.5% for 2022 and 2023; and
•
2.5% increase in operating costs.
The Base Case and Downside Case indicate that the Group
isable to operate as a going concern and remain covenant
compliant for 12 months from the date of publication of its
full-year results. The Directors have also performed reverse
stress testing on the Base Case, with the liquidity breakeven
price in the going concern period being less than $60.0/bbl in
order to maintain a minimum unrestricted cash balance of
above $50.0 million across all periods (as required by the RBL).
Should circumstances arise that differ from the Group’s
projections, the Directors believe that a number of mitigating
actions, including asset sales or other funding options, can be
executed successfully in the necessary timeframe to meet debt
repayment obligations as they become due and in order to
maintain liquidity.
After making appropriate enquiries and assessing the progress
against the forecast, projections and the status of the mitigating
actions referred to above, the Directors have a reasonable
expectation that the Group will continue in operation and meet
its commitments as they fall due over the going concern period.
Accordingly, the Directors continue to adopt the going concern
basis in preparing these financial statements.
Financial review
continued
31
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Viability statement
The Directors have assessed the viability of the Group over a
three-year period to March 2025. The viability assumptions are
consistent with the going concern assessment, with the
additional inclusion of an oil price of $70.0/bbl for the remainder
of 2023 and 2024, a longer-term price of $60.0/bbl from 2025
and refinancing of both the High Yield and Retail Bonds in the
second quarter of 2023. This assessment has taken into account
the Group’s financial position as at March 2022, its future
projections and the Group’s principal risks and uncertainties. The
Directors’ approach to risk management, their assessment of
the Group’s principal risks and uncertainties, which includes
potential impacts from climate change concerns and related
regulatory developments, and the actions management are
taking to mitigate these risks are outlined on pages 42 to 53. 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 and includes
the maturation of both its High Yield and Retail bonds. Based on
the Group’s projections, including refinancing of both the
HighYield and Retail bonds, 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 2025.
The Base Case has further been stress tested to understand the
impact on the Group’s liquidity and financial position of
reasonably possible changes in these risks and/or assumptions.
For the current assessment, the Directors also draw attention to
the specific principal risks and uncertainties (and mitigants)
identified below, which, individually or collectively, could have a
material impact on the Group’s viability during the period of
review. In forming this view, it is recognised that such future
assessments are subject to a level of uncertainty that increases
with time and, therefore, future outcomes cannot be
guaranteed or predicted with certainty. The impact of these risks
and uncertainties has been reviewed on both an individual and
combined basis by the Directors, while considering the
effectiveness and achievability of potential mitigating actions.
Oil price volatility
A decline in oil prices would adversely affect the Group’s
operations and financial condition. To mitigate oil price volatility,
the Directors have hedged a total of 8.6 MMbbls for 2022
primarily using costless collars, with an average floor price of
c.$63.0/bbl and an average ceiling price of c.$77.9/bbl. For 2023,
the Group has hedged a total of 3.5 MMbbls with an average
floor price of c.$57.5/bbl and an average ceiling of c.$77.1/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.
Access to funding
Prolonged low oil prices, cost increases and production delays
or outages could threaten the Group’s liquidity and/or ability to
refinance the bonds.
The maturity date of the existing $827 million High Yield Bond
and the £190 million Retail Bonds (both figures at year end 2021)
is October 2023. The application of the current amortisation
schedule on the RBL ensures this is fully repaid by June 2023.
Inassessing viability, the Directors recognise that refinancing
would be required at or before the maturity date of the bonds
and believe this would be achievable subject to market
conditions at that time. Under the Base Case oil price
assumptions outlined above, the total amount of the High Yield
Bond and Retail Bonds outstanding at October 2023 would be
unchanged from year end 2021, as interest is payable in cash if
the average of the Daily Brent Oil Prices during the period of six
calendar months immediately preceding the ‘Cash Payment
Condition Determination Date’ is equal to or above $65.0/bbl. If
oil prices were to be lower than the Group’s assumptions, then
arefinancing may require asset sales or other financing or
funding options.
Notwithstanding the principal risks and uncertainties described
above, after making enquiries and assessing the progress
against the forecast, projections and the status of the mitigating
actions referred to above, the Directors have a reasonable
expectation that the Group can continue in operation and meet
its commitments as they fall due over the viability period ending
March 2025. Accordingly, the Directors therefore support this
viability statement.
Jonathan Swinney
Chief Financial Officer
32
Environmental,
Social and Governance
An accountable and
responsible approach
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. The
identification, measurement and
management of relevant ESG factors
enables companies to demonstrate they
are operating in a responsible and
sustainable
manner. EnQuest has
reviewed the extensive ESG landscape
and identified those factors which are
relevant and applicable to its purpose
and business model, ensuring its
approach is clear, appropriate and easily
understood by its stakeholders.
As a responsible oil and gas company,
EnQuest recognises the need for a social
licence to operate. Since its inception,
EnQuest has prioritised SAFE Results, with
Environmental
•
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
target linked to reward
•
Incorporates carbon costs into
investment evaluations
Social
•
SAFE Results with no harm to our
people and respect for the
environment remains a key priority
•
Recognises our people are critical to
EnQuest’s success
•
Committed to operating with a
strong culture and Values, in line
with the Group’s purpose
•
Committed to improving workforce
diversity and inclusion
•
Aim to impact positively the
communities in which we operate
Governance
•
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
no harm to people and respect for the
environment. This respect for the
environment includes climate change
and emissions reductions, which are
clear areas of focus for the Group.
EnQuest also recognises the importance
of a diverse and inclusive culture in
driving Group performance.
As such, the Group’s core ESG areas of
focus are: health and safety, including
asset integrity; the pursuit of emission
reduction opportunities in order to
contribute positively towards the
achievement of national emissions
targets; looking after our people and
positively impacting the communities in
which we operate; and upholding our
robust risk management framework while
acting with the highest standards of
integrity in all that we do. Performance
against specific ESG factors is also
included in Executive Director and
applicable employee short-term and
long-term reward schemes, with various
Board Committees having responsibility
for monitoring the Group’s progress
against these objectives (see pages 65 to
66 for more information).
ENQUEST’S ESG FOCUS AREAS
“ EnQuest is an oil and gas
company, focused on
safely improving the
operating, financial and
environmental
performance of assets
for the benefit of its
stakeholders.”
Read more
See pages 34 to 35
Read more
See pages 36 to 41
Read more
See pages 42 to 57
33
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Group non-financial information statement
The following information is prepared
in accordance with Section 414CB(1)
of the Companies Act 2006. Further
information on each of the areas set
out below, including the Group’s policies
where relevant, can be found in the
following pages of this section of the
report. The Group’s key performance
indicators can be found on page 03.
Environment (see pages 34 to 35, and 55
to 57)
•
EnQuest’s priority is delivering SAFE
Results, with no harm to our people and
respect for the environment
•
Our Environmental Management
System ensures our activities are
conducted in such a way that we
manage and mitigate our impact on
the environment, which includes
permitted hydrocarbon releases and
discharges. Non-compliant releases
and discharges from the Group’s
operations carry adverse reputational,
financial and other consequences
•
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 focuses on absolute Scope 1
and 2 emission reductions. At present,
EnQuest does not record Scope 3
emissions given the complexity and
scope of EnQuest’s value chain
•
EnQuest has reported on all of the
emission sources within its operational
control required under the Companies
Act 2006 (Strategic Report and
Directors’ Reports) Regulations 2013
•
The Group continues to evolve its
disclosures in accordance with the
recommendations of the Task Force on
Climate-related Financial Disclosures
Our people (see pages 40 to 41)
•
We are committed to ensuring that
EnQuest is a great place to work
•
Employee engagement and wellbeing
were key focus areas throughout 2021 as
the Group adjusted its ways of working
in response to the ongoing COVID-19
pandemic, continuing to inform and
support colleagues working in offshore
and onshore environments. The Group
has adopted a flexible working
approach onshore to promote strong
productivity and business performance
facilitated by an engaged workforce
•
EnQuest remains committed to
improving workforce diversity and
inclusion (‘D&I’), with the D&I strategy
embedded in the overall strategy of the
business. Diversity-related targets have
been set in relation to women and
ethnic minorities achieving senior
management and executive leadership
roles by 2025. In addition, EnQuest was
short-listed as a finalist for the OEUK’s
Diversity & Inclusion Awards for the
commitment it has shown in this
important area
Community (see page 39)
•
EnQuest is fully committed to active
community engagement programmes
and encourages and supports
charitable donations in the areas of
improving health, education and welfare
within the communities in which it works
•
Throughout 2021, the Group continued
to provide support to a wide range of
local organisations and communities
in the UK
•
Despite the pandemic-related
restrictions in Malaysia, our teams were
able to support an active programme
of local community initiatives and
charities alongside ongoing
sponsorship programmes for
internships and university students
•
In addition, EnQuest has continued to
partner with the Institute of Chemical
Engineers to offer accreditation of the
Universiti Kebangsaan Malaysia
Chemical and Process Engineering
Programme
Business conduct (see page 54)
•
The Group has a Code of Conduct
thatsets out the behaviour which the
organisation expects of its Directors,
managers and employees, and of
oursuppliers, contractors, agents
andpartners
•
This code addresses the Group’s
requirements in a number of areas,
including the importance of health and
safety and environmental protection,
compliance with applicable law,
anti-corruption, anti-facilitation of
taxevasion, anti-slavery, addressing
conflicts of interest, ensuring equal
opportunities, combatting bullying
andharassment and the protection
ofprivacy
Aerial view of the Sullom Voe Terminal
Thistle Decommissioning
team member makes
maintenance checks
34
Environmental,
Social and Governance
continued
Environmental
Managing emissions from existing operations and
advancing new energy opportunities.
A responsible operator with a strong
culture and management framework
At the core of EnQuest’s Values is SAFE
Results with no harm to people and
respect for the environment. As an oil
and gas company, safely improving the
operating, financial and environmental
performance of mature and late-life
assets remains a key focus. EnQuest
recognises the importance of good
governance and transparency in relation
to climate change and, the Group’s
reporting against the Task Force on
Climate-related Financial Disclosure
recommendations can be found on
pages 55 to 57. 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 45).
EnQuest’s Environmental Management
System (‘EMS’) ensures the Group’s
activities are undertaken in such a
way that it manages and mitigates its
impact on the environment. The EMS
meets the requirements of the OSPAR
recommendation 2003/5, is aligned with
the requirements of the International
Organisation for Standardisation’s
environmental management
system standard – ISO 14001 – and is
independently verified every two years.
In the UK, the Group publishes its annual
Environmental Statement in line with
the regulatory requirement under the
OSPAR recommendation 2003/5 (see the
Environmental, Social and Governance
section on the Group’s website,
www.enquest.com). These statements are
an open and transparent representation
of EnQuest’s environmental
performance across all its UK offshore
operations. In Malaysia, environmental
management and reporting is
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.
EnQuest believes a measured approach
to absolute Scope 1 and 2 emissions
reductions, which involves credible
targets and the pursuit of economic
emission reduction opportunities, is
appropriate for its existing operated
asset base. At present, EnQuest does
not record Scope 3 emissions given
the complexity and scope of EnQuest’s
value chain. For the longer term, the
Infrastructure and New Energy business
is advancing renewable energy and
decarbonisation opportunities (see
page 22 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. This target is a
key performance metric in the Group’s
2021 long-term incentive scheme for
Executive Directors and applicable
“ The Infrastructure and
New Energy business is
responsible for delivering
the Group’s emission
reduction objectives
through optimising
performance of existing
assets and advancing
renewable energy and
decarbonisation
opportunities.”
Salman Malik
Managing Director,
Infrastructure and New Energy
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 emissions reduction targets
and the drive to ‘net-zero’, with the
Infrastructure and New Energy business
having overall responsibility for delivering
the Group’s emission reduction objectives.
35
Excellent emissions reduction performance
Group emissions reduction
2020 Balance
2021 Actual
15%
UK NSTD emission reduction targets
2018
2021
2025
2027
2030
UK NSTD
EnQuest (UK)
44%
10%
25%
50%
1 kgCO
2
e/bbl = kilograms of CO
2
equivalent per
produced barrel
2 Based on the University of Calgary PRELIM model
recognised by California Air Resources Board, US
Energy Tech. Laboratory, US DOE Office of Energy
Efficiency and Renewable Energy, Carnegie
Endowment for International Peace and the
USEnvironmental Protection Agency
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
employees and is 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
emissions reduction initiatives across the
Group are identified and implemented.
Significant reductions achieved
The Group has made good progress
in reducing its absolute Scope 1 and
2 emissions during the year, with CO
2
equivalent emissions reduced by 14.7%,
reflecting operational improvements
and increased workforce awareness
primarily driving lower flaring and diesel
usage. Since 2018, UK emissions have
reduced by 43.5%, driven by the decisions
to cease production at a number of
the Group’s assets and the reductions
achieved in 2021, 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.32–36kgCO
2
e/bbl
1,2
for a typical
North Sea crude and helping to reduce
sulphur emissions in accordance
with the International Maritime
Organisation (‘IMO’) 2020 regulations.
Looking to the future
As majors and other operators continue
to shift their focus from mature basins
within various geographies, 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 also
factors in an appropriate associated
carbon price into the acquisition
economics, even in markets where no
carbon trading or pricing mechanism
exists. The Group can make a positive
contribution towards the future of
North Sea oil and gas through doing
its part in ensuring that each asset
is in the right hands. In Malaysia, the
Group continues to limit voluntarily
emissions below the regulatory limit.
Emissions management is an important
feature during the decommissioning
phase of an asset’s life-cycle. During
this phase, wells will need to be
plugged and abandoned, while the
production and processing facilities
and any relevant infrastructure will
need to be removed. Given the extent
of this work, it will take place over an
extended period and require careful
project management. EnQuest’s
UK Decommissioning directorate
will oversee the safe and efficient
execution of these work programmes
and is committed to delivering them
in a responsible manner. This includes
minimising emissions and maximising
the recycle and reuse of recovered
materials. The UK Decommissioning
directorate continues to work with
a variety of stakeholders to identify
creative ways, such as alternative power
generation options, in which emissions
associated with decommissioning
activities can be kept to a minimum.
EnQuest’s Infrastructure and New Energy
business is assessing renewable energy
and decarbonisation opportunities that
would leverage the Group’s existing
infrastructure at the SVT. The Group
is working with the Shetland Islands
Council, Project ORION, the Net Zero
Technology Centre (‘NZTC’) and other
stakeholders on initiatives focused
on carbon capture and storage,
renewable electricity and hydrogen.
EnQuest continues to engage with
entities such as Offshore Energies UK,
the NZTC and the North Sea Transition
Authority, to better understand
how it can contribute further to the
industry approach to achieving net-
zero, whilst 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.
Reduction in Group Scope 1
and2emissions
15
%
vs 2020 baseline
Reduction in UK Scope 1
and 2 emissions
44
%
vs 2018 NSTD baseline
“ Mana ging existing
assetsin a responsible
and sustainable manner
is akey part of the
energy transition.”
Salman Malik
Managing Director,
Infrastructure and New Energy
36
Environmental,
Social and Governance
continued
Social
Our culture defines how we approach safety and ensures that
our people, our most important asset, go home safe and well.
Health and safety
Underpinning the Group’s licence
to operate is its health and safety
performance. As such, the Group’s
priority is to deliver SAFE Results without
compromising its standards to meet
other business objectives. To achieve
this, the business is managed in
accordance with the Group-wide Health,
Safety, Environment and Assurance
(‘HSEA’) policy, the key components of
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 in support
of the delivery of SAFE behaviours
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.
The outcome of continuous improvement
activities is to ensure that the Group’s
health and safety culture continues to
grow with a focus on the prevention
of personal injuries, dangerous
occurrences and hydrocarbon releases.
During 2021, a Group-wide asset
integrity review was undertaken. The
purpose of this review was to look at
the way asset integrity is managed
from a people, plant, process and
technology perspective in order to
identify strengths and opportunities
for improvement. The asset integrity
review has had independent input
with a focus on how EnQuest manages
risk, allocate resources and deliver via
capable and competent people. The
outcome is an improved approach
to asset integrity from a visibility and
cost allocation perspective allowing for
improved risk-based decision making.
Several other activities have been
undertaken in 2021 that will enable further
health and safety culture enhancements:
•
Development of a Group-wide process
safety management policy signed by
the Chief Executive and Managing
Directors, supported by leadership
training by the Institute of Chemical
Engineers;
•
An HSEA capability review across the
North Sea and Malaysia to align HSEA
support across the Group to allow for
future career development and HSEA
process synergies;
•
Continued to contribute positively to
the industry organisations Offshore
Energies UK and Step Change in
Safety;and
“ SAFE behaviours are
fundamental to our
safety culture and
contribute to the delivery
of SAFE Results. These
behaviours map across
all areas of health, safety,
environment and
assurance to ensure that
we contribute positively
to the business goals.”
Peter Hepburn
HSEA Director
The uncertainty and challenge of
operating in an environment impacted
by COVID-19 continued into 2021, with the
Group experiencing some impacts to
operations reflecting both the availability
of personnel and the necessary actions
to ensure a safe operating environment
is maintained. The Group’s proactive
approach in providing practical support
and guidance to its offshore and onshore
workforce, following best practice and
government and industry policy has,
however, minimised the risk in relation
to the health and safety of its people.
The Group’s health and safety
performance has continued to be strong
from a leading and lagging perspective
and there has been further development
of the continuous improvement culture.
37
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
A visit from decommissioning
partnersonthe Thistle platform
38
Environmental,
Social and Governance
continued
•
Exceeded the target for site safety-
leadership visits, a leading safety
indicator, for both physical and virtual
engagement, while also seeing a
reduction in high risk safety and
environmental critical element repair
orders, which has lowered the risk
profile across the Group.
During 2021, the Group highlighted the
emphasis it places on maintaining
a strong safety culture through the
presentation of two SAFE Results ‘Values
awards’ and two safety observation
card awards at Global Town Hall events.
Health
During 2021, the Group’s approach to
COVID-19, developed upon the principles
of safety and welfare of people and
security of supply, has continued to
evolve, receiving positive comments from
regulatory bodies and from those within
the EnQuest supply chain. The controls
continue to be reviewed and, as such,
there is a high level of resilience in relation
to minimising the impact of COVID-19.
With many of the onshore team
working from home during 2021, the
health and wellbeing of the EnQuest
workforce has continued to be a focus
area, with various initiatives focused
on both physical and mental health
being successfully delivered (see
pages 40 to 41 for more information).
Personal safety
Despite the challenges and uncertainties
of 2021 and managing late-life assets
through production operations and
decommissioning activities, the Group’s
Lost Time Incident (‘LTI’) performance
remained relatively stable, with a Group
LTI frequency
1
of 0.21 (2020: 0.22). Various
notable milestones were achieved
across the Group’s asset base:
•
The UK North Sea recorded an LTI
frequency rate of zero against a United
Kingdom Continental Shelf benchmark
of 1.45 and an International Association
of Oil and Gas Producers benchmark
of0.22, placing the business’
performance in the upper quartile;
•
One lost time injury was reported
across the Group against a backdrop
of 4,805,492 million hours worked; and
•
Our team at Kittiwake recorded 16 years
LTI free.
Process safety
Process safety has been a focus
in 2021 with a drive to bring design
and engineering, asset integrity and
operating integrity collectively under
the title of process safety. In conjunction
with the asset integrity review, there has
been progress achieved in risk review
processes, such as the automation of
the major accident hazard barrier model,
allowing for the extraction of real-time
inspection and maintenance data. This
has been further supported by a focus at
the monthly asset Process Safety Review
and Improvement Boards to generate
open and transparent discussions about
key threats and control arrangements:
•
For those assets in a decommissioning
phase and not processing
hydrocarbons, asset integrity is being
assured to deliver safe
decommissioning activities, while the
management of safety-critical repair
orders 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
datasources taken from
automatedsystems;
•
The adoption of a learning team
approach has allowed for similar HSE
events to be investigated in a way that
quickly identifies learnings and
increases the understanding of the
event to a wider audience, preventing
recurrence of similar HSE events;
•
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 decreased
to one in 2021 (2020: four; 2019: 11), with
those in Malaysia also decreasing to
one in 2021 (2020: two; 2019: five).
At SVT, two improvement notices were
issued by the Health and Safety Executive
(‘HSE’) in relation to asset integrity issues
in redundant pipework, one of which
was closed in-year. At Magnus, the
HSE issued two improvement notices
in relation to the draining of liquid
hydrocarbons and the asset’s assurance
processes. All improvement notices have
already been, or will be, complied with
in accordance with the action plans
and timelines agreed with the HSE. All of
these improvement notices provide the
Group with the opportunity to further
improve process safety arrangements,
prevent future hydrocarbon releases and
increase assurance across the Group.
Top-quartile LTI frequency
1
performance
0.21
Reportable hydrocarbon
releases across the Group
2
1 Lost Time Incident frequency represents the number
of incidents per million exposure hours worked
(based on 12 hours for offshore and eight hours
foronshore)
39
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
projects for the terminal, providing
them with necessary experience
tocomplement the degrees they
arepursuing
Malaysia
In Malaysia, we continued to support
a very active programme of local
community initiatives, charitable
donations and educational sponsorship:
•
Fundraising by EnQuest staff in
Malaysia provided financial support for
a number of onshore and offshore staff
affected by the monsoon season. The
fund was matched in full by EnQuest
•
Continued support of the Sungai
Pergam Orang Asli Primary School in
Terengganu focusing on a student
bursary programme entitled ‘Love My
School’. EnQuest Malaysia has
supported the programme since
June2019, providing 70 students with
funds to pay for school meals and
learning essentials
•
Selecting 11 local university students
forinternship placements in a variety
ofdisciplines, including Operations
andHSE, as part of a graduate
recruitment process
•
Continuing to partner with the Institute
of Chemical Engineers (‘IChemE’) to
offer accreditation of the Universiti
Kebangsaan Malaysia Chemical and
Process Engineering Programme
•
Continuing the sponsorship by EnQuest
and The Amjad and Suha Bseisu
Foundation of six undergraduate
students in geology, chemical,
mechanical and petroleum
engineering from Universiti Malaya
andUniversiti Teknologi Malaysia
•
Collaborating with the Malaysian
Institute of Engineers (‘IEM’) in
sponsoring the IEM Science Speak Out
2021, for a STEM (science, technology,
engineering and mathematics) public
speaking competition in the Selangor
and Federal Territory Kuala Lumpur
states for children aged between nine
and 12 years
•
Sponsoring and participating in the
programme to replant 380 mangrove
trees covering an approximate wetland
area of 900m
2
within the Kuala
Selangor Nature Park in collaboration
with the Majilis Perbandaran Kuala
Selangor (Kuala Selangor Town Hall)
and Malaysian Nature Society
Community
Board committee oversight
In 2021, EnQuest extended the remit of the
Remuneration Committee to include
social responsibility, covering our external
support of charitable works and
education initiatives, and the working
environment within EnQuest. The
Committee will further develop its work in
2022 to establish a more structured
approach to budgeting for social and
charitable projects as well as developing
a set of principles which underpin the
experience of employment with EnQuest
to better support attracting and retaining
the best talent.
As the global COVID-19 pandemic
continued to impact communities
everywhere, EnQuest maintained its
strong commitment to directly support
the local communities in which it
operates worldwide.
UK
•
Offshore and at the Sullom Voe
Terminal (‘SVT’), charitable donations
are linked to strong health and safety
performance. Through these schemes,
EnQuest was able to donate to a wide
variety of charities, including Children’s
Hospices Across Scotland (‘CHAS’), The
Scottish Association for Mental Health,
rural Scottish health charity, Sandpiper
Trust, CLAN Cancer Support, Shetland
MS Society, and Shetland Rape Crisis
•
SVT owners also sponsored Island
events in 2021, including the Shetland
Recreational Trust’s Outdoor Family Fun
day, which provided an opportunity for
all families across Shetland to socialise,
play and reconnect with others after a
challenging and socially isolated year
•
Commitment to our two core
corporate charities in Aberdeen,
Archway’s and CLAN Cancer Support,
was maintained throughout the year,
although our usual activities were
necessarily curtailed by the impact of
the pandemic
•
Separately, EnQuest in Aberdeen
supported a wide variety of other
charitable causes. These included a
remarkably courageous long-time
EnQuest contractor and prostate
cancer sufferer, Maurice Bevin, in a
sponsored walk from Scotland to
Cornwall to raise awareness about
thisdisease
•
With a lull in the severity of COVID-19
over the summer months, EnQuest was
able to offer five internship placements
in roles from Upstream to
Communications to young student
engineers connected to the
Association for Black and Minority
Ethnic Engineers. This scheme proved
very successful, with several
participants having successfully found
permanent placements in the industry
•
The Trustees of the Sullom Voe Terminal
Participants’ Tenth Anniversary
Education Trust, which 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, sponsored
ten educational awards for the
academic year 2021/2022. Some of the
participants were given the opportunity
to spend time on site working on
Charitable donations in2021
($000)
c.184
40
Environmental,
Social and Governance
continued
Our people
Charitable donations in 2021
EnQuest remains committed to providing
an inclusive culture that recognises
and celebrates difference, encourages
diversity of thought and embraces new
ways of working to create an environment
that enables the development of creative
solutions to deliver performance and
value. The Group-wide diversity and
inclusion (‘D&I’) strategy, developed
during the first quarter of 2021, is now
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:
•
Challenge our personal bias;
•
Understand the diversity of our
workforce;
•
We will resource, ensuring diversity
matters;
•
Engage and educate our workforce
onD&I;
•
Learn from each other by providing
reverse mentoring;
•
Consider suppliers who are diverse
andinclusive; and
•
Learn and continuously improve.
‘Conscious inclusion’ training has
been provided to managers to help
them recognise and overcome bias,
while recruitment processes are being
evolved to encourage a broad spectrum
of applicants. The Group’s EnQlusion
committee promoted a number of
initiatives during 2021, including continued
support for becoming an active member
of the Association for Black and Minority
Ethnic Engineers, International Women
in Engineering Day and the UK’s AXIS
Network. EnQuest was delighted to be
nominated as one of three finalists for the
2021 OGUK Diversity & Inclusion Award,
from over 90 applications submitted
from across the industry. Recognition
as a finalist has further reinforced our
commitment to the D&I strategy and
our direction of travel. An employee
‘pulse’ survey was conducted over the
summer focusing on D&I at EnQuest.
Metrics relating to inclusion scored more
strongly than those directly related to
diversity, demonstrating that a continued
focus is required to ensure a truly diverse
workforce. A further D&I survey is planned
for 2022 to measure the Group’s progress.
Targets have also been set for gender
and ethnicity representation in leadership
with a target of 30% women in both
leadership roles and management
grades across the business, and
15-20% minority ethnic representation in
Executive leadership roles, with targets to
be achieved by 2025 (see page 96 of the
Governance and Nomination Committee
report for our gender diversity statistics).
With D&I central to ways of working,
the Group continues to challenge
its recruitment, employment and
training policies and how they attract,
retain and develop a wide range
of talent in the organisation.
EnQuest also remains committed to
fair treatment of people with disabilities
in relation to job applications. Full
consideration is given to applications
from disabled persons where the
candidate’s particular aptitudes and
abilities are consistent with adequately
meeting the requirements of the job.
As set out in the Equal Opportunities
& Dignity at Work Policy, the Group
encourages individuals with a disability,
or who develop a disability at any time
during their employment, to speak to
their line manager about their condition.
This will enable the Group to provide
support and access to the necessary
training for the relevant individual.
Ways of working and engagement
The restrictions imposed during 2020
and into 2021 as a result of the COVID-19
pandemic required EnQuest to continue
to provide practical support and
guidance to its offshore and onshore
workforce, following best practice
and government and industry policy.
As society gradually emerges from
restrictions, the way the Group operates
continues to be a focus, with EnQuest
considering 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.
To help us understand employee
engagement levels, a Group-wide
employee survey concluded in early 2022,
with a participation rate of over 71%. The
results were communicated to teams
and managers across the business, with
progress against existing action plans
reviewed and updates made to those
plans to address areas where there is
identified scope for improvement.
2025 targets:
Women in leadership and
management roles
30
%
Ethnic minority representation
in Executive leadership roles
15-20
%
41
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Gender pay gap
Since reporting commenced in 2017,
there has been a significant narrowing
of the Group’s gender pay gap statistics,
with the gap related to the average rate
of total pay for women reducing from
38.7% in 2017 to 22.0% in 2021. Although
it is disappointing that between 2020
and 2021 the gap widened slightly, from
20.8% to 22.0%, this was a direct result of
the strategic business transformation
process undertaken during 2020 and
the resulting change in the shape of the
workforce in line with business needs.
The Group remains committed to
narrowing the gender pay gap and
continues to provide equal pay for
equal jobs. This will be achieved
through an ongoing focus on D&I in all
aspects of the business. In addition to
a fair and balanced recruitment and
promotion process with regular skills
assessments, appropriate action is
taken from feedback received from
the employee forum and the global
employee engagement survey results,
as we continue to embed our D&I
strategy throughout the organisation.
The Group’s people and organisational
strategy is to ensure that it has the
right people, in the right roles, driving
performance and delivering efficiencies
as it continues to pursue its strategy.
As such, it ensures that its processes
are open and transparent, providing
equal opportunities for all. EnQuest
will continue with this approach,
recruiting individuals based on merit
and their suitability for the role.
In addition to engagement surveys,
the EnQuest global employee forum,
chaired by two formally designated
Non-Executive Directors (as required
under the UK Corporate Governance
Code), met four times throughout
2021. Areas discussed and reviewed
during the year included:
•
Flexible working arrangements;
•
Employee communications and
recognition;
•
Women in leadership;
•
Mentoring programmes;
•
Environmental responsibility; and
•
Diversity.
Further details of how the Company
engages with its workforce can be
found in the Corporate governance
statement on page 66.
A focus on wellbeing
The mental and physical welfare of all
employees has been, and continues
to be, a major focus for the business.
Mental health awareness has remained
an important aspect of wellbeing,
particularly in light of the changing
landscape relating to COVID restrictions
and safeguards. We continue to
promote a third-party digital platform
offering tools and techniques to support
wellbeing and have delivered targeted
awareness initiatives on mental
health, stress awareness, workload
and prioritisation, resilience, and
suicide awareness. We use our internal
communication channels to promote
these initiatives alongside those targeted
at physical health, including Pilates and
nutrition, and those with a competitive
aspect, like the ‘rig-run’ and ‘step count’
challenges, throughout the year.
Continued growth and learning
To support our new D&I strategy,
‘Creating an Inclusive Culture’ training
was delivered globally to all supervisors
and leaders. These sessions set the
scene for the new D&I strategy and
focused on creating a psychologically
safe working environment, including
recognition of microaggressions,
privilege and unconscious bias.
Following the rollout of our Management
Expectations document (a set of 11
key expectations for all managers at
EnQuest), supervisors and leaders
across EnQuest were offered training
to provide them with tools to enhance
their leadership capability. The training
covered areas such as clear goal
setting, motivating and communicating
with teams, addressing increased
workload and living and working
with COVID-related restrictions.
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 to launch a Vocational
Leadership Programme during 2021.
Over 100 employees have 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 e-Learning platform
was used to ensure continued learning
and development despite in-country
COVID-related restrictions. The
platform registered a participation
rate of more than 80%, with a total of
287courses completed, 107 in progress
and 211 new courses registered.
In 2021, we have continued to develop
high-potential employees and
succession planning for business-
critical roles. We have a regular
programme of review to ensure the
direction, focus and development of
those identified remains relevant and
on track. The Group has also continued
its programme of job-specific training
throughout 2021 to maintain levels of
skills and competence, particularly
in relation to safety-critical roles.
“ At EnQuest, we expect to
have an inclusive culture,
where everyone can be
themselves, express their
views and offer their
opinions. Opening up the
creativity in our Group
will help strengthen us,
adapt andgrow.”
Janice Mair
Director People, Culture & Diversity
42
Environmental,
Social and Governance
continued
Governance
Robust risk management framework
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 operator of
choice for maturing and underdeveloped
hydrocarbon assets. EnQuest aims
to responsibly optimise production,
leverage existing infrastructure, deliver a
strong decommissioning performance
and explore new energy and further
decarbonisation opportunities. It is
focused on delivering on its targets,
driving future growth and managing
its capital structure and liquidity.
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 and diversifying its
asset base;
•
The Group seeks to embed a culture of
risk management within the
organisation corresponding to the risk
appetite which is articulated for each
of its principal risks;
•
The Group seeks to avoid reputational
risk by ensuring that its operational and
HSEA processes, policies and practices
reduce the potential for error and harm
to the greatest extent practicable by
means of a variety of controls to
prevent or mitigate occurrence; and
•
The Group sets clear tolerances for all
material operational risks to minimise
overall operational losses, with zero
tolerance for criminal conduct.
The Board reviews the Group’s risk
appetite annually in light of changing
market conditions and the Group’s
performance and strategic focus.
The Executive Committee periodically
reviews and updates the Group Risk
Register based on the individual risk
registers of the business. The Group
Risk Register, along with 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 is
periodically reviewed by the Board (with
senior management) to ensure that key
issues are being adequately identified
and actively managed. In addition,
the Group’s Safety, Climate and Risk
Committee (a sub-Committee of the
Board) provides a forum for the Board
to review selected individual risk areas
in greater depth (for further information,
please see the Safety, Climate and Risk
Committee report on pages 97 to 98).
As part of its strategic, business planning
and risk processes, the Group considers
how a number of macroeconomic
themes may influence its principal
risks. These are factors which the
Group should be cognisant of when
developing its strategy. They include,
for example, long-term supply and
demand trends for oil and gas and
renewable energy, developments
in technology, demographics, the
financial and physical risks associated
with climate change and how markets
and the regulatory environment may
respond, and the decommissioning of
infrastructure in the UK North Sea and
other mature basins. These themes are
relevant to the Group’s assessments
across a number of its principal risks.
The Group will continue to monitor these
themes and the relevant developing
policy environment at an international
and national level, adapting its strategy
accordingly. For example, the Group has
established an Infrastructure and New
Energy business to assess new energy
and decarbonisation opportunities,
initially focused on using the existing
infrastructure at the Sullom Voe Terminal.
The Group is also conscious that as an
operator of mature producing assets
with limited appetite for exploration, it 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. This flexibility also ensures
the Group has mitigation against the
potential impact of ‘stranded assets’.
43
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
44
Environmental,
Social and Governance
continued
As part of its evolution of the Group’s RMF, the Safety,
Climate and Risk Committee has refreshed its views on
all risk areas faced by the Group (categorising these into
a ‘Risk Library’ of 19 overarching risks). For each risk area,
the Committee reviewed ‘Risk Bowties’ that identified risk
causes and impacts and mapped these to preventative
and containment controls used to manage the risks
to acceptable levels (see diagram to the right).
The Board, supported by the Audit Committee and the Safety,
Climate and Risk Committee, has reviewed the Group’s system
of risk management and internal control for the period from
1 January 2021 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.
The Board confirms that the Group complies in this respect with
the Financial Reporting Council’s ‘Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting’.
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RISK
EVENT
ENQUEST RISK MANAGEMENT FRAMEWORK
Enterprise risk register
A summary of the Group’s key risks and prepared by
combining key risks identified from the asset and functional
risk registers with Group-level risks.
Audit Committee (pages 69 to 75)
•
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.
Board of Directors (pages 58 to 59)
Responsible for providing oversight of the Group’s control and risk management systems, reviewing key risks and
mitigatingcontrols periodically. Approves the Group’s risk appetite annually and approves the Group’s going concern and
viabilitystatements.
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.
Executive Committee
•
Frequently reviews Group
performance, including financial,
operating and HSE performance;
and
•
Periodically reviews the Group’s
risk register and RMF performance
report.
Operations Committee
•
Regularly reviews the Group’s operating
performance against stretching targets
and agreed KPIs; and
•
Regularly reviews the Group’s asset risk
registers and considers the results of
assurance audits over operational
controls.
What we
monitor
How we
monitor
Quarterly RMF performance report
Reviewed by leadership teams before being presented to
the Safety, Climate and Risk Committee anduploaded to
the Board portal.
Continuous Improvement Plan
A summary of the key actions planned for continual
improvement of the risk management framework.
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.
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 abackwards and forward-looking basis, alongside
outputs from relevant strategic reviews, and summarised in
anannual Risk Report presented to the Safety, Climate and
RiskCommittee.
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’ of19overarching risks.
Safety, Climate and Risk Committee (pages 97 to 98)
•
Supports the implementation and progression of the
Group’sRMF;
•
Monitors the adequacy of containment and mitigating controls,
and progression of mitigation of risks;
•
Undertakes in-depth analysis of specific risks and considers
existing and potential new controls; and
•
Conducts detailed reviews of key non-financial risks not
reviewed within the Audit Committee.
45
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Near-term and emerging risks
As outlined above, the Group’s RMF is embedded in all levels of
the organisation with asset risk registers, regional and functional
risk registers and ultimately an enterprise-level ‘Risk Library’. This
integration enables the Group to identify quickly, escalate and
appropriately manage emerging risks.
During 2021, work was continued to enhance the integration of
these risk registers and automate the process to allow
management to understand better the various asset risks and
how these ultimately impact on the enterprise-level risk and
their associated ‘Risk Bowties’. In turn, this ensures that the
preventative and containment controls in place for a given risk
are reviewed and robust based upon the identified risk profile.
Italso drives the required prioritisation of deep dives to be
undertaken by the Safety, Climate and Risk Committee, which
are now integrated into the Group’s internal audit programme
for review.
The most relevant near-term and emerging risks, along with the
Group’s assessment of their potential impact on the business
and associated required mitigations, have been recognised
asfollows:
Risk
COVID-19
As a responsible operator, EnQuest continues to monitor the
evolving situation and consequent risks with regard to the
COVID-19 pandemic, recognising it could impact a number of
the Group’s principal risks, such as human resources and oil
price, which are disclosed later in the key business risks section
of this report.
At the time of publication of EnQuest’s full-year results, the
Group’s day-to-day operations continue without being
materially affected.
Appetite
The Group’s risk appetite for COVID-19 is reported against the
Group’s impacted principal risks.
Mitigation
The Group continues to work with a variety of stakeholders,
including industry and medical organisations, to ensure its
operational response and advice to its workforce is appropriate
and commensurate with the prevailing expert advice and level
of risk.
The biggest risk related to COVID-19 is the impact on oil prices if
movement restrictions impact the demand for oil. See ‘Oil and
gas price’ risk on page 47 for more information on how the
Group mitigates against price risk.
Risk
Climate change
The Group recognises that climate change concerns and
related regulatory developments could impact a number of the
Group’s principal risks, such as oil price, financial, reputational
and fiscal and government take risks, which are disclosed later
in this report.
Appetite
EnQuest recognises that the oil and gas industry, alongside
other key stakeholders such as governments, regulators and
consumers, must all play a part in reducing the impact of
carbon-related emissions on climate change, and is committed
to contributing positively towards the drive to net-zero.
The Group’s risk appetite for climate change risk is reported
against the Group’s impacted principal risks.
Mitigation
Mitigations against the Group’s principal risks potentially
impacted by climate change are reported later in this report.
The Group endeavours to reduce emissions through improving
operational performance, minimising flaring and venting where
possible, and applying appropriate and economic
improvement initiatives, noting the ability to reduce carbon
emissions will be constrained by the original design of
later-life assets.
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 103 to 104 for more information).
The Group has committed to a 10% reduction in Scope 1 and 2
emissions over three years, from a year-end 2020 baseline, with
the achievement linked to reward. Progress is reported to the
Safety, Climate and Risk Committee of the Board in relation to
progress of emission reductions, identification of economically
viable emissions savings opportunities across the Group’s
portfolio of assets, aligned to the emissions management
strategy.
During 2021, the Group established an Infrastructure and New
Energy business that is responsible for delivering the Group’s
emission reduction objectives in line with Group and industry
targets and advancing new energy and decarbonisation
opportunities.
The Group’s focus on short-cycle investments drives an inherent
mitigation against the potential impact of ‘stranded 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:
Net debt ($ million)
G:
Net 2P reserves (MMboe) H:
Emissions (tCO
2
e)
Evolving geopolitical situation
Having assessed its commercial and IT security arrangements, the Group does not consider it has a material adverse
exposure to the geopolitical situation with respect to the sanctions imposed on Russia, although recognises the evolving
situation is causing oil price volatility. The Group will continue to monitor its position to ensure it remains compliant with any
sanctions in place.
46
Environmental,
Social and Governance
continued
Key business risks
The Group’s principal risks (identified from the ‘Risk Library’) are
those which could prevent the business from executing its
strategy and creating value for shareholders or lead to a
significant loss of reputation. The Board has carried out a robust
assessment of the principal risks facing the Group, 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.
Amongst 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 47), which may impact our ability to
refinance debt and/or execute growth opportunities, and/or a
materially lower than expected production performance for a
prolonged period (see ‘Production’ risk on pages 47 to 48 and
‘Subsurface risk and reserves replacement’ on page 50).
Risk
Health, Safety and Environment (‘HSE’)
Oil and gas development, production and exploration activities
are by their very nature complex, with HSE risks covering many
areas, including major accident hazards, personal health and
safety, compliance with regulatory requirements, asset integrity
issues and potential environmental impacts, including those
associated with climate change.
Potential impact
Medium (2020 Medium)
Likelihood
Medium (2020 Medium)
There has been no material change in the potential impact or
likelihood of this risk. The Group has a strong, open and
transparent reporting culture and monitors both leading and
lagging indicators and incurs substantial costs in complying
with HSE requirements. The Group’s overall record on HSE has
been strong, albeit impacted by regulatory challenges in
relation to the management of the annual flare consent on
Magnus and the receipt of improvement notices from the
Health and Safety Executive.
There remains a risk to the availability of competent people
given the potential impacts of COVID-19.
Related KPIs –
A, B, C, D, E, F, H
Appetite
The Group’s principal aim is SAFE Results with no harm to people
and respect for the environment. Should operational results and
safety ever come into conflict, employees have a responsibility
to choose safety over operational results. Employees are
empowered to stop operations for safety-related reasons.
The Group’s desire is to maintain upper quartile HSE
performance measured against suitable industry metrics.
In 2021, EnQuest achieved a top quartile Lost Time Incident
frequency rate and hydrocarbon release frequency rate
intheUK.
Mitigation
The Group maintains, in conjunction with its core contractors, a
comprehensive programme of assurance activities and has
undertaken a series of deep dives into the Risk Bowties that have
demonstrated the robustness of the management process and
identified opportunities for improvement. A Group-aligned HSE
continuous improvement programme is in place, promoting a
culture of engagement and transparency in relation to HSE
matters. HSE performance is discussed at each Board meeting
and the mitigation of HSE risk continues to be a core
responsibility of the Safety, Climate and Risk Committee. During
2021, 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, Malaysia Petroleum Management.
EnQuest’s HSE Policy is fully integrated across its operated sites
and this has enabled an increased focus on HSE. There is a
strong assurance programme in place to ensure EnQuest
complies with its Policy and principles and regulatory
commitments.
In 2021, an independent asset integrity review was undertaken
across the Group. This allowed for a deep review of asset
integrity looking at people, plant and process aspects in relation
to the management of risk. The outcome was a more
transparent and robust approach to cost allocation to key risk
threats that could impact asset integrity.
The Group continues to monitor the evolving situation with
regard to the impacts of COVID-19 in conjunction with a variety
of stakeholders, including industry and medical organisations.
Appropriate actions will continue to be implemented in
accordance with expert advice and the level of risk.
47
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
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:
Net debt ($ million)
G:
Net 2P reserves (MMboe) H:
Emissions (tCO
2
e)
Risk
Oil and gas prices
A material decline in oil and gas prices adversely affects the
Group’s operations and financial condition as the Group’s
revenue depends substantially on oil prices.
Potential impact
High (2020 High)
Likelihood
High (2020 High)
The potential impact and likelihood remain high, reflecting the
uncertain economic outlook, including possible impacts from
COVID-19, and the potential acceleration of ‘peak oil’ demand.
The Group recognises that climate change concerns and
related regulatory developments are likely to reduce demand
for hydrocarbons over time. This may be mitigated by correlated
constraints on the development of new supply. Further, oil and
gas will remain an important part of the energy mix, especially
in developing regions.
Related KPIs –
B, D, E, F, G
Appetite
The Group recognises that considerable exposure to this risk is
inherent to its business but is committed to protecting cash
flows in line with the terms of its reserve based lending facility.
Mitigation
This risk is being mitigated by a number of measures.
As an operator of mature producing assets with limited appetite
for exploration, the Group has limited exposure to investments
which do not deliver near-term returns and is therefore in a
position to adapt and calibrate its exposure to new investments
according to developments in relevant markets.
The Group monitors oil price sensitivity relative to its capital
commitments. The terms of the Group’s reserve based lending
facility also requires hedging of its production (see page 157).
The Group has a policy which allows hedging of its production
(see page 157). As at 23 March 2022, the Group had hedged
approximately 12.1 MMbbls for 2022 and 2023. This ensures
thatthe Group will receive a minimum oil price for some of
itsproduction.
In order to develop its resources, the Group needs to be able to
fund the required investment. The Group will therefore regularly
review and implement suitable policies to hedge against the
possible negative impact of changes in oil prices.
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, as described previously, the Group’s focus on production
efficiency supports mitigation of a low oil price environment.
Risk
Production
The Group’s production is critical to its success and is subject to
a variety of risks, including: subsurface uncertainties; operating
in a mature field environment; potential for significant
unexpected shutdowns; and unplanned expenditure
(particularly where remediation may be dependent on suitable
weather conditions offshore).
Lower than expected reservoir performance or insufficient
addition of new resources may have a material impact on the
Group’s future growth.
The Group’s delivery infrastructure in the UK North Sea is, to a
significant extent, dependent on the Sullom Voe Terminal.
Longer-term production is threatened if low oil prices or
prolonged field shutdowns and/or underperformance requiring
high-cost remediation bring forward decommissioning
timelines.
Potential impact
High (2020 High)
Likelihood
Medium (2020 Medium)
There has been no material change in the potential impact or
likelihood. Operational issues at Magnus, which resulted in the
Group lowering its production guidance for 2021, have been
offset by the Group acquiring a non-operated interest in the
Golden Eagle area in the UK North Sea.
Related KPIs –
B, C, D, E, G, H
Appetite
Since production efficiency and meeting production targets are
core to EnQuest’s business, the Group seeks to maintain a high
degree of operational control over production assets in its
portfolio. EnQuest has a very low tolerance for operational risks to
its production (or the support systems that underpin production).
Mitigation
The Group’s programme of asset integrity and assurance
activities provide leading indicators of significant potential
issues, which may result in unplanned shutdowns, or which may
in other respects have the potential to undermine asset
availability and uptime. The Group continually assesses the
condition of its assets and operates extensive maintenance and
inspection programmes designed to minimise the risk of
unplanned shutdowns and expenditure.
The Group monitors both leading and lagging KPIs in relation to
its maintenance activities and liaises closely with its
downstream operators to minimise pipeline and terminal
production impacts.
Production efficiency is continually monitored with losses being
identified and remedial and improvement opportunities
undertaken as required. A continual, rigorous cost focus is
alsomaintained.
48
Environmental,
Social and Governance
continued
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.
Risk
Financial
Inability to fund financial commitments or maintain adequate
cash flow and liquidity and/or reduce costs.
Significant reductions in the oil price or material reductions in
production will likely have a material impact on the Group’s
ability to repay or refinance its existing credit facilities. 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. Similar conditions could impact the Group’s
ability to refinance the bonds ahead of maturity in October
2023. Further information is contained in the Financial review,
particularly within the going concern and viability disclosures
onpages 30 and 31.
Potential impact
High (2020 High)
Likelihood
High (2020 High)
There is no change to the potential impact or likelihood,
reflecting the continued economic uncertainty and potential
impact of oil price fluctuations.
The Group successfully refinanced its existing term loan and
revolving credit facility during 2021 and completed the
GoldenEagle area acquisition.
There is potential for the availability and cost of capital to
increase and insurance availability to erode, as factors such as
climate change and other ESG concerns and oil price volatility
may reduce investors’ and insurers’ acceptable levels of oil and
gas sector exposure, and the cost of emissions trading
certificates may continue to trend higher along with insurers’
reluctance to provide surety bonds for decommissioning,
thereby requiring the Group to fund decommissioning security
through its balance sheet.
Related KPIs –
B, C, E, F, G, H
Appetite
The Group recognises that significant leverage was required to
fund its growth as low oil prices impacted revenues. However, it
is intent on further reducing its leverage levels, 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 is a strategic priority. During 2021, the Group
refinanced its secured credit facility, enabling the acquisition of
the Golden Eagle area. Strong cash generation enabled the
Group to finance a larger portion of the Golden Eagle
acquisition from cash flow, resulting in a lower than expected
drawdown on the Group’s RBL facility. At 23 March 2022, the RBL
facility was drawn to $330 million, with voluntary early
repayments ensuring the Group remains ahead of the facility
amortisation schedule.
Ongoing compliance with the financial covenants under the
Group’s reserve based lending facility is actively monitored
andreviewed.
EnQuest generates operating cash inflow from the Group’s
producing assets. The Group reviews its cash flow requirements
on an ongoing basis to ensure it has adequate resources for
itsneeds.
Where costs are incurred by external service providers, the
Group actively challenges operating costs. The Group also
maintains a framework of internal controls.
The Group continues to explore options to refinance its retail and
high yield bonds ahead of maturity in October 2023.
These steps, together with other mitigating actions available to
management, are expected to provide the Group with sufficient
liquidity to strengthen its balance sheet further.
Risk
Competition
The Group operates in a competitive environment across many
areas, including the acquisition of oil and gas assets, the
marketing of oil and gas, the procurement of oil and gas
services and access to human resources.
Potential impact
High (2020 High)
Likelihood
High (2020 High)
The potential impact and likelihood remain unchanged, with a
number of competitors assessing the acquisition of available oil
and gas assets and the rising potential for consolidation (e.g.
through reverse mergers).
Related KPIs –
C, D, E, F, G
Appetite
The Group operates in a mature industry with well-established
competitors and aims to be the leading operator in the sector.
49
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
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 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.
In addition, the marketing and trading group is responsible for
the Group’s commodity price risk management activities in
accordance with the Group’s business strategy.
Risk
IT security and resilience
The Group is exposed to risks arising from interruption to, or
failure of, IT infrastructure. The risks of disruption to normal
operations range from loss in functionality of generic systems
(such as email and internet access) to the compromising of
more sophisticated systems that support the Group’s
operational activities. These risks could result from malicious
interventions such as cyber-attacks or phishing exercises.
Potential impact
Medium (2020 Medium)
Likelihood
Medium (2020 Medium)
There has been no change to the potential impact or likelihood,
with the Group enhancing its IT security in light of the evolving
geopolitical situation.
Related KPIs –
A, B, H
Appetite
The Group endeavours to provide a secure IT environment that
is able to resist and withstand any attacks or unintentional
disruption that may compromise sensitive data, impact
operations, or destabilise its financial systems; it has a very low
appetite for this risk.
Mitigation
The Group has established IT capabilities and endeavours to be
in a position to defend its systems against disruption or attack.
A number of tools to strengthen employee awareness continue
to be utilised, including videos, presentations, ‘Yammer’ posts
and poster campaigns.
The Safety, Climate and Risk Committee undertook additional
analyses of cyber-security risks in 2021. The Group has a
dedicated cyber-security manager and work on assessing the
cyber-security environment and implementing improvements
as necessary will continue during 2022.
Risk
Portfolio concentration
The Group’s assets are primarily concentrated in the UK North
Sea around a limited number of infrastructure hubs and existing
production (principally oil) is from mature fields. This amplifies
exposure to key infrastructure (including ageing pipelines and
terminals), political/fiscal changes and oil price movements.
Potential impact
High (2020 High)
Likelihood
High (2020 High)
The Group is currently focused on oil production and does not
have significant exposure to gas or other sources of income.
The decisions taken to accelerate cessation of production at a
number of the Group’s assets has further reduced the number
of producing assets and so increased portfolio concentration.
During 2021, the Group acquired a 26.69% non-operated equity
interest in the Golden Eagle area, a 40.81% operating interest in
the Bressay heavy-oil field and 100.00% equity interest in the
P1078 licence in the UK North Sea containing the proven Bentley
heavy-oil discovery.
The Group continues to assess acquisition growth opportunities
with a view to improving its asset diversity over time.
The Group also established an Infrastructure and New Energy
business to unlock renewable energy and decarbonisation
opportunities in the medium to long term.
Related KPIs –
B, C, D
Appetite
Although the extent of portfolio concentration is moderated by
production generated in Malaysia, the majority of the Group’s
assets remain relatively concentrated in the UK North Sea and
therefore this risk remains intrinsic to the Group.
Mitigation
This risk is mitigated in part through acquisitions. For all
acquisitions, the Group uses a number of business development
resources, both in the UK and internationally, to liaise with
vendors/governments and evaluate and transact acquisitions.
This includes performing extensive due diligence (using
in-house and external personnel) and actively involving
executive management in reviewing commercial, technical and
other business risks together with mitigation measures.
The Group also constantly keeps its portfolio under rigorous
review and, accordingly, actively considers the potential for
making disposals and divesting, executing development
projects, making international acquisitions, expanding hubs and
potentially investing in gas assets, export capability or
renewable energy and decarbonisation projects where such
opportunities are consistent with the Group’s focus on
enhancing net revenues, generating cash flow and
strengthening the balance sheet.
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:
Net debt ($ million)
G:
Net 2P reserves (MMboe) H:
Emissions (tCO
2
e)
50
Environmental,
Social and Governance
continued
Risk
Subsurface risk and reserves replacement
Failure to develop its contingent and prospective resources or
secure new licences and/or asset acquisitions and realise their
expected value.
Potential impact
High (2020 High)
Likelihood
Medium (2020 Medium)
There has been no material change in the potential impact
orlikelihood.
Low oil prices or prolonged field shutdowns requiring high-cost
remediation which accelerate cessation of production can
potentially affect development of contingent and prospective
resources and/or reserves certifications.
Related KPIs –
B, C, D, E, F, G
Appetite
Reserves replacement is an element of the sustainability of the
Group and its ability to grow. The Group has some tolerance for
the assumption of risk in relation to the key activities required to
deliver reserves growth, such as drilling and acquisitions.
Mitigation
The Group puts a strong emphasis on subsurface analysis and
employs industry-leading professionals. The Group continues to
recruit in a variety of technical positions which enables it to
manage existing assets and evaluate the acquisition of new
assets and licences.
All analysis is subject to internal and, where appropriate, external
review and relevant stage gate processes. All reserves are
currently externally reviewed by a Competent Person.
The Group has material reserves and resources at Magnus,
Kraken, Golden Eagle and PM8/Seligi that it believes can
primarily be accessed through low-cost subsea drilling and
tie-backs to existing infrastructure. EnQuest continues to
evaluate the substantial 2C resources at Bressay, Bentley and
PM409 to identify future drilling prospects. Bressay and Bentley
are located close to the Group’s Kraken development, while
PM409 is contiguous to the Group’s existing PM8/Seligi PSC,
providing low-cost tie-back opportunities.
The Group continues to consider potential opportunities
toacquire new production resources that meet its
investmentcriteria.
Risk
Project execution and delivery
The Group’s success will be partially dependent upon the
successful execution and delivery of potential future projects,
including decommissioning and Infrastructure and New Energy
opportunities in the UK, that are undertaken.
Potential impact
Medium (2020 Medium)
Likelihood
Low (2020 Low)
The potential impact and likelihood remain unchanged. As the
Group focuses on reducing its debt, its current appetite is to
pursue short-cycle development projects and to manage its UK
decommissioning and Infrastructure and New Energy projects
over an extended period of time.
Related KPIs –
A, B, D, E, F, G, H
Appetite
The efficient delivery of projects has been a key feature of the
Group’s long-term strategy. The Group’s appetite is to identify
and implement short-cycle development projects such as infill
drilling and near-field tie-backs in its Upstream business,
industrialise decommissioning projects to ensure cost efficiency
and unlock new energy and decarbonisation opportunities
through innovative commercial structures. While the Group
necessarily assumes significant risk when it sanctions a new
project (for example, by incurring costs against oil price
assumptions), or a decommissioning programme, it requires
that risks to efficient project delivery are minimised.
Mitigation
The Group has teams which are responsible for the planning
and execution of new projects with a dedicated team for each
project. The Group has detailed controls, systems and
monitoring processes in place, notably the Capital Projects
Delivery Process, to ensure that deadlines are met, costs are
controlled and that design concepts and the Field Development
Plan are adhered to and implemented. These are modified
when circumstances require and only through a controlled
management of change process and with the necessary
internal and external authorisation and communication. The
Group’s UK decommissioning programmes are managed by a
dedicated directorate with an experienced team who are driven
to deliver projects safely at the lowest possible cost and
associated emissions.
In Infrastructure and New Energy, the Group intends to work with
experienced third-party organisations and 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.
51
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
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:
Net debt ($ million)
G:
Net 2P reserves (MMboe) H:
Emissions (tCO
2
e)
Risk
Fiscal risk and government take
Unanticipated changes in the regulatory or fiscal environment
can affect the Group’s ability to deliver its strategy/business plan
and potentially impact revenue and future developments.
Potential impact
High (2020 High)
Likelihood
Medium (2020 Medium)
There has been no material change in the potential impact or
likelihood, although the exit of the UK from the European Union
has impacted the regulatory environment going forward, for
example by affecting the cost of emissions trading certificates
through the smaller UK emissions trading scheme.
Related KPIs –
D, F
Appetite
The Group faces an uncertain macroeconomic and
regulatoryenvironment.
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.
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
legislativecompliance.
Risk
International business
While the majority of the Group’s activities and assets are in the
UK, the international business is still material. The Group’s
international business is subject to the same risks as the UK
business (e.g. HSEA, production and project execution); however,
there are additional risks that the Group faces, including security
of staff and assets, political, foreign exchange and currency
control, taxation, legal and regulatory, cultural and language
barriers and corruption.
Potential impact
Medium (2020 Medium)
Likelihood
Medium (2020 Medium)
There has been no material change in the impact or likelihood.
Related KPIs –
A, B, D, E, F, G, H
Appetite
In light of its long-term growth strategy, the Group seeks to
expand and diversify its production (geographically and in
terms of quantum); as such, it is tolerant of assuming certain
commercial risks which may accompany the opportunities
itpursues.
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, theGroup
takes appropriate action to safeguard people and assets.
52
Environmental,
Social and Governance
continued
Risk
Joint venture partners
Failure by joint venture parties to fund their obligations.
Dependence on other parties where the Group is non-operator.
Potential impact
Medium (2020 Medium)
Likelihood
Low (2020 Low)
There has been no material change in the potential impact
orlikelihood.
Related KPIs –
B, C, D, E, F, G
Appetite
The Group requires partners of high integrity. It recognises that it
must accept a degree of exposure to the creditworthiness of
partners and evaluates this aspect carefully as part of every
investment decision.
Mitigation
The Group operates regular cash call and billing arrangements
with its co-venturers to mitigate the Group’s credit exposure at
any one point in time and keeps in regular dialogue with each of
these parties to ensure payment. Risk of default is mitigated by
joint operating agreements allowing the Group to take over any
defaulting party’s share in an operated asset and rigorous and
continual assessment of the financial situation of partners.
The Group generally prefers to be the operator. The Group
maintains regular dialogue with its partners to ensure alignment
of interests and to maximise the value of joint venture assets,
taking account of the impact of any wider developments.
Risk
Reputation
The reputational and commercial exposures to a major offshore
incident, including those related to an environmental incident, or
non-compliance with applicable law and regulation and/or
related climate change disclosures, are significant. Similarly, it is
increasingly important EnQuest clearly articulates its approach
to and benchmarks its performance against relevant and
material ESG factors.
Potential impact
High (2020 High)
Likelihood
Low (2020 Low)
There has been no material change in the potential impact
orlikelihood.
Related KPIs –
A, C, D, E, F, G, H
Appetite
The Group has no tolerance for conduct which may
compromise its reputation for integrity and competence.
Mitigation
All activities are conducted in accordance with approved
policies, standards and procedures. Interface agreements are
agreed with all core contractors.
The Group requires adherence to its Code of Conduct and runs
compliance programmes to provide assurance on conformity
with relevant legal and ethical requirements.
The Group undertakes regular audit activities to provide
assurance on compliance with established policies, standards
and procedures.
All EnQuest personnel and contractors are required to pass an
annual anti-bribery, corruption and anti-facilitation of tax
evasion course.
All personnel are authorised to shut down production for
safety-related reasons. As an example, the Group acted
promptly in temporarily shutting down the Magnus platform
when it was clear its flaring consent would be breached.
The Group has a clear ESG strategy, with a focus on health and
safety (including asset integrity), emissions 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.
53
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
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:
Net debt ($ million)
G:
Net 2P reserves (MMboe) H:
Emissions (tCO
2
e)
Risk
Human resources
The Group’s success continues to be dependent upon its ability
to attract and retain key personnel and develop organisational
capability to deliver strategic growth. Industrial action across
the sector, or the availability of competent people given the
potential impacts of COVID-19, could also impact the operations
of the Group.
Potential impact
Medium (2020 Medium)
Likelihood
Medium (2020 Medium)
There has been no material change to potential impact
orlikelihood.
Related KPIs –
A, B, C, D, E, F, G, H
Appetite
As a low-cost, lean organisation, the Group relies on motivated
and high-quality employees to achieve its targets and manage
its risks.
The Group recognises that the benefits of a lean, flexible and
diverse organisation requires creativity and agility to protect
against the risk of skills shortages.
Mitigation
The Group has established an able and competent employee
base to execute its principal activities. In addition, the Group
seeks to maintain good relationships with its employees and
contractor companies and regularly monitors the employment
market to provide remuneration packages, bonus plans and
long-term share-based incentive plans that incentivise
performance and long-term commitment from employees to
the Group.
The Group recognises that its people are critical to its success
and so is continually evolving EnQuest’s end-to-end people
management processes, including recruitment and selection,
career development and performance management. This
ensures that EnQuest has the right person for the job and that
appropriate training, support and development opportunities
are provided, with feedback collated to drive continuous
improvement whilst delivering SAFE Results. The culture of the
Group is an area of ongoing focus and employee surveys and
forums have been undertaken to understand employees’ views
on areas, including diversity and inclusion, in order to develop
appropriate action plans.
EnQuest is considering the appropriate balance for its
onshoreteams between site, office and home working to
promote strongproductivity and business performance
facilitated byanengaged workforce. 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.
The Group recognises that there is a gender pay gap within the
organisation but that there is no issue with equal pay for the
same tasks. EnQuest also recognises that fewer young people
may join the industry due to climate change-related factors.
EnQuest aims to attract the best talent, recognising the value
and importance of diversity.
To ensure improved diversity in the Group’s leadership, various
targets have been implemented during 2021. Further details on
these are set out on page 40.
Executive and senior management retention, succession
planning and development remain important priorities for the
Board. It is a Board-level priority that executive and senior
management possess the appropriate mix of skills and
experience to realise the Group’s strategy.
Following its introduction in 2019, the Group’s global employee
forum has continued to add to EnQuest’s employee
communication and engagement strategy, improving
interaction between the workforce and the Board.
The Group continues to monitor the evolving situation with
regard to the impacts of COVID-19 in conjunction with a variety
of stakeholders, including industry and medical organisations.
Appropriate actions will continue to be implemented in
accordance with expert advice and the prevailing level of risk.
54
EnQuest has a Code of Conduct which it
requires all personnel to be familiar with.
The EnQuest Code of Conduct sets out
the behaviour which the organisation
expects of its Directors, managers
and employees and of our suppliers,
contractors, agents and partners. We
are committed to conducting ourselves
ethically, with integrity and to complying
with all applicable legal requirements;
weroutinely remind those who work with
or for us of our obligations in this respect.
Our employees and everyone we work
with help to create and support our
reputation, which in turn underpins our
ability to succeed. This code addresses
our requirements in a number of areas,
including the importance of health and
safety and environmental protection,
compliance with applicable law,
anti-corruption, anti-facilitation of tax
evasion, anti-slavery, addressing conflicts
of interest, ensuring equal opportunities,
combatting bullying and harassment
and the protection of privacy.
The Group’s induction procedures cover
the Code of Conduct and the Group runs
both ad hoc and scheduled periodic
training for personnel to refresh their
familiarity with relevant aspects of the
Code of Conduct and specific policies
and procedures which support it (such as
the Group’s anti-corruption programme).
As part of the Group’s Risk Management
Framework, the Board is supplied
annually with an ‘assurance map’ that
provides an insight into the status of the
main sources of controls and assurance
in respect of the Group’s key risk areas
(see pages 42 to 53 for further information
on how the Group manages its key
risk areas). Whilst this provides some
formal assurance as to how the Group
reinforces its requirements in respect
of business conduct, the Board also
recognises the importance of promoting
the right culture within the Group and this
remains an area of focus for the Group.
The Code of Conduct also includes
details of the independent reporting line
through which any concerns related to
the Group’s practices, or any suspected
breaches of the Group’s policies and
procedures, can be raised anonymously
and encourages personnel to report
any concerns to the legal department
and/or the General Counsel. Where
concerns are raised (whether through
the reporting line or otherwise), the
General Counsel, reporting for this
purpose to the Chairman of the Audit
Committee, is required to look into the
relevant concern, investigate and take
appropriate action. Concerns raised in
relation to potential conflicts of interest
and safety practices, as well as more
routine interfaces with regulatory
authorities, are also reported to the
Board and addressed appropriately.
The Code of Conduct includes a
confirmation of EnQuest’s commitments
to adhere to applicable tax laws
(including the corporate offence of failure
to prevent the criminal facilitation of tax
evasion) as well as the Group’s stance
against slavery and human trafficking.
The Group has zero tolerance for such
practices and expects the same of all
with whom it has business dealings; for
example, in relation to procurement,
by requiring suppliers to confirm their
commitment to anti-slavery before
being qualified to supply the Group. The
Group has supplemented its procedures
to provide further assurance that it is
able to identify and manage human
rights risks in its supply chain. EnQuest
publishes its modern slavery statement
on its website at www.enquest.com,
under the Environmental, Social and
Governance section, where further detail
on EnQuest’s corporate responsibility
policies and activities, including the area
of business conduct, is also available.
Business conduct
“ We are committed to
acting with high
standards of integrity in
all that we do,
conducting our business
in accordance with our
Values and in
compliance with
applicable law.”
55
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
Task Force on Climate-related
Financial Disclosures
The Group welcomes initiatives for increased governance and transparency in general, and specifically in relation to climate
change. The Board recognises the societal and investor focus on climate change, and the desire to understand potential
impacts on the oil and gas industry through improved disclosure, such as those proposed by the Task Force on Climate-
related Financial Disclosures (‘TCFD’). EnQuest PLC has complied with the requirements of LR 9.8.6R by including climate-related
financial disclosures consistent with the TCFD recommendations except for in relation to the disclosure of Scope 3 emissions
within the metrics and targets section. Scope 3 emissions are not yet measured given the uncertainty and impracticality in
accurately measuring such emissions throughout the value chain. The Group will continue to assess how it may measure
Scope 3 emissions for the next phase of TCFD implementation, but, until such time, will remain non-compliant in this respect.
TCFD framework
EnQuest disclosures
Reference
Governance
•
Describe the Board’s
oversight of climate-related
risks and opportunities.
•
Describe management’s
role in assessing and
managing climate-related
risks and opportunities.
EnQuest’s purpose is to provide creative solutions through the energy transition.
The Board is focused on a strategy which 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 carbon emissions from its own business where practicable and
ensuring a robust risk management framework (‘RMF’) is in place. As set out
inthe risk management section below, climate change is recognised as
astandalone risk area in its own right and climate-related issues feature
withinanumber of the Group’s principal risks and are prioritised and
managedaccordingly.
Reflecting the importance the Group places on evolving climate change-related
matters, the RMF process is overseen by the Safety, Climate and Risk Committee,
a dedicated sub-Committee of the Board whose terms of reference enable it to
support the Board with increased oversight of decarbonisation, including
monitoring progress towards the Group’s three-year emission reduction target
and climate change-related risk matters.
The Board and management keep appraised of the evolving risk and
opportunity landscape and its potential impacts on the Company’s business.
Indoing so, they consult as appropriate with the Group’s advisers and
appropriate third-party institutions, including fund managers, investors
andindustry associations such as Offshore Energies UK.
During 2021, a discrete Group-wide emissions reduction target was approved
(see the Metrics and targets section below). In support of this, the Group has an
energy management system governance document setting out how it
approaches the measurement and reporting of emissions. It also sets out 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 group reports to the Executive Committee and the Safety, Climate and Risk
Committee on a regular basis.
Pages 42 to 53,
69 to 93, and 97
to 98
56
Task Force on Climate-related Financial
Disclosures
continued
TCFD framework
EnQuest disclosures
Reference
Strategy
•
Describe the climate-related
risks and opportunities the
organisation has identified
over the short, medium,
andlong term.
•
Describe the impact of
climate-related risks and
opportunities on the
organisation’s businesses,
strategy, and financial
planning.
•
Describe the resilience of
the organisation’s strategy,
taking into consideration
different climate-related
scenarios, including a 2°C
or lower scenario.
EnQuest’s business model is distinct from companies that have a material
exploration component to their business and it is, therefore, less exposed to the
much longer duration of exploration, discovery, development and production.
EnQuest primarily acquires mature and underdeveloped assets from other
industry participants and drives performance improvements, including emission
reductions, through short-cycle, quick payback investments. EnQuest’s UK
Decommissioning directorate is responsible for the safe and efficient execution
of the decommissioning work programmes and is committed to delivering them
in a responsible manner, which also includes minimising emissions alongside
maximising the recycle and reuse of recovered materials. EnQuest considers
within one year to be short term, one to three years to be medium term (both of
which are in line with the Group’s assessment of going concern and viability,
respectively) and the longer term to be beyond three years.
The Group continues to assess a number of climate-related risks and
opportunities. 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 resources. The timing of
such events is uncertain. In 2021, the Group established an Infrastructure and
New Energy business with responsibility for delivering the Group’s short and
medium-term emission reduction objectives and advancing longer-term
renewable energy and decarbonisation opportunities. Other 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. In addition, the
cost of emissions trading allowances may trend higher over time. With respect to
physical risks of climate change to EnQuest’s business, the Group is aware of
potential longer-term risks associated with rising sea levels, tidal impacts and
extreme weather events which could cause damage and destruction to its
ageing offshore assets, particularly as these events become more regular and
extreme in nature, but considers these risks to be low given the Group’s focus on
asset integrity and the expected remaining life of these mature assets.
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,
and climate change is one of many potential influencing factors on the oil price.
EnQuest’s planning and investment decision processes cater for low oil price
scenarios and include a carbon cost associated with forecast emissions. Where
new assets are acquired, there will be a clear emissions reduction 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. In the short to medium term, EnQuest
reviews the impact of different oil prices in its going concern and viability
statements. EnQuest is also monitoring progress against the UK NSTD goals
which contribute to the UK Government’s target of net zero by 2050.
The Group has measured the resilience of its existing portfolio and future
development plans using oil price and cost of emissions assumptions based on
the International Energy Agency’s Sustainable Development (‘SDS’), and Net Zero
Emissions (‘NZE’) Scenarios. The Group continues to generate positive free cash
flow when using assumptions based on the SDS, although cash flow becomes
negative when using assumptions based on the NZE. However, should oil price
and emission costs prevail similar to those assumed under the NZE, EnQuest’s
business model will enable it to adapt to a rapidly changing external
environment as its short-cycle investments reduce the risk of ‘stranded assets’.
Pages 02 to 23,
34 to 35, and 42
to 53
57
EnQuest PLC –
Annual Report and Accounts 2021
Strategic Report
TCFD framework
EnQuest disclosures
Reference
Risk management
•
Describe the organisation’s
processes for identifying
and assessing climate-
related risks.
•
Describe the organisation’s
processes for managing
climate-related risks.
•
Describe how processes for
identifying, assessing, and
managing climate-related
risks are integrated into the
organisation’s overall
riskmanagement.
The Group has robust risk management and business planning processes that
are overseen by the Board, the Safety, Climate and Risk Committee and the
Executive Committee in order to identify, assess and manage climate-related
risks. The risk landscape inputs and considerations are outlined on page 45 and
cover long-term macro factors and near-term and emerging 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 identifying
relevant threats and how they are mitigated, whilst the adequacy and efficacy
of controls in place are themselves also monitored. This integration enables the
Group to quickly identify, escalate and appropriately manage emerging risks,
with a quarterly RMF report reviewed by leadership teams and presented to the
Safety, Climate and Risk Committee.
The Safety, Climate and Risk Committee also provides a forum for the Board to
review selected individual risk areas in greater depth. Climate change is
categorised as a standalone risk area within the Group’s ‘Risk Library’ allowing
the application of EnQuest’s RMF to underpin its approach in this important area.
For each risk area, the Safety, Climate and Risk Committee reviews ‘Risk Bowties’
that identify risk causes and impacts and maps these to preventative and
containment controls used to manage the risks to acceptable levels. Climate
change-related issues are also considered within the context and review of a
number of other risk areas.
Pages 42 to 53
and 97 to 98
Metrics and targets
•
Disclose the metrics used
by the organisation to
assess climate-related risks
and opportunities in line
with its strategy and risk
management process.
•
Disclose Scope 1, Scope 2,
and, if appropriate, Scope 3
greenhouse gas (‘GHG’)
emissions, and the
relatedrisks.
•
Describe the targets used
by the organisation to
manage climate-related
risks and opportunities,
andperformance
againsttargets.
At EnQuest, the financial or strategic impact of a risk is assessed and measured
based on the potential net present value (‘NPV’) negative impact of the
particular risk. Specifically, a substantive financial or strategic impact would be
defined as a risk with a potential impact of greater than £50 million NPV, on a
post mitigation basis. EnQuest has also defined criteria for screening and ranking
emissions reduction opportunities, 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.
EnQuest has reported on all of the emission sources within its operational control,
as 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. This
information can be found in the Directors report. In the UK, EnQuest publishes its
annual Environmental Statement in line with the regulatory requirement under
the OSPAR recommendation 2003/5. These statements, which can be found in
the Environmental, Social and Governance section on the Group’s website,
www.enquest.com, are an open and transparent representation of the
environmental performance across EnQuest’s UK operations.
The Group recognises that the ability to reduce carbon emissions is constrained
by the original design of its later-life assets where the main sources of
atmospheric emissions come from combustion associated with power
generation and flaring. The Board’s goal is to be as ambitious as it can in setting
decarbonisation targets, whilst 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, with the achievement of this target linked
to reward. In addition, the Group is committed to playing its part in delivering on
the UK Government’s North Sea Transition Deal emission reduction targets.
Pages 03, 05,
07, 10, 12, 14, 23,
33 to 35, and
103 to 104
Stefan Ricketts
Company Secretary
The Strategic report was approved by the Board and signed on its behalf by the Company Secretary on 23 March 2022.
5858
Board of Directors
Martin Houston
Non-Executive Chairman
Appointed 1 October 2019
Farina Khan
Non-Executive Director
Appointed 1 November 2020
Amjad Bseisu
Chief Executive
Appointed 22 February 2010
Jonathan Swinney
Chief Financial Officer
Appointed 29 March 2010
Howard Paver
Senior Independent Director
Appointed 1 May 2019
G
R
T
A
R
G
R
A
G
T
Key strengths and experience
•
In-depth knowledge of the
energy industry and a wealth of
board-level and international
business experience
Martin joined BG Group plc in
1983 and enjoyed a 32-year
career before retiring as chief
operating officer and a member
of the board of directors. He
holds, and has held, many FTSE
and international board or senior
advisory positions. Martin’s
other interests include being a
council member of the National
Petroleum Council of the United
States of America and a Fellow of
the Geological Society of London.
Principal external appointments
Co-founder and vice-chairman
of Tellurian Inc. Non-executive
director of CC Energy (a private
company). Non-executive
director of BUPA Arabia, listed in
Saudi Arabia. In an advisory
capacity, he is the global energy
chairman of Moelis & Company.
Key strengths and experience
•
Strong energy industry and
financial experience, as well as
deep insights into Malaysia
Farina is a Fellow of the Institute
of Chartered Accountants
Australia and New Zealand. She
started her career in 1994 with
Coopers & Lybrand, Australia,
before returning to Malaysia in
1997 to join PETRONAS, where she
held various senior positions.
Farina was chief financial officer
of PETRONAS Carigali Sdn. Bhd,
one of the largest subsidiaries
of PETRONAS with operations
in over 20 countries, and has
also been chief financial officer
at PETRONAS Exploration and
Production. From 2013, Farina
was the chief financial officer
of PETRONAS Chemical Group
Berhad, the largest listed
entity of PETRONAS. Farina left
PETRONAS in 2015 to pursue
non-executive opportunities.
Principal external appointments
Member of the boards of the
following Malaysian listed
companies: PETRONAS Gas
Berhad, KLCC Property Holdings
Berhad, AMMB Holdings Berhad
and Icon Offshore Berhad.
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 StraticEnergy Corporation.
Amjad was chairman of
Enviromena 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.
Principal external appointments
Chairman of the independent
energy community for the
WorldEconomic Forum since
2016. Director of The Amjad
andSuha Bseisu Foundation
since 2011.
Key strengths and experience
•
Significant capital markets and
merger and acquisition
transactional experience
Jonathan is a qualified
chartered accountant and
a member of the Institute of
Chartered Accountants of
England and Wales. He is also a
qualified solicitor and worked in
roles with a focus on acquisition
finance. Jonathan’s previous
roles include Credit Suisse
and then Lehman Brothers,
advising on a wide range
of transactions with equity
advisory, before joining Petrofac
Limited in April 2008 as head of
mergers and acquisitions for
the Petrofac Group. Jonathan
joined EnQuest PLC in 2010
as Chief Financial Officer.
Principal external appointments
None.
Key strengths and experience
•
40 years’ global experience in
E&P, including 20 years at senior
executive level
Howard is a petroleum engineer
and began his professional
career at Schlumberger
before moving to Mobil and
then BHP Petroleum, where
he was regional president,
Europe, Russia, Africa &
Middle East, before becoming
president, global exploration
& alliance development. He
most recently served as SVP,
strategy, commercial & business
development at Hess, a role
he took up in July 2013, having
joined the company in 2000
as SVP, north sea/international.
Between 2005 and 2013 he
held the position of SVP, global
new business development.
Principal external appointments
Non-executive director of OGL
Geothermal Ltd.
5959
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
EnQuest PLC –
Annual Report and Accounts 2021
Philip Holland
Non-Executive Director
Appointed 1 August 2015
Carl Hughes
Non-Executive Director
Appointed 1 January 2017
Liv Monica Stubholt
Non-Executive Director
Appointed 15 February 2021
Rani Koya
Non-Executive Director
Appointed 1 January 2022
John Winterman
Non-Executive Director
Appointed 7 September 2017
S
T
A
S
A
S
T
T
S
Key strengths and experience
•
Significant experience in
managing large-scale oil and
gas projects around the globe
Philip joined Bechtel Corporation
in 1980 and managed major
oil and gas projects in a wide
range of international locations.
In 2004, he joined Shell where,
in 2009, he became executive
vice-president downstream
projects in Shell’s newly formed
projects and technology
business. In 2010, he was
appointed as project director
for Shell’s Kashagan phase
2 project in Kazakhstan, and
subsequently the Shell/QP Al
Karaana petrochemicals project.
Since 2013, he has operated
as an independent project
management consultant.
Principal external appointments
Chairman of Velocys plc and
non-executive director of
KazMunayGas.
Key strengths and experience
•
Substantial audit and
accounting experience in the
energy sector
Carl is a Fellow of the Institute
of Chartered Accountants in
England and Wales, and a Fellow
of the Energy Institute. Carl
joined Arthur Andersen in 1983
and became a partner in 1993.
Throughout his professional
career he specialised in the oil
and gas, mining and utilities
sectors, becoming the head of
the UK energy and resources
industry practice of Andersen
in 1999 and subsequently of
Deloitte in 2002. When Carl
retired from the partnership of
Deloitte in 2015, he was a vice-
chairman, senior audit partner
and leader of the firm’s energy
and resources business globally.
Principal external appointments
Non-executive director and
chairman of the audit and risk
committee of EN+ Group IPJSC.
Member of the finance and
auditcommittee of the
EnergyInstitute. Board member
of the Audit Committee
Chairs’Independent Forum.
Member ofthe General Synod
ofthe Church of England.
Deputychairman of the
financecommittee of
TheArchbishops’Council.
Key strengths and experience
•
Extensive experience of the
energy industry, public policy
and governance
Liv Monica has 20 years’
experience as a corporate
lawyer. She started her career
as an attorney before becoming
political adviser to the Centre
Party Finance Parliamentary
Group. From 1997, she spent
two years as a legal adviser to
an industry alliance for private
ownership before becoming
a partner at her original law
firm. In 2005, Liv Monica moved
back into politics and was
Norway’s Deputy Minister of
Foreign Affairs for two years,
followed by two years as
Deputy Minister of Petroleum
and Energy. Liv Monica rejoined
the private sector in 2009 and
held four top executive industry
positions within the Aker Group
in Norway, including as EVP in the
listed EPC contractor Kværner,
before moving back into law.
Principal external appointments
Partner at the Oslo-based law
firm Selmer. Sits on a number of
private company boards,
industrial boards and academic
committees, including as
chairperson of Fortum Oslo
Varme and Silex Gas Norway.
Key strengths and experience
•
A variety of technical, project
management and executive
management roles in major
energy companies across the
globe
Rani has more than 20 years’
experience working within large
multinational, independent and
start-up energy companies.
These include Shell International,
Hess and Tullow and have
involved a variety of technical,
project management and
executive management
roles across Europe, Asia, the
Americas and Africa. Between
2017 and 2020 Rani was chief
petroleum engineer at Tullow.
She has led multi-billion dollar
projects across the globe, from
unconventional shales in the US
to oil developments in East Africa.
Principal external appointments
CEO of OGL Geothermal Ltd.,
ageothermal development
company focused on Europe, the
Middle East and Africa. Fellow of
the Institution of Mechanical
Engineers. Trustee for the Oxford
Food Hub, Director of South Essex
College and the International
Women’s Forum UK.
Key strengths and experience
•
Extensive technical leadership
experience in global
exploration, business
development and asset
management
John is a member of the
American Association of
Petroleum Geologists. He joined
Occidental in 1981 as a geologist
with the company and had a
strong record of exploration
success globally, with over two
billion barrels of oil equivalent
discovered in the Philippines,
Indonesia, Bangladesh, Malaysia,
Russia, the US and Yemen. After
a 20+ year technical career,
John moved into executive
roles, including high-level
executive leadership positions.
John left Occidental in 2013
and since then has provided
strategic advice to international
oil and gas companies.
Principal external appointments
Non-executive director of
CCEnergy.
Committees key
A
Audit
G
R
S
T
6060
Executive Committee
Bob Davenport
Managing Director – North Sea
Key strengths and experience
•
Extensive international
experience leading large
upstream development
projects
•
Strong operational and
engineering experience
Bob joined EnQuest in 2015 and
is currently responsible for the
Group’s UK North Sea business.
He has extensive international
experience in upstream, with
prior roles including: Managing
Director – Malaysia, leading
the Group’s Malaysia business;
and operations director –
North Sea and managing
director – Khalda JV at Apache
Corporation, where he led the
largest oil and gas producer
in Egypt’s western desert.
Richard Hall
Managing Director – Malaysia
Key strengths and experience
•
Significant international
experience
•
Senior positions held in
operations, field development
and project roles for both
operators and service
companies
Richard rejoined EnQuest in
December 2020 and has overall
responsibility for EnQuest’s
Malaysian business, having
previously worked for EnQuest
as part of the Executive
Committee as Head of Major
Capital Projects, where he was
instrumental in taking Kraken
from project concept stage
through to production. Previously,
Richard held roles at Petrofac,
including: vice president of
operations & developments; and
general manager in Malaysia,
where he started Petrofac
Malaysia. Richard went on to
be co-founder and CEO of
Malaysia-focused Nio Petroleum
and has also been chairman
and CEO of the private equity
backed service company Influit.
He was also one of four founders
and operations director of the
service company UWG Ltd.
Janice Mair
Director of People,
Culture & Diversity
Salman Malik
Managing Director, Corporate
Development, Infrastructure
and New Energy
Key strengths and experience
•
Strong experience in the
energysector
•
A Fellow of the Chartered
Institute of Personnel and
Development
Janice joined the Executive
Committee in August 2020
after two years as UK Head of
Human Resources. She has
held HR leadership roles in a
variety of sectors, including oil
and gas and transportation.
Prior to joining EnQuest, Janice
was head of HR for Repsol
Sinopec Resources. She also
holds a masters of law degree
in employment law and a BA
in hospitality management.
Key strengths and experience
•
Corporate strategy, corporate
finance, investment
management, and mergers
and acquisitions experience
across the energy value chain
•
Chartered Financial Analyst
Charterholder
Salman joined EnQuest in 2013
and is responsible for the
Infrastructure and New Energy
business, in addition to the
Group’s strategy, corporate
finance and mergers and
acquisitions. He has extensive
experience in structured finance,
acquisitions, post-acquisition
management and divestitures
across the energy value chain.
He has also held several
positions in the private equity
and investment banking industry.
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Corporate Governance
EnQuest PLC –
Annual Report and Accounts 2021
Stefan Ricketts
Commercial and Legal Director.
Company Secretary
Martin Mentiply
Business Development Director
Key strengths and experience
•
Extensive international legal
and commercial experience in
energy and natural resources
inall phases of development
and operations
•
Transaction management
across corporate finance,
debtfinance, mergers
andacquisitions and
projectdevelopment
Stefan joined EnQuest in
2012. He is a solicitor and has
previously been a partner
in a major international law
firm and a general counsel in
a FTSE 100 energy company.
He has responsibility for the
commercial and legal affairs of
the Group, and holds the offices
of General Counsel, Company
Secretary and Chief Risk Officer.
Key strengths and experience
•
Over 20 years’ experience in
senior technical and
commercial roles
•
Extensive geographical
experience
Martin joined EnQuest in 2016 and
is responsible for all business
development-related activities
across the Group. He has over
20 years of broad international
oil and gas operator experience.
Throughout his career he
has gained significant
technical and commercial
expertise in field development
planning, project execution,
reservoir management
and investment assurance
across the value chain, from
upstream through to LNG.
EnQuest’s Aberdeen office, AnnanHouse
6262
Chairman’s letter
“ Corporate governance is an essential part of our overall framework,
supporting both risk management and the Group’s core Values.”
Martin Houston
Chairman
Dear fellow shareholder
On behalf of the Board of Directors (the ‘Board’), I am pleased to
introduce EnQuest’s Corporate Governance Report. Due to the
ongoing impact of COVID-19, 2021 proved to be another year
with much work taking place virtually. However, the Board
members were able to meet in person in October 2021 for two
days, comprising a strategy session and a Board meeting. This
finally allowed our new Directors to meet their fellow Board
members in person for the first time since appointment. This
year I hope that our shareholders will also have the opportunity
to meet with the Directors at the Company’s Annual General
Meeting (‘AGM’), due to be held on 19 May 2022 at Sofitel London
St James.
A lot of the Board’s time in 2021 was spent discussing the
acquisition of Golden Eagle and the new reserves based lending
facility for the Group. I was impressed with the focus of our
workforce in completing the transaction against the backdrop
of the pandemic, which has continued to significantly impact
working patterns. I congratulate and thank all staff involved in
making this happen and of course my Board colleagues for
their continued input and counsel.
The Governance and Nomination Committee, on behalf of the
Board, has continued its work on Board composition and both
Board and Executive succession planning over the past year. In
January 2022 we welcomed Rani Koya to the Board. Rani has
extensive energy industry experience and is the CEO of a
UK-based renewable energy company, which will be of great
help as we look at lower-carbon opportunities for EnQuest.
As reported in the 2020 Annual Report and Accounts, Laurie Fitch
stepped down as a Director in January 2021 and Liv Monica
Stubholt joined in the same month.
This year, as part of our planned rotation of Directors,
PhilipHolland will be leaving the Board in May 2022 and will
therefore not be offered for re-election at the AGM. Philip is the
Chair of the Safety, Climate and Risk Committee, a post he has
successfully steered since its inception in 2016. Liv Monica will
beassuming the role of Chair. In respect of senior management
succession planning, we held a full Board discussion in
October2021 and evaluated the internal talent pipeline
andthecapabilities within the organisation.
With respect to diversity, the Board has formally adopted the
recommendations of both the Hampton-Alexander and Parker
Reviews and set targets reflecting these reports. I am pleased
that the Board already adheres to the Parker recommendations
and will, on Philip Holland’s departure, also be in line with the
original Hampton-Alexander recommendations. Diversity has
always been a key consideration for our recruitment, both at the
workforce and Board levels, so appropriate targets have been
set at leadership level and emerging targets, such as those of
the FTSE Women Leaders Review, are monitored.
EnQuest was recognised for its efforts through its nomination as
a finalist at the 2021 OGUK awards in the category of Diversity
and Inclusion. More details, including the results of an employee
survey to gauge staff sentiment, can be found on page 40.
This year, the Board evaluation was facilitated externally. It
concluded that the Board continues to be effective and
performs well. In particular, the skills and diversity of the Board
were highlighted as very positive. The results of the evaluation
can be found on page 95.
Corporate governance is an essential part of our overall
governance framework, supporting both risk management and
the Group’s core Values. This framework also contains
non-Board Committees which provide advice and support to
the Chief Executive on the development, implementation and
monitoring of the Group’s strategy. Further information relating
to the operation of the Board and its Committees can be found
in the following governance pages of this Annual Report and
Accounts. Individual Committee reports are on pages 69 to 75
(Audit), pages 76 to 93 (Remuneration and Social Responsibility),
pages 94 to 96 (Governance and Nomination), pages 97 to 98
(Safety, Climate and Risk) and page 99 (Technical and
Reserves). During 2021 the Committees of the Board, which had
expanded their remits towards the end of 2020, enhanced their
activities in their areas of increased delegation. In particular, the
Safety, Climate and Risk Committee had a particular focus on
asset integrity and EnQuest’s emissions reduction efforts, while
the Remuneration and Social Responsibility Committee oversaw
the Group’s external engagement in the areas of sustainability
and supporting education.
Martin Houston
Chairman
23 March 2022
ENQUEST STRUCTURE
1 Farina Khan stepped down from the Safety, Climate and Risk Committee on 2 February 2022
2 Committee Chair
3 Rani Koya was appointed as a Non-Executive Director of the Board on 1 January 2022
4 Liv Monica Stubholt will become Chair of the Safety, Climate and Risk Committee in May 2022
63
Remuneration
and Social
Responsibility
Committee
Howard Paver
2
Martin Houston
Farina Khan
Technical
and Reserves
Committee
John Winterman
2
Philip Holland
Martin Houston
Rani Koya
3
Howard Paver
Safety, Climate
and Risk
Committee
1
Philip Holland
2
Carl Hughes
Liv Monica
4
Stubholt
John Winterman
Audit
Committee
Carl Hughes
2
Farina Khan
Howard Paver
Liv Monica
Stubholt
EnQuest PLC Board
of Directors
Governance and
Nomination
Committee
Martin Houston
2
Howard Paver
Amjad Bseisu
Investment
Committee
Executive
Committee
HSEA
Directorate
Operations
Committee
Chief
Executive
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
Key corporate governance activities in 2021
Succession planning and Board composition
Appointments of Liv Monica Stubholt and Rani Koya
Senior leadership succession planning
Transactional activities
Acquisitions of Golden Eagle and Bentley
New reserves based lending facility
Stakeholder engagement
Presentation by EnQuest charitable beneficiary to the Board
Investor perceptions study presented to the Board
Chairman meetings with shareholders
Employee workforce and employee culture
Annual survey and separate diversity survey
Streamlining staff training and staff compliance activities
Regular reports from the Employee Forum
6464
Corporate governance statement
Statement of compliance
The Board believes that the manner in which it conducts its business is important and it is committed to delivering the highest
standards of corporate governance for the benefit of all of its stakeholders. The Directors are cognisant of their duties to
stakeholders under Section 172 of the Companies Act 2006 and considerations related to stakeholders are reflected throughout this
Annual Report and Accounts. The Section 172 Statement can be found on page 6. The Company complies with the principles and
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. The Code can be found on the Financial Reporting Council’s website at www.frc.org.uk.
Detailed below is EnQuest’s application of, and compliance with, the Code. In order to avoid duplication, cross-references to
appropriate sections within the Annual Report and Accounts (‘2021 ARA’) are provided.
The manner in which the Company has applied the principles of the Code can be found in the following sections:
Board leadership and company purpose
•
Corporate Governance (page 64)
•
Strategic report (page 8)
Division of responsibilities
•
Corporate Governance (page 67)
Composition, succession and evaluation
•
Governance and Nomination Committee report (page 95)Audit, risk and internal control
•
Strategic report (page 42)
•
Audit Committee report (page 69)
•
Safety, Climate and Risk Committee report (page 97)
Remuneration
•
Directors’ Remuneration Report (page 76)
Board leadership and company purpose
The Board takes seriously its roles in promoting the long-term success of the Company, generating value for shareholders, having
regard to the interests of other stakeholders and contributing to wider society. How the Company manages these areas can be
found in the Strategic report, in particular on pages 4 to 10.
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.
Board agenda and key activities throughout 2021
During 2021, the majority of Board meetings were held by videoconference. However, an in-person meeting was convened in
October 2021.
Directors’ attendance at Board meetings in 2021
Meetings
attended
Scheduled meetings 2021
6
Executive Directors
Amjad Bseisu
6
Jonathan Swinney
6
Non-Executive Directors
Martin Houston
6
Farina Khan
6
Howard Paver
6
Philip Holland
6
Carl Hughes
6
Liv Monica Stubholt
1
5/5
John Winterman
6
1 Liv Monica Stubholt was appointed a Director on 15 February 2021
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Corporate Governance
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Annual Report and Accounts 2021
The table below sets out matters that the Board discuss at each meeting and the key activities that have taken place throughout
this period.
Matters considered
at each meeting
Key activities for the Board throughout 2021
Strategy
Operations
Governance
Stakeholders
•
HSEA
•
Key project status and
progress
•
Responses to oil price
movements
•
Strategy
•
Key transactions
•
Financial reports and
statements
•
Production
•
Operational issues and
highlights
•
HR issues and developments
•
Key legal updates
•
Assurance and risk
management
•
Investor relations and capital
markets update
•
Liquidity
•
Employee Forum activities
•
Strategy session
held in October
•
Growth
opportunities
•
ESG strategy and
emissions reduction
•
Financing
•
Golden Eagle
transaction
•
Organisational
effectiveness
•
Infrastructure and
New Energy
•
COVID-19
considerations
•
2021 performance
and 2022 budget
reviews
•
Compliance with
debt covenants
and liquidity
•
Sullom Voe
Terminal operations
•
Decommissioning
activities
•
Asset integrity
review
•
Risk, going concern
and long-term
viability review
•
Risk Management
Framework
•
Annual anti-
corruption review
•
Succession
planning
•
Periodic updates on
corporate
regulatory changes
and reporting
requirements
•
Board and
employee diversity,
including strategy
•
S.172 principal
decisions
•
Board evaluation
•
Board composition
•
Employee matters
such as training,
diversity and
succession
•
Charitable activities
•
Shareholder
considerations in
relation to Golden
Eagle
•
Structuring debt for
banks, sureties and
bondholders
•
Shareholder
approval of the
equity raise
•
Relations with
Petronas in
Malaysia
•
Change of
co-venturer in
Kraken
•
UK NSTA interactions
Committees
The Board has five Committees which meet on a regular basis and report back to the Directors at each Board meeting. This allows
for the Board to be apprised of important Committee business and, if necessary, to discuss issues should they need to be escalated
to Board level. There are formal terms of reference for each Committee which set out the scope of authority of the Committee,
satisfy the requirements of the Code and are reviewed and approved on an ongoing basis by the Board. Copies of the terms of
reference are available on the Group’s website, www.enquest.com. Membership of each Committee can be found on page 63 and
the dedicated Committee pages, details of which are found below:
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 Governance Code. The work of the Governance and Nomination Committee, including information regarding the
Board’s diversity and associated policy, recruitment and the Board annual evaluation process, is on pages 94 to 96.
Audit Committee
The work of the Audit Committee is on pages 69 to 75.
The Audit Committee is responsible for the following internal control and risk management related tasks:
•
Reviewing the effectiveness of the Group’s internal controls and risk management systems;
•
Reviewing and approving the statements to be included in the Annual Report concerning internal controls and risk
management;and
•
Monitoring and reviewing the effectiveness of the Group’s internal audit capability in the context of the Group’s overall risk
management system.
6666
Corporate governance statement
continued
Remuneration and Social Responsibility Committee
The Remuneration and Social Responsibility Committee has assessed the Group’s performance for 2021 in determining the
appropriate performance-related compensation and has continued its assessment of institutional shareholder guidelines. In 2021,
itreceived shareholder approval for the updated Remuneration Policy. The Committee has also reviewed the Group’s social
responsibility programme, both outward-looking (how the Group engages in its communities) and within (employee engagement
and a positive workforce culture). The work of the Remuneration and Social Responsibility Committee is set out on pages 76 to 93.
Safety, Climate and Risk Committee
The Safety, Climate and Risk Committee continues to progress its comprehensive Risk Management Framework and has had
oversight of the asset integrity review and conducted a robust assessment of the principal risks facing the Group; see
pages36to38 of the Strategic report for further information. The work of the Committee, which includes monitoring HSEA
issuesandoversight of decarbonisation matters, is on pages 97 to 98.
Technical and Reserves Committee
The Technical and Reserves Committee provides the Board with additional technical insight when making Board decisions. The
work of the Committee can be found on page 99.
Culture
The Board ensures that the culture of the Group is aligned with its purpose, Values and strategy. EnQuest’s Values embody the ethos
of the Group and the Board carefully monitors and promotes a positive culture. The Board believes that engaged and committed
employees are integral to the delivery of the Group’s business plan and, to assist this, an employee survey is held on a regular basis.
The survey is used by the Board as a baseline from which to enhance and improve the culture of the Group. In addition, the
Employee Forum, which was established in 2019 to ensure continued engagement with the workforce, met several times over the
year. The Board receives updates following each Forum meeting from Farina Khan and Philip Holland, who attend as the designated
Board representatives. In 2022, Rani Koya will replace Farina Khan as a representative. Over the past year, the Board has discussed
return-to-work requirements and workload matters as a result of the Forum meetings, directing management to address as
appropriate. The output from these meetings and other culture activities is reported on pages 40 to 41 of this 2021 ARA.
EnQuest’s Code of Conduct underpins the governance and ethos of the Group. All personnel are required to be familiar with the
Code of Conduct, which sets out the behaviours that the organisation expects of those who work at and with the Group. The Group’s
Values complement the behaviours contained within the Code and are a key part of the Group’s identity. They guide the workforce
as they pursue EnQuest’s strategy and delivery of SAFE Results.
Workforce concerns
Through the Employee 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 by the Group’s General Counsel and reported to the Chairman of the Audit Committee, with follow-up action taken as
soon as practicable thereafter.
Conflicts of interest and compliance
The Group has procedures in place which identify and, where appropriate, manage conflicts or potential conflicts of interest with
the Group’s interests. In accordance with the provisions relating to Directors’ interests in the Companies Act 2006, all Directors are
required to submit details to the Company Secretary of any situations which may give rise to a conflict or potential conflict. The
Board is satisfied that formal procedures are in place to ensure that authorisation for potential and actual conflicts of interest are
operated efficiently. Directors are required to obtain Board approval before accepting any further external appointments and
demands on a Director’s time are taken into account before approval is given.
The Group is committed to behaving fairly and ethically in all of its endeavours and has policies which cover anti-bribery, anti-
corruption and tax evasion. The anti-bribery and corruption programme is reviewed annually by the Board and a compulsory online
anti-corruption training course is required to be completed by all staff. Additional information can be found on page 54 and in the
Code of Conduct which is available on the Group’s website.
Board education
All Directors receive an induction pack and meet with management on joining the Company. They are also offered Director training
and memberships of organisations which deliver knowledge and training to Non-Executive Directors. Education is provided from
time to time by the Company Secretary; for example, a session was held with external counsel to discuss the Board’s specific
responsibilities in relation to the Golden Eagle transaction and separate training has been provided on corporate governance
matters pertinent to the discharge of their duties.
Stakeholder engagement
As COVID-19-related restrictions have continued to impact on face-to-face meetings, engagement activities were primarily
conducted virtually through the use of video and telephone conference calls. EnQuest continued to have an active and constructive
dialogue with its shareholders throughout the year.
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Corporate Governance
EnQuest PLC –
Annual Report and Accounts 2021
This was conducted through a planned programme of investor relations activities, including meetings with:
•
significant shareholders with regard to the Group’s acquisition of the Golden Eagle assets and associated equity fund raise and
refinancing of its secured debt facility, performance against guidance and its overall debt management strategy;
•
several of the Group’s shareholders who were invited to participate in an independent investor perception study undertaken by
Rothschild & Co. The findings were reported to the Board, and provided useful insights which will be incorporated into future
programmes of investor relations activities; and
•
a selection of the Group’s larger shareholders who were invited to meet with the Group’s Chairman.
Throughout 2021, a number of equity and debt investor and research analyst engagements were undertaken. The Group also
delivered presentations alongside its half-year and full-year results, copies of which are available on the dedicated section of the
Group’s website, which can be found under ‘Investors’ at www.enquest.com, as well as ad hoc presentations at investor
conferences. The Group’s results meetings are followed by investor roadshows with existing and potential new investors. These
meetings, which take place throughout the year, other than during closed periods, are organised directly by the Company, via
brokers and in response to direct investor requests.
EnQuest’s Investor Relations team and Company Secretarial department respond to queries from shareholders, debt holders,
analysts and other stakeholders, all of whom can register on the website to receive email alerts of relevant Group news. EnQuest’s
registrar, 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 pages 06 to 07 for more details).
2021 Annual Report and Accounts
The Directors are responsible for preparing the 2021 ARA and consider that, taken as a whole, the 2021 ARA are fair, balanced and
understandable, and provide the necessary information for shareholders to assess the Company and Group’s position and
performance, business model and strategy.
Annual General Meeting (‘AGM’)
The Company’s AGM is ordinarily attended by the Directors and executive and senior management and is open to all EnQuest
shareholders to attend.
Division of responsibilities
There is a clear division of responsibilities between the leadership of the Board and the executive leadership of EnQuest. The roles
ofthe 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.
Non-Executive Directors
The Non-Executive Directors combine broad business and commercial experience from oil and gas and other industry sectors.
Theybring 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
ismonitored on a regular basis. At the date of this report there are ten Directors, consisting of two Executive Directors and
eightNon-Executive Directors (including the Chairman).
6868
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.
Theappointment and removal of the Company Secretary is a Board matter. The Company Secretary supports the Chairman in
theprovision of accurate and timely information. Board agendas are drawn up by the Company Secretary in conjunction with the
Chairman and with agreement from the Chief Executive. All Board papers are published via an online Board portal system which
offers a fast, secure and reliable method of distribution.
Independence
The Chairman was independent on appointment and the Board considers that all the Non-Executive Directors and newly
appointed 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 58 to 59.
Corporate governance statement
continued
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Annual Report and Accounts 2021
Corporate Governance
EnQuest PLC –
Annual Report and Accounts 2021
Audit Committee report
“ The Committee continued to focus on the integrity of the Group’s
disclosures in light of climate change and macro-environment
uncertainty, as well as monitoring the Group’s system of internal
control, risk management and work of key functions.”
Carl Hughes
Chairman of the Audit Committee
Dear fellow shareholder
I am pleased to present the Audit Committee report for the year
ended 31 December 2021, 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 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: refinancing of the Group’s senior debt facility,
reviewing the accounting for the Golden Eagle acquisition,
responding to the BEIS consultation ‘Restoring trust in audit and
corporate governance’, a review of the internal control
processes of the marketing and trading function, enhancing
climate change disclosures in financial reporting and
monitoring the impacts of COVID-19 on the Group’s 2021
financial reporting. Members of the Committee carried out site
visits to the Sullom Voe Terminal and EnQuest’s various
operational and finance functions in London and Aberdeen.
These site visits contribute to the Committee’s understanding of
the risks and opportunities at key locations and provide the
opportunity for members of the Committee to engage with a
diverse range of EnQuest staff in each location and to hear
directly from them.
In February 2021, we welcomed Liv Monica Stubholt to the Board
and Committee. Liv Monica’s significant oil and gas knowledge
from an extensive legal career is extremely beneficial to the
Committee and EnQuest.
Subsequent to the publication of the EnQuest Annual Report
and Accounts 2020, EnQuest received a letter request for
information from the Council for Swedish Financial Reporting
Supervision (‘the Council’). The Committee considered the letter
and EnQuest’s detailed response thereto, which enabled the
Council to close its enquiries.
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.
Carl Hughes
Chairman of the Audit Committee
23 March 2022
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 58 and 59. The Board is satisfied
that the Chairman of the Committee, Carl Hughes, previously
anenergy and resources audit partner of Deloitte, and a
Fellowof the Institute of Chartered Accountants in England
andWales, meets the requirement for recent and relevant
financial experience.
Membership of the Committee, appointment dates and
attendance at the four scheduled meetings held during 2021 is
provided in the table below:
Member
Date appointed
Committee member
Attendance at
meetings during
the year
Carl Hughes
1 January 2017
4
Howard Paver
1 May 2019
4
Farina Khan
1 November 2020
4
Liv Monica Stubholt
1
15 February 2021
4
Note:
1 Liv Monica Stubholt was appointed as a Non-Executive Director on 15 February 2021,
becoming a member of the Audit Committee
Meetings are also normally attended by the General Counsel
and Company Secretary, the Chief Financial Officer, the external
auditor, the internal audit manager and other key finance team
members as required. The Chief Executive and the Chairman of
the Board also attend the meetings when invited to do so by the
Committee. PricewaterhouseCoopers LLP (‘PwC’), who support
the Group’s internal audit manager in certain specialist areas,
attended the meetings as appropriate. The Chairman of the
Committee regularly meets with the external audit partner (with
such meetings including the independent review of the going
concern and viability assessments) and internal audit (both the
internal audit manager and the PwC partner) to discuss matters
relevant to the Group.
7070
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.
Audit Committee meetings
There were four Committee meetings in 2021. All members attended each meeting. A summary of the main items discussed in each
meeting is set out in the table below:
Agenda item
March
2021
May
2021
August
2021
December
2021
Audit Committee self-evaluation assessment of its effectiveness
Audit Committee terms of reference
Discussed significant matters arising from completed internal audits
Internal audit progress against 2021 plan, including findings since last meeting
Independence and objectivity of Internal audit
Internal audit and assurance plan for 2022
Joint venture audit plan for 2021, including summary findings since last meeting
Cyber security update
Considered the annual external audit plan
Approve external (Deloitte) audit fees subject to the audit plan
Review the level of non-audit service fees for Deloitte
Evaluate quality, independence and objectivity of Deloitte
Review the 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
Corporate governance update
UK audit and governance environment update in context of CMA, BEIS, Kingman and
Brydon reviews
Briefings on regulatory developments
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)
Bond refinancing strategy
Presentation on the reserves audit and evaluation of the Competent Person’s
independence and objectivity
Finance strategy and organisation update
Consideration of tax strategy, policy and compliance
Assessed 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
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, 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 6). 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.
Audit Committee report
continued
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With regard to these requirements, the Committee has considered the robust process which operates when compiling the
AnnualReport 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 2022 to review and recommend the approval of the draft 2021 Annual Report and
Accounts in advance of the final sign-off by the Board.
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
InternationalFinancial Reporting Standards; and
•
Those judgements, estimates and key assumptions that could have a significant impact on the Group’s financial performance
and position, or on the remuneration of executive and senior management.
These items are considered by the Committee, together with reports from both management and its external auditor, at each
Committee meeting. The Committee also reviewed and approved the clarification and treatment of certain items within the
Group’s Alternative Performance Measures (‘APMs’) to improve further the transparency and consistency of reporting. The significant
accounting and reporting areas considered, including those related to EnQuest’s 2021 Consolidated Financial Statements, are set
out below:
Significant financial statement reporting issue
Consideration
Acquisition of Golden Eagle
Upon acquisition, EnQuest reviewed the guidance under
IFRS3– Business combinations to assess whether or not the
assets acquired and liabilities assumed met the definition
ofabusiness.
EnQuest determined that the acquisition of the Golden Eagle
asset is an asset acquisition and not a business combination by
applying the optional concentration test in IFRS 3. Under this test,
if substantially all of the fair value of the gross assets acquired is
concentrated in a single identifiable asset or group of similar
identifiable assets, an entity can conclude that the acquisition is
not a business combination. Where an asset that does not
constitute a business is acquired (as in the case of the Golden
Eagle acquisition), it is required to be accounted for at cost.
The Committee received information to explain the reasoning
for the asset acquisition basis of accounting, with a focus on the
allocation of cost across the identifiable assets acquired and
liabilities assumed, and supported management’s conclusions
including the final valuation of property, plant and equipment
recognised on acquisition.
Going concern and viability
The Group’s assessments of the going concern assumption and
viability are based on detailed cash flow and covenant
forecasts. These are, in turn, underpinned by forecasts and
assumptions in respect of:
•
Production for the next three years, based on the Group’s
approved 2022 business plan and forecasts;
•
The oil price assumption, based on a forward curve of
$75/bbl (2022), $70/bbl (2023), $70/bbl (2024) and $60/bbl
thereafter; and
•
In the case of the viability statement, refinancing of both the
High Yield and Retail Bonds in the second quarter of 2023.
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 2022 meeting.
This analysis was considered and challenged by the
Committee, including, but not limited to, the appropriateness of
the period covered, that planning scenarios and
macroeconomic assumptions were realistic, stress tests were
appropriate and mitigations achievable to ensure that the
Group has sufficient headroom to continue as a going concern.
The Committee also considered the resilience of the Group to
the impacts of the COVID-19 pandemic. 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 30 to 31)
were reviewed and approved at the March 2022 meeting for
recommendation to the Board.
7272
Significant financial statement reporting issue
Consideration
Potential misstatement of oil and gas reserves
The Group has total proved and probable reserves as at
31 December 2021 of 194 MMboe. The estimation of these
reserves is essential to:
•
The valuation of the Group;
•
The assessment of going concern and viability;
•
Impairment testing;
•
Decommissioning liability provisions; and
•
The calculation of depreciation.
During the March 2022 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 forward
curve prices of $75/bbl (2022), $70/bbl (2023), $70/bbl (2024)
and $60.0/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.
See also note 2 Critical accounting judgements and key sources
of estimation uncertainty: recoverability of asset carrying values,
and notes 10, 11 and 12 for more details.
Impairment testing has been performed, resulting in a net
pre-tax non-cash impairment reversal of $39.7 million.
At the March 2022 meeting, management presented the key
assumptions made in respect of impairment testing and the
result thereof to the Committee. The Committee considered
and challenged these assumptions, including the potential
impacts of climate change and energy transition, in line with the
challenges performed as part of the going concern and viability
review. The Committee considered the impacts of the global
COVID-19 pandemic on the Group’s full-year 2021 financial
reporting, including the implications for oil price assumptions.
Sensitivity analysis and disclosures estimating the effect of price
reductions were reviewed. Consideration was also given to
Deloitte’s view of the work performed by management.
Contingent consideration
Any contingent consideration included in the consideration
payable for a business combination or asset acquisition is
recorded at fair value at the date of acquisition. These fair
values are generally based on risk-adjusted future cash flows
discounted using appropriate discount rates.
The Group calculates contingent consideration payable in
respect of its Magnus and Golden Eagle acquisitions. See note
22 for further details.
At the March 2022 meeting, the key assumptions and results of
the fair value calculations, along with an explanation of
movements in the year, were presented to the Committee.
Consideration was also given to Deloitte’s view of the work
performed by management. It was noted that the assumptions
are consistent with those used in the impairment assessment
(see above).
The Committee concluded that the assumptions and inputs for
contingent consideration payable were reasonable and the
related liabilities recorded were appropriate.
Audit Committee report
continued
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Significant financial statement reporting issue
Consideration
Climate change in financial reporting
While the Group’s view of evolving climate risks continues to
develop, the potential financial implications, along with
appropriate disclosure, are 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 was informed of and acknowledged global
trends, including increased disclosure within financial statements.
The Committee considered financial statement disclosures,
including TCFD reporting, and how the Group’s climate change
scenarios are reflected in the Group’s key judgements and
estimates used in the preparation of the Group’s FY2021 finance
statements. This included a review of management’s best
estimate of oil price assumptions for fair value less cost of
disposal (‘FVLCD’) impairment testing.
The Committee reviewed the approach proposed by
management to provide additional disclosure in relation to the
potential financial statement impacts of climate change,
including testing the Group’s resilience under the International
Energy Agency’s Sustainable Development 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 $835.7 million at
31 December 2021 is based upon a discounted estimate of the
future costs and timing of decommissioning of the Group’s oil
and gas assets. Judgement exists in respect of the estimation of
the costs involved, the discount rate assumed, and the timing of
decommissioning activities.
See note 2 Critical accounting judgements and key sources of
estimation uncertainty: provisions.
The Committee reviewed the report by management
summarising the key findings and their impact on the provision.
Sensitivity analysis and disclosure estimating the effect of a
change in discount rates was reviewed. Regard was also given
to the observations made by Deloitte as to the appropriateness
of the estimates made.
Taxation
At 31 December 2021, the Group carried deferred tax balances
comprising $703.0 million of tax assets (primarily related to
previous years’ tax losses) and $3.4 million of tax liabilities.
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 $2,728.1 million
($1,091.2 million tax-effected) have been recognised.
The main drivers of the tax provision are the deferred tax asset
impairment and the Ring Fence Expenditure Supplement
(‘RFES’)uplift. The RFES claim in 2021 is the last claim available
tothe Group.
Given the complexity of tax legislation, risk exists in respect of
some of the Group’s tax positions.
Subsequent to the publication of the Group’s 2020 consolidated
financial statements, the Group determined there was an
inconsistency in the calculation of the deferred tax asset
recognised on the balance sheet associated with Magnus
contingent consideration and the relevant estimated future
cash flows used in the calculation of future taxable profits to
support the recognition of this deferred tax asset and the
deferred tax asset associated with other available tax losses.
This has resulted in a restatement of the 2020 financial
statements. See note 2 Basis of preparation – Restatements.
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 appropriateness
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 presented by management. Regard was also
given to the observations made by Deloitte as to the
appropriateness of the disclosures made.
The Committee appraised and approved the restatement of
the prior period deferred tax balances. The Committee reviewed
management’s analysis of the restatement and concurred with
their recommendations. As part of the review, management has
implemented a number of improvements in the process of
transferring cash flows from the Group impairment model to the
Group tax model in order to assess the amount of deferred tax
to be recognised.
7474
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. Page 44 provides more detail on how the Board, and its Safety, Climate and Risk Committee, has discharged its
responsibility in this regard. The Audit Committee Chairman is also a member of the Safety, Climate and Risk Committee.
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
theBoard;
•
A comprehensive risk management process with clear definition of risk tolerance and appetite. This includes a review by the
Safety, Climate and Risk Committee of the effectiveness of management controls and actions which address and mitigate the
most significant risks;
•
An annual risk-based internal audit programme developed in conjunction with management. Findings are communicated to the
Audit Committee and follow-up reviews are conducted where necessary; and
•
Further objective feedback provided by the external auditors and other external specialists.
Obtaining assurance on the internal control environment
The Committee received reports from internal audit at each Committee meeting in 2021 and meets privately with the internal audit
manager from time to time. The Committee continued to review the effectiveness and capabilities of internal audit and monitor its
independence during the year. The Group will continue to outsource to PwC or other experts specialist areas of the internal audit
programme, such as cyber-security. The internal audit manager reports functionally to the Chair of the Committee and
administratively to the Commercial and Legal Director.
In 2021, internal audit established an internal audit charter, which was reviewed and approved by the Committee. The internal audit
manager 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 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 Group, which are reviewed by the Board and the Safety, Climate and Risk Committee. During 2021, internal audit activities were
undertaken for various areas, including reviews of:
•
The Group’s cyber-security;
•
General Data Protection Regulation;
•
Maintenance of critical spares;
•
Compliance with Joint Operating Agreements;
•
Compliance with UK anti-bribery and corruption regulations;
•
Internal control processes of the Marketing and Trading function;
•
Emissions reporting;
•
Thistle decommissioning readiness; 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.
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. The
annual process for reviewing the performance of the external audit process involves an interview or questionnaire with key
members of the Group who are involved in the audit process to obtain feedback on the quality, efficiency and effectiveness of the
audit. Additionally, Committee members take into account their own view of the external auditor’s performance when determining
whether or not to recommend reappointment. The Committee also held private meetings with the external auditor during the year.
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 2021 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.
Audit Committee report
continued
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Annual Report and Accounts 2021
Corporate Governance
EnQuest PLC –
Annual Report and Accounts 2021
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 second year as auditor and has
maintained its independence and objectivity. As required under UK auditing standards, Deloitte confirmed their independence to
the Committee.
The Committee considers the reappointment of the external auditor each year, including consideration of the advisability and
potential impact of conducting a tender process for the appointment of a different independent public accounting firm. The
Committee is also responsible for making a recommendation to the Board for it to put to the Company’s shareholders for approval
at the AGM, to appoint, reappoint or remove the external auditor. At the AGM in May 2021, the shareholders approved a resolution to
reappoint Deloitte as external auditor. The Company has complied with the Code and FRC Guidance in respect of audit tendering
and rotation, under which the Company will be required to tender for the audit no later than the 2030 financial year. The Committee
regularly reviews auditor performance and may elect to carry out the tender earlier than the 2030 financial year if it determined it
would be in the interests of the Company’s shareholders to do so.
Use of external auditors for non-audit services
The Committee is responsible for EnQuest’s policy on non-audit services and the approval of non-audit services. The Committee
and Board believe that the external auditor’s independence and objectivity can potentially be affected by the level of non-audit
services to EnQuest. However, the Committee acknowledges that certain work of a non-audit nature is best undertaken by the
external auditor given their working knowledge of the Group. To ensure objectivity and independence, and to reflect best practice in
this area, the Company’s policy on non-audit services reflects the UK Regulations.
As part of the Committee’s process in respect of the provision of non-audit services, the external auditor provides the Committee
with information about its policies and processes for maintaining independence and monitoring compliance with current
regulatory requirements.
The key features of the non-audit services policy, the full version of which is available on our website (www.enquest.com; under
Corporate Governance within the Investors section), are as follows:
•
A pre-defined list of prohibited services has been established;
•
A schedule of services where the Group may engage the external auditor has been established and agreed by the Committee;
•
Any non-audit project work which could impair the objectivity or independence of the external auditor may not be awarded to
the external auditor; and
•
Fees for permissible non-audit services provided by the external auditor are to be capped at no more than 70% of the average
Group audit fee for the preceding three years. Following a change in external auditor, the 70% cap does not apply for the first
twoyears.
The Committee continues to review non-audit services and, in light of the revised FRC Ethical Standards, reviews the scope of work
to ensure its close link to audit services.
The Committee regularly reviews reports from management on the audit and non-audit services reported in accordance with the
policy or for which specific prior approval from the Committee is being sought.
Delegated authority by the Committee for the approval of non-audit services by the external auditor is as follows:
Authoriser
Value of services per
non-audit project
Chief Financial Officer
Up to £50,000
Chairman of the Audit Committee
Up to £100,000
Audit Committee
Above £100,000
In each case where the audit or non-audit service contract does not exceed the relevant threshold, the matter is approved by
management by delegated authority from the Committee and is subsequently presented for approval by the Committee at the
next meeting.
The scope of the non-audit services contracted with the external auditor in 2021 consisted mainly of the interim review and audit-
related assurance services associated with the Golden Eagle acquisition.
76
Directors’ Remuneration Report
“ The Committee’s focus remains ensuring reward for Executive
Directors, the Executive Committee and senior managers
incentivises the delivery of EnQuest’s strategy and
performancegoals.”
Howard Paver
Chair of the Remuneration and
Social Responsibility Committee
Dear fellow shareholder
On behalf of the Board and my fellow members of the
Remuneration and Social Responsibility Committee, I am
pleased to present EnQuest’s Directors’ Remuneration Report
(‘DRR’) for the financial year ended 31 December 2021.
Overview
Following the development of a new three-year Remuneration
Policy (the ‘Policy’) in 2020, which was put to shareholder vote at
the 2021 Annual General Meeting with 95.35% of votes cast in
favour, Committee focus in 2021 has included matters of social
responsibility, which we incorporated into the Committee terms
of reference in December 2020, and a review of the distribution
of PSP in the broader workforce. This was in addition to ongoing
assessment of the appropriateness of the Group’s total
compensation package available for Executive Directors to
ensure it remains aligned with our agreed remuneration
principles, and compliance with the UK Corporate Governance
Code (the ‘Code’). The Policy is summarised on page 79; no
amendments or revisions have been made to the Policy
during2021.
We continue to undertake benchmarking analysis of all key
reward components for Executive Directors and Executive
Committee members ahead of the annual pay review. This
benchmarking exercise, which was thoroughly debated in the
boardroom and independently validated by our remuneration
advisers, Mercer Kepler, satisfied the Committee that the shape
and level of our remuneration practices are appropriately
positioned against those of comparator companies of similar
size and scope.
The Committee believes that the current remuneration structure
is clear, simple and appropriately aligned with the Group’s
strategy, risk appetite and culture, and that incentives are
appropriately capped.
In line with the 2019 and 2020 reports, the chosen calculation for
the 2021 CEO pay ratio was in line with single figure methodology,
also known as ‘Option A’, resulting in a CEO pay ratio of 13:1.
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.
Emissions reduction targets have been included in the three-
year PSP performance conditions.
The DRR has three sections:
1. This annual summary statement;
2. A summary of the Policy which is presented for
information;and
3. The Annual Report on Remuneration of the Executive
Directors and Non-Executive Directors for 2021, which will be
subject to an advisory shareholder vote at the 2022 AGM.
Shareholder consultation
Our programme of open and transparent shareholder dialogue
continued to provide a valuable contribution to the Committee’s
work in developing revisions to our Policy. We are aware of
current institutional shareholder guidelines on executive
remuneration, and have now aligned Executive Director pension
contributions with those of the wider workforce and included
greater transparency around the circumstances which will be
subject to malus or clawback. We have further sought to
simplify performance measures for both the annual bonus and
PSP and to include environmental, social and governance
measures in both.
Performance and remuneration outcomes for 2021
While production performance was disappointing, the Group
delivered well across all other measures included in the CPC,
with all results above target and some exceeding the stretch
targets set. Delivery of the Golden Eagle acquisition was the
principal driver in the strong performance against the liquidity
management and reserves replacement measures. This was a
very positive acquisition for the business that will, we believe,
deliver significant shareholder value in the future. The culture,
Values and ESG objective achieved just over the target level, with
the creation and communication of a Group-wide Diversity and
Inclusion Strategy that includes gender and ethnicity targets in
leadership, stable employee engagement, and an outstanding
emissions reduction performance all contributing. The asset
integrity and safety plan was independently assessed as having
achieved its stretch target, and confirmed at the Safety, Climate
and Risk Committee meeting in January 2022. Finally,
expenditure measures that included operating, capital and
abandonment expenditure achieved just over the target level
as a result of strong financial discipline across the business.
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2021 annual bonus – payable in 2022
The Executive Directors’ annual bonus awards are based on a
combination of financial and operational results and the
achievement of key accountability objectives. The bonus
attainment for Amjad Bseisu (CEO) and Jonathan Swinney (CFO)
was based solely on achievement against the CPC. The 2021
target and maximum bonus potential for Executive Directors
was 75% and 125% of salary, respectively. 2021 bonus awards
equal to 81.80% of base salary (65.44% of maximum) have been
made for both Amjad Bseisu and Jonathan Swinney. The
Committee believes that these levels of award, which were
generated directly from the CPC outcome, are appropriate and
representative of the performance of senior management
when balanced against the shareholder and employee
experience, and that further discretionary adjustment was not
required. Full details of how these awards were determined is
included on pages 84 to 86 of this report.
Performance Share Plan
The 2019 PSP award made to Executive Directors will vest on
24 April 2022. The three-year performance period ended on
31 December 2021 and the award will vest at 43.89% of the
original award. The Committee agreed it was appropriate that
the performance calculation included production and reserves
growth arising out of the non-equity funded element of the 2018
acquisition of the additional 75.0% interest in Magnus. No benefit
was included in relation to the portion of the acquisition funded
from the net rights issue proceeds. A further adjustment was
made to both targets and outturn in relation to assets
decommissioned following the strategic decision taken in the
second quarter of 2020 to close production early at the Heather
and Thistle assets. This action will result in additional cash flow
and value to shareholders in the longer term. The impact of the
Golden Eagle acquisition, which completed in October 2021, was
excluded from both targets and outturn for the purposes of PSP
performance on the grounds that completion was achieved in
month 34 of a 36-month performance period. Taking the above
adjustments into account, the production growth and reserves
growth targets (30% and 10% weighting, respectively) did not
achieve threshold. Total Shareholder Return (‘TSR’) vested at
13.89% out of a possible 30.0%, while the net debt target, with a
weighting of 30.0%, was achieved in full. Full details of actual
performance against the four performance conditions of TSR,
production growth, reserves growth and net debt targets are on
pages 86 and 87 of this report.
A PSP award calculated at 250% of salary for both Amjad Bseisu
and Jonathan Swinney was made on 10 September 2020, based
on a 12-month average share price. Awards are typically based
on the three-day average share price ahead of the award date.
The impact of this adjustment to share price was an effective
reduction in award value of c.27%, and was applied to ensure
that Executive Directors did not benefit from ‘windfall gains’ as a
result of the share price impact of oil price volatility and
COVID-19 experienced in 2020. Performance of this award will be
measured on the basis of relative TSR over the three-year
performance period until 31 December 2022, with the award
vesting in September 2023.
For 2021, reflecting feedback received from shareholders and a
stronger focus on environmental considerations, the proportion
of award measured against relative TSR was reduced to 80% of
the award, with the remaining 20% measured against the
achievement of an emissions reduction target. The Committee
approved an award of 250% of salary for both Amjad Bseisu and
Jonathan Swinney.
Executive Director shareholding
Executive Directors are expected to build up and hold a
shareholding of 200% of salary. Both Amjad Bseisu and
Jonathan Swinney comfortably meet this requirement.
Change in personnel
Following year end, it was announced that Jonathan Swinney
had tendered his resignation and would be leaving EnQuest
after 13 years. Jonathan will continue to work with theGroup
foraperiod to ensure an orderly handover to hissuccessor.
Executive Director remuneration in 2022
2022 base salaries
For 2022, the Committee has increased the Chief Executive
Officer’s salary by 3%, in line with the UK workforce. The salary of
the Chief Financial Officer is unchanged for the current
incumbent. Remuneration for the incoming Chief Financial
Officer will be agreed in due course and disclosed in the
2022DRR.
2022 annual bonus
For 2022, annual bonus for the Chief Executive Officer will be
based 100% on the 2022 CPC outcome, with a target level of 75%
of salary and a maximum of 125% of salary.
2022 PSP awards
The Committee has decided to make an award of PSP to
AmjadBseisu at 250% of salary; no award will be made to
Jonathan Swinney. The 2022 award will be made in April 2022
and will be subject to two performance targets, relative TSR and
emissions reduction.
We continue to appreciate the benefits of transparency and
proactive interaction with major shareholders. We welcome
your input and are always prepared 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 all
support and vote for this DRR at the forthcoming AGM.
Howard Paver
Chair of the Remuneration and Social Responsibility Committee
23 March 2022
78
Governance
General governance
The Directors’ Remuneration Report has been prepared in accordance with the requirements of the Companies Act 2006 and
Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in
August 2013. It also describes the Group’s compliance with the 2018 UK Corporate Governance Code (the ‘Code’) in relation to
remuneration. The Committee has taken account of the new requirements for the disclosure of Directors’ remuneration and
guidelines issued by major shareholder bodies when setting the remuneration strategy for the Group.
Remuneration Policy
The following sections of this report set out a summary of our Directors’ Remuneration Policy (the ‘Policy’), which was approved by
shareholders at the 2021 Annual General Meeting (‘AGM’) in accordance with section 439A of the Companies Act 2006.
Remuneration principles
In determining the Policy approved at the 2021 AGM and summarised below, the Group reviewed its overall remuneration principles
to ensure that it continues to be aligned with the Group’s strategy and stakeholder interests. EnQuest’s strategic objective is to be the
operator of choice for maturing and underdeveloped hydrocarbon assets, focused on enhancing hydrocarbon recovery and
extending the useful lives of these assets in a profitable and responsible manner, while exploring the opportunities presented by the
energy transition.
EnQuest’s remuneration principles remain clear and simple: to ensure that the Group operates with the appropriate culture,
strengthening the link between reward and performance and emphasising the importance of its Purpose and Values.
In summary, the principles underpinning the Policy are that remuneration for Executive Directors should:
•
Support alignment of executives with stakeholders;
•
Be fair, reflective of best practice, and market competitive;
•
Comprise of fixed pay set around the median and variable pay capable of delivering remuneration at upper quartile; and
•
Reward performance with a balance of short-term and long-term elements, with the emphasis on longer-term reward.
The table below sets out how the principles of the Code relating to the design of remuneration policies and practices have
beenapplied:
Clarity
Simplicity
Risk
Predictability
Proportionality
Alignment to culture
Ensure a strong link
between pay and
performance and that
our remuneration
structure is designed
to be appropriately
logical and
transparent.
The Group engages
inshareholder
consultation when
considering material
changes to Policy
orprocess.
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;
•
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
toGroup performance.
Target ranges and
potential maximum
payments under
eachelement of
remuneration are
disclosed within
theDRR.
The Committee
operates a high
degree of discretion
over variable pay
elements and can
adjust any pay
outcomes that the
Committee deems
areinconsistent with
the performance
oftheGroup.
The Committee
hasensured that
appropriate
safeguards are
incorporated into the
2021 Policy.
The annual bonus is
directly aligned to
Group objectives, and
the Committee retains
discretion to adjust
outcomes thatare
considered
disproportionate to the
experience of other
stakeholders.
The Group’s business
performance metrics
and remuneration
structure is aligned to
its culture and Values,
with specific
non-financial
measures included in
performance metrics.
The Committee keeps
all performance
metrics under review
and retains the
flexibility to introduce
further culture and
Values measures into
its annual bonus plan.
Executive Directors
General approach
The remuneration of the Executive Directors comprises base salary, participation in an annual bonus plan (paid partly in cash and
partly in deferred shares), a long-term incentive plan (referred to as the Performance Share Plan (‘PSP’)), private medical insurance,
life assurance, personal accident insurance, and a modest cash allowance in lieu of pension.
When setting remuneration for the Executive Directors, the Committee takes into account the performance and experience of the
Director, as well as the Group performance, employment conditions for other employees in the Group, and the external
marketplace. Comparative data for our sector is obtained from a variety of independent sources.
Directors’ Remuneration Report
continued
79
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
The following table summarises EnQuest’s remuneration policy which became binding on 12 May 2021 with 95.35% of votes cast in
favour. The full policy can be viewed in the 2020 Annual Report which can be found on the Group’s website, www.enquest.com:
Component
Operation/key features
Maximum potential opportunity
Applicable performance measures
Salary and fees
•
Set at or below median when compared to a
comparator group and reviewed by the
Committee annually.
•
Increases in excess of the
general workforce by
exception only.
None.
Pension and other
benefits
•
Pension delivered as cash in lieu, with remaining
benefits provided by the Group.
•
Participation in Sharesave permitted.
•
Additional benefits offered when required, in line
with local practice.
•
Reasonable business-related expenses
permitted.
•
Benefits reviewed periodically.
•
Maximum pension
allowance is lesser of 10%
of salary or £50,000
1
.
•
Private medical and
personal accident
insurance.
•
Life assurance.
None.
Annual bonus
•
Bonus in excess of 100% of salary deferred into
EnQuest shares for two years, otherwise paid
incash.
•
Committee discretion to allow dividend
equivalent on deferrals.
•
Cash and share elements both subject to malus
and clawback for up to three years post payment.
•
Target award:
75% ofsalary.
•
Maximum award:
125% ofsalary.
•
Scorecard including key performance
objectives set annually by the Committee
and measured against threshold, target
and stretch levels with bonuses accruing
on a sliding scale from 0% at threshold.
Performance
Share Plan (‘PSP’)
•
Awarded annually.
•
Three-year vesting dependent on achievement of
performance conditions.
•
Further two-year holding period.
•
Awards can be conditional, nil cost options or joint
interests in shares.
•
Dividend equivalent on unvested awards
permitted in shares.
•
Subject to malus and clawback.
•
Normal maximum:
250%of salary.
•
Exceptional maximum:
350% of salary.
•
A blend of measures including, but not
limited to, relative TSR and ESG measures.
•
Maximum of 25% vesting at threshold.
•
Performance conditions detailed in the
Annual Report on Remuneration.
•
The number, type and weighting of
measures may vary in the future in line with
business priorities.
•
Shareholder consultation will normally take
place before material changes are made.
Shareholding
requirements
•
Executive Director shareholding of at least 200% of
salary, with a requirement this level is achieved
within five years from appointment.
•
Shareholding to be retained at the lower of actual
shareholding or 200% of salary for two years
post-employment, including both vested
andunvested.
n/a
None.
Chairman and
Non-Executive
Director fees
•
Reviewed annually considering comparator
group fee levels, time commitment and
employee salary increases.
•
Non-Executive Directors receive base fees with
additional fees paid to Committee Chairs and the
Senior Independent Director.
•
Additional fees can be paid if there is a material
increase in commitment.
•
Reasonable business-related expenses are
permitted.
•
Not eligible for Group benefits or incentive
schemes.
•
Chairman receives an all-inclusive fee set by the
Senior Independent Director.
•
Reviewed periodically
and limited by the
Company’s Articles of
Association.
None.
Note:
1 Pension allowance for Amjad Bseisu was 10.4% of salary in 2021 and will be 10.1% of salary in 2022 and will continue to reduce as a percentage with normal salary increments
Changes to policy
No changes have been made to the policy since its adoption at the 2021 AGM.
Performance measures and targets
Annual bonus
The key performance indicators in the Group scorecard that also determine a significant proportion of the annual bonus of
Executive Directors include, but are not limited to, the following categories:
•
Environment, Social and Governance (’ESG’);
•
Financial (including opex, capex and net debt);
•
Operational performance/production;
•
Growth; and
•
Financial management.
80
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 both Amjad Bseisu and Jonathan Swinney are normally based solely on the Company Performance Contract
(‘CPC’) of EnQuest, but can include personal business objectives up to a maximum of 25%.
Annual bonus and share deferrals
Executive Directors will normally receive any applicable annual bonus in cash or deferred shares. In particular, any amount above
100% of salary is delivered in EnQuest shares deferred for two years. These vest subject to continued employment. In exceptional
circumstances, bonuses may be paid entirely in cash.
Performance Share Plan
The PSP is typically awarded annually and has a minimum vesting period of three years. Awards granted from 2019 onwards are
subject to an additional two-year holding period which, unless the Committee determines otherwise, will apply up to the fifth
anniversary of the date of grant. The performance conditions attached to the awards granted in 2021 are relative TSR measured
against a comparator group of oil and gas companies and absolute emissions reductions over a three-year period.
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
theGroup.
In the case of an internal promotion, any outstanding variable pay awarded in relation to the previous role will be allowed to
continue according to its terms of grant.
The Committee may make additional awards on appointing an Executive Director to ‘buy-out’ remuneration arrangements
forfeited on leaving a previous employer. Any such payments would be based solely on remuneration lost when leaving the former
employer and would reflect (as far as practicable) the delivery mechanism, time horizons and performance requirement attached
to that remuneration. The Group’s existing incentive arrangements, including the 2020 Restricted Share Plan (‘RSP’), will be used to
the extent possible for any buyout (subject to the relevant plan limits), although awards may also be granted outside of these
schemes, if necessary, and as permitted under the Listing Rules.
Service contracts
Amjad Bseisu and Jonathan Swinney entered into service agreements with the Company which are terminable by either party
giving not less than 12 months’ written notice. The Company may terminate their employment without giving notice by making a
payment equal to the aggregate of the Executive Director’s basic 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
Date of appointment
Notice period
Amjad Bseisu
22 February 2010
12 months
Jonathan Swinney
29 March 2010
12 months
Directors’ Remuneration Report
continued
81
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
The Chairman and Non-Executive Directors have letters of appointment, the details of which are provided below.
Non-Executive Directors’ letters of appointment
Date of appointment
Notice period
Initial term of
appointment
Martin Houston
1 October 2019
3 months
3 years
Carl Hughes
1 January 2017
3 months
3 years
Philip Holland
1 August 2015
3 months
3 years
John Winterman
7 September 2017
3 months
3 years
Howard Paver
1 May 2019
3 months
3 years
Farina Khan
1 November 2020
3 months
3 years
Liv Monica Stubholt
15 February 2021
3 months
3 years
Rani Koya
1 January 2022
3 months
3 years
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
aresult of a change of control), the Executive Directors would be entitled to compensation for loss of basic salary and cash benefit
allowance and insured benefits for the notice period up to a maximum period of 12 months. Such payments may be made monthly
and would be subject to mitigation. The Company may also enable the provision of outplacement services to a departing
ExecutiveDirector, 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 Remuneration and Social
Responsibility Committee has discretion to waive pro-rating (but not the performance conditions) where it feels this is in the best
interests of shareholders.
The Non-Executive Directors do not have service contracts but their terms are set out in a letter of appointment. Their terms of
appointment may be terminated by either party giving three months’ notice in writing. During the notice period, Non-Executive
Directors will continue to receive their normal fee.
Remuneration and Social Responsibility Committee discretion and determinations
The Committee will operate the annual bonus scheme, DBSP, PSP, RSP and Sharesave Scheme according to their respective rules
and in accordance with the Listing Rules and HMRC requirements, where relevant. The Committee, consistent with market practice,
retains discretion over a number of areas relating to the operation and administration of these arrangements. These include, but
are not limited to, the following:
•
Who participates in the plans;
•
The timing of grant of award and/or payment;
•
The size of an award and/or payment;
•
Discretion relating to the adjudication of performance against targets in the event of a change of control or reconstruction;
•
Applying ‘good leaver’ status in circumstances such as death, ill health and other categories as the Committee determines
appropriate and in accordance with the rules of the relevant plan;
•
Discretion to disapply time pro-rating in the event of a change of control or good leaver circumstances;
•
Discretion to settle any outstanding share awards in cash in exceptional circumstances;
•
Adjustments or variations required in certain circumstances (e.g. 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.
82
If an event occurs which results in any applicable performance conditions and/or targets being deemed no longer appropriate
(e.g.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 2022 in line with the Policy. These charts provide an
illustration of the proportion of total remuneration made up of each component of the Policy and the value of each component.
In accordance with the remuneration reporting requirements, four 2022 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
Maximum performance
•
Fixed remuneration
•
125% of annual base salary as annual bonus
•
Full vesting under the PSP
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
atvesting
£2,395
Chief Executive Officer
Minimum
Target
Maximum
Maximum +
50% share
appreciation
45%
30%
25%
100%
£545
£1,223
23%
26%
18%
21%
51%
61%
£3,012
Long-term incentives
Annual bonus
Fixed pay
Remuneration (£’000s)
0
500
1,000
1,500
2,000
2,500
3,500
3,000
Chief Financial Officer
Minimum
Target
Maximum
Maximum +
50% share
appreciation
45%
30%
25%
100%
£373
£838
23%
26%
18%
21%
51%
61%
£1,624
£2,065
Notes:
For the Chief Executive Officer, fixed pay comprises salary from 1 January 2022, a pension allowance of £50,000 plus medical insurance benefit of £1,217.
For the Chief Financial Officer, the chart shown reflects the fixed pay and incentive opportunities currently provided to Jonathan Swinney. As noted on page 77, Jonathan will
be leaving EnQuest during the year and accordingly will not be eligible for annual bonus or PSP during 2022.
Directors’ Remuneration Report
continued
83
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
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 are given cash in lieu of pension.
Non-Executive Directors do not participate in pension or benefits arrangements;
•
Non-Executive Directors do not participate in the annual bonus scheme;
•
If applicable, Executive Directors have an element of the annual bonus automatically converted to shares and deferred; and
•
All other employees may be invited to participate in the DBSP where they can elect to defer a defined proportion of their annual
bonus and receive a matching amount of shares that vest over the following three years. Executive Directors are not eligible to
receive matching share awards under this plan.
During the annual remuneration review, the Committee receives a report which details the remuneration arrangements of other
executives and senior management as well as the overall spend versus budget for all employees. This report helps to act as a guide
to the Committee as to the levels of reward being achieved across the organisation so that they can ensure the Directors’ pay does
not fall out of line with the general trends.
Employees have not previously been directly consulted about the setting of Directors’ pay, although the Committee will take into
consideration any developments in regulations in operating this policy.
Statement of shareholder views
The Remuneration and Social Responsibility Committee welcomes and values the opinions of EnQuest’s shareholders with regard
to the structure and levels of remuneration for Directors. The 2020 DRR was voted on at the AGM held in May 2021, where 97.72% of the
votes cast were in favour. The Policy, where 95.35% of votes cast at the AGM held in May 2021 were in favour, incorporated shareholder
feedback following consultation.
Annual Report on Remuneration for 2021
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 2021
The Committee has four scheduled meetings per year. During 2021, it met on four occasions as scheduled to review and discuss
base salary adjustments for 2022, the setting of Group performance conditions and related annual bonus for 2021, PSP performance
conditions, UK Corporate Governance Code provisions and the approval of share awards.
Committee members, attendees and advisers
Member
Date appointed
Committee member
Attendance at scheduled
meetings during the year
Howard Paver
1 May 2019
4
Martin Houston
15 October 2019
4
Farina Khan
1 November 2020
4
Advisers to the Remuneration and Social Responsibility Committee
The Committee invites individuals to attend meetings to provide advice so as to ensure that the Committee’s decisions are
informed and take account of pay and conditions in the Group as a whole. These individuals, who are not members but may attend
by invitation, include, but are not limited to:
•
The Chief Executive (Amjad Bseisu);
•
The Chief Financial Officer (Jonathan Swinney);
•
The Company Secretary (Stefan Ricketts);
•
A representative from the Group’s Human Resources department; and
•
A representative from Mercer Kepler, appointed as remuneration adviser by the Committee from 1 August 2017.
No Director takes part in any decision directly affecting their own remuneration.
84
Information subject to audit
Directors’ remuneration: the ‘single figure’
In this section of the report we have set out the payments made to the Executive and Non-Executive Directors of EnQuest for the year
ended 31 December 2021, together with comparative figures for 2020.
Single total figure of remuneration – Executive Directors
‘Single figure’ of remuneration – £’000s
1
Director
Year
Salary
and fees
2
All taxable
benefits
Pension
3
Total fixed
pay
Annual
bonus
4
LTIP
5
Total variable
Total fixed
and variable
Amjad Bseisu
2021
479
1
50
530
392
496
888
1,418
2020
455
7381
50
507
359
379
1,244
Jonathan Swinney
2021
338 1
34
373
348277
624
998
2020 321
1
43
365
254
865247
500
Total
2021
817
3
84
904
844669
1,512
2,416
2020
777
3
93
872
613
626
1,239
2,110
Notes:
1 Rounding may apply
2 Salary and fees reflect voluntary 20% salary reduction applied in April, May and June 2020
3 Cash in lieu of pension
4 The annual bonus for 2020 for Amjad Bseisu and Jonathan Swinney was based on base salary levels and payment was made in respect of the full financial year. The
amount stated is the full amount (including any portion deferred). Any Executive Director bonus for Amjad Bseisu and Jonathan Swinney that is above 100% of their
respective salary is paid in EnQuest PLC shares, deferred for two years, and subject to continued employment
5
PSP awarded on 24 April 2019 which will vest on 24 April 2022:
the LTIP value shown in the 2021 single figure is calculated by taking the number of performance shares that
will vest (43.89%) multiplied by the average value of the EnQuest share price between 1 October 2021 and 31 December 2021, as the share price on 24 April 2022 is not known
at the time of this report. This number of shares has been adjusted in line with the open offer dated 26 July 2021, further details of which are included on page 88
PSP awarded on 24 April 2018 which vested on 24 April 2021:
the LTIP value shown in the 2020 single figure is calculated by taking the number of performance shares that
vested (63.94%) multiplied by the actual share price of 16.52 pence on the next business day following the vesting date of 24 April 2021, as the vesting date was a weekend in
the UK. The 2020 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 2021 was as follows, together with comparative
figures for 2020:
‘Single figure’ of remuneration – £’000s
Director
Salary
and fees
2021
1
Salary
and fees
2020
1
All taxable
benefits
2021
All taxable
benefits
2020
Total for
2021
Total for
2020
Martin Houston
200
190
–
190–
200
Howard Paver
2
80
70
–
80–
70
Laurie Fitch
3
–
61
––
–61
Carl Hughes
70
67
–
67–
70
Philip Holland
70
67
–
67–
70
John Winterman
70
67
–
67–
70
Farina Khan
4
60
10
–
60–
10
Liv Monica Stubholt
5
45
–
45–
––
Helmut Langanger
6
–
18
––
–18
Total
595
548
–
595–
548
Notes:
1 Salary and fees paid in April, May and June 2020 were subject to a voluntary 20% reduction
2 Howard Paver was appointed as Senior Independent Director on 31 March 2020 and Chair of the Remuneration and Social Responsibility Committee on 21 May 2020. His fees
were pro-rated
3 Laurie Fitch stepped down from the role of Chair of the Remuneration and Social Responsibility Committee on 21 May 2020. Her fees were pro-rated
4 Farina Khan was appointed to the Board and became a member of the Audit Committee and Safety, Climate and Risk Committee on 1 November 2020. Her fees for 2020
were pro-rated. Farina became a member of the Remuneration and Social Responsibility Committee in February 2021.
5 Liv Monica Stubholt was appointed to the Board on 15 February 2021. Her fees were pro-rated
6 Helmut Langanger retired from the Board on 31 March 2020. His fees were pro-rated
Annual bonus 2021 – paid in 2022
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 2021 as a percentage of base salary was 125% for
Amjad Bseisu and Jonathan Swinney.
For both Amjad Bseisu and Jonathan Swinney, the annual bonus for 2021 was wholly based on the CPC results.
Company Performance Contract (‘CPC’)
The details of the CPC for both Amjad Bseisu and Jonathan Swinney are set out in the following tables, showing the performance
conditions and respective weightings against which the bonus outcome was assessed.
Directors’ Remuneration Report
continued
85
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
Performance targets and payout
1
Performance measure
Weighting
Amjad Bseisu and
JonathanSwinney
Production
2
(Kboed)
20.00%
Threshold: 49.3
Maximum: 53.7
Actual: 44.4
Maximum bonus %
available
Actual % payout
25.00%
0.00%
Expenditure
2
Cash opex/capex/abex ($ million)
20.00%
Threshold: 428.1
Maximum: 385.4
Actual: 397.0
Maximum bonus %
available
Actual % payout
25.00%
16.67%
Asset Integrity
Deliver AI and safety plan to theBoard
evaluated by the Safety, Climate and Risk
Committee
10.00%
Threshold: Low
Maximum: High
Actual: High
Maximum bonus %
available
Actual % payout
12.50%
12.50%
Culture/Values/ESG
Design and communicate a Diversity &
Inclusion Strategy;
Improve employee engagement as
measured by survey outcomes; and
Achieve progress towards three-year
objective of 10% emissions reduction
10.00%
Diversity & Inclusion Strategy
was delivered in good time
and communicated across
the business;
Employee engagement
wasstable;
Emissions fell by over 14%
Actual: Between target
andstretch
Maximum bonus %
available
Actual % payout
12.50%
8.75%
Liquidity Management
Deliver accretion through acquisition
based on Gaffney, Cline & Associates
Competent Persons Report
20.00%
Threshold:
$100 million NPV10
Maximum:
$150 million NPV10
Actual: $170m NPV10
Maximum bonus %
available
Actual % payout
25.00%
25.00%
M&A and Reserves
Closing a transaction that delivers
significant value and reserves
replacement
20.00%
Threshold:
100% reserves replacement
Maximum:
130% reserves replacement
Actual: 117.8%
Maximum bonus %
available
Actual % payout
25.00%
18.88%
Total bonus outturn (% of salary)
81.80%
Notes:
1 Rounding may apply
2 Production and Expenditure targets were adjusted to take account of the Golden Eagle acquisition which completed in October 2021. The completion date of this
transaction could not have been foreseen when targets were initially set. The adjustment did not affect the outturn on either measure
Any payout against the CPC may be subject to an additional underpin based on the Committee’s assessment of the Group’s HSEA
performance. Following above-target performance in relation to HSEA metrics, it was the view of the Committee that the scorecard
outcome was a reasonable representation of Executive Director performance and did not require further adjustment.
The annual bonus summary for the Executive Directors for 2021 is shown in the table on the following page based on the
achievement of the performance conditions against the CPC for both Amjad Bseisu and Jonathan Swinney.
86
Amjad Bseisu and Jonathan Swinney
Performance measure
2
Weighting
Max
Actual outturn
% of salary
1
Production (Kboed)
20.00%
25.00%
0.00%Expenditure – opex/capex/abex ($ million)
20.00%
25.00%
16.67%
Asset Integrity
10.00%
12.50% 12.50%
Culture/Values/ESG
10.00%
12.50%
8.75%
Liquidity Management ($ million)
20.00%
25.00% 25.00%
M&A and Reserves
20.00%
25.00%
18.88%
Sub-total
100.00%
125.00%
81.80%
Personal objectives
n/a n/a n/a
Total outturn (%)
100.00%
125.00%
81.80%
Total payout (%)
81.80%
Total payout (% of maximum)
65.44%
Total 2021 bonus award (£) – Amjad Bseisu
£391,910
Total 2021 bonus award (£) – Jonathan Swinney
£276,705
Notes:
1 Rounding may apply
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
2019 PSP awards that vest in 2022
The LTIP award made to Executive Directors on 24 April 2019 was based on the performance to the year ended 31 December 2021 and
will vest on 24 April 2022.
Targets applying to the 2019 PSP award were set at the start of the performance period and took into account both internal and
external expectations at the time, but not the impact of early decommissioning of Heather and Thistle assets. In 2020, the Group
decided to decommission these assets early, resulting in additional cash flow and value for shareholders in the longer term. The
Committee considered the impact of this on outstanding PSP cycles and decided the fairest approach was to exclude the
production and reserves growth from the decommissioned assets in both the targets and the level of performance achieved. Any
impact from the Golden Eagle acquisition has been excluded from the performance outturn below. This acquisition completed in
month 34 of a 36-month assessment period and, on this basis, the Committee took the decision to exclude it.
The performance targets for this award and actual performance against those targets over the three-year financial period were
asfollows:
Performance conditions and weighting
Grant date
Vesting date
Performance
period
Relative TSR
Production
growth
1
Reduction in
netdebt
Reserves
growth
1
Total
award
24 Apr 2019
24 Apr 2022 1 Jan 2019 –
31 Dec 2021
30.00% 30.00% 30.00% 10.00% 100.00%
Below threshold
39,158
Boepd
$1,774.5
million
195.2
MMboe
Threshold
Median
52,119
Boepd
$1,330.9
million
204.8
MMboe
Maximum
Upper quartile
67,665
Boepd
$1,153.4
million
214.5
MMboe
Actual performance
achieved
7th position
38,947
Boepd
1
$1,046.9
million
174.7
MMboe
Percentage meeting
performance conditions
and total vest
13.89%
0.00% 30.00% 0.00%
43.89%Note:
1 Adjusted to include the impact of the strategic decision taken early in 2020 to close the Heather and Thistle assets earlier than planned. Production and reserves relating to
the assets closed early have been excluded from both target and achievement of these measures. Additionally, no impact of the Golden Eagle acquisition has been
reflected in the PSP outcome. This transaction closed at the end of month 34 of a 36-month performance period, and only the non-equity funded portion of the Magnus
acquisition has been included in production and reserves outcomes, in line with previous years.
Directors’ Remuneration Report
continued
87
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
The table below shows the number of nil cost options awarded on 24 April 2019 that will vest on 24 April 2022 and their value as at
31 December 2021. This figure is calculated by taking the average closing share price on each trading day of the period 1 October
2021 to 31 December 2021 and is used as the basis for reporting the 2021 ‘single figure’ of remuneration. The actual value of these
shares recorded in the remuneration table will be updated in 2022 to represent the actual value received on the day of vesting.
Name
Original
number of
shares
Adjusted
number of
shares
1
Portion vesting
No. of
shares
vesting
Average
share price
£
Value at
31 Dec 2021
£
Amjad Bseisu
5,215,886
5,240,006
43.89%
2,299,838
0.2156
495,845
Jonathan Swinney
3,658,260
3,675,117
43.89%
1,613,035
0.2156
347,770
Note:
1 Following an adjustment made in relation to the open offer of 26 July 2021. Full details on page 88
The 2019 PSP award granted was based on the average middle market quotation of the three dealing days immediately preceding
the date of grant of 24 April 2019 of 22.07p. Compared to the average value of the EnQuest share price between 1 October 2021 and
31 December 2021 of 21.56p, this represents a 2.3% decrease in the share price over the period.
Should the share price be the same at vesting as at grant, with the performance outturn of 43.89%, the value would be 2.3% higher
than currently estimated using the average value of the EnQuest share price between 1 October 2021 and 31 December 2021. The
Committee is satisfied that the implied values vesting to Executive Directors and the overall single figures of remuneration for the
year are appropriate taking into account the performance of the Group. No discretion has therefore been exercised in relation to this
fall in share price.
April 2021 PSP award grant
After due consideration of business performance in 2020, the Remuneration and Social Responsibility Committee awarded the
Executive Directors the following performance shares on 27 April 2021:
Face value
(% of 2020 salary)
Face value at
date of grant
£
Original no.
of shares
1
Adjusted no.
of shares
2
Performance period
Amjad Bseisu
250%
1,197,840 7,407,792
7,442,048
1 Jan 2021 – 31 Dec 2023
Jonathan Swinney
250%
845,725
5,230,210
5,254,396
1 Jan 2021 – 31 Dec 2023
Notes:
1 Based on the middle market quote for the three days preceding the date of grant of 22.07 pence
2 Following an adjustment made in relation to the open offer of 26 July 2021. Full details on page 88
Summary of performance measures and targets – April 2021 PSP grant
The 2021 PSP share awards granted on 27 April 2021 will be measured 80% against a relative TSR performance condition over a
three-year financial performance period and 20% based on emissions 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 2021 to 31 December 2023, with the awards vesting on 26 April 2024.
2021 PSP – schedule for vesting in 2024
Relative TSR weighting 80% Emissions reduction weighting 20%
Performance Vesting Performance Vesting
Below threshold
Below median
0%
<10%
0%Threshold
1
Median
25%
10%
25%Maximum
1
Upper quartile
100%
12% or more100%
Note:
1 Linear between threshold and maximum
PSP measure – base levels
These are the historical base levels that performance is measured from, for a three-year period for each annual PSP grant, up to
and including the PSP award granted in 2021:
Year of grant
Production growth –
base level
Reserves growth –
base level
Net debt –
base level
Emissions –
base level
2019 – pre-adjustment for decommissioned assets
55,447 Boepd 245.2 MMboe
$1,774.5 million
n/a
2019 – post-adjustment for decommissioned assets
39,158 Boepd 195.0 MMboe
$1,774.5 million
n/a
2020 100% relative TSR
n/a n/a n/a n/a
2021 80% relative TSR/20% emissions reduction
n/a n/a n/a
1,343 ktCO
2
e
88
The comparator group companies for the TSR performance condition relating to the 2020 PSP award are as follows:
FTSE 350
FTSE All-Share
FTSE AIM – Top 100
NASDAQ OMX Stockholm
Other
Capricorn Energy
1
Harbour Energy
2
Hurricane Energy
Africa Oil
Genel Energy
Tullow Oil Pharos Energy
Rockhopper Exploration
Lundin Petroleum
Bowleven
Aker BP ASA
Serica
Notes:
1 Capricorn Energy was previously known as Cairn Energy
2 Harbour Energy was previously known as Premier Oil
The comparator group companies for the TSR performance condition relating to the 2021 PSP award are as follows:
FTSE 250 FTSE AIM – Top 100 FTSE Small Cap
NASDAQ OMX Stockholm
Oslo Bors
Other
Capricorn Energy
1
Jadestone
Pharos Energy
Africa Oil
Aker BP ASA
Genel Energy
Diversified Energy
Serica
Tullow Oil Lundin Petroleum
BW Energy
Hibiscus
Energean
DNO
Hurricane Energy
Harbour Energy
Okea
Kosmos
Maurel & Prom
Santos
Note:
1 Capricorn Energy was previously known as Cairn Energy
The number of PSP awards outstanding as at 31 December 2021 is as follows:
Total shares
awarded
Adjusted shares
awarded
Performance period
Performance conditions
(and weighting) Vesting date
Grant date – April 2019
TSR (30%)
24 Apr 2022
Amjad Bseisu
5,215,886
5,240,006
1 Jan 2019–31 Dec 2021
Production growth (30%)
Jonathan Swinney
3,658,260
3,675,177
Reserves growth (10%)
Net debt reduction (30%)
Grant date – September 2020
TSR (100%)
9 Sep 2023
Amjad Bseisu
7,057,406
7,090,042
1 Jan 2020–31 Dec 2022
Jonathan Swinney
4,949,819
4,972,708
Grant date – April 2021
TSR (80%)
26 Apr 2024
Amjad Bseisu
7,407,792 7,442,048
1 Jan 2021–31 Dec 2023
Emissions reduction (20%)
Jonathan Swinney
5,230,210
5,254,396
Firm placing, placing and open offer adjustment
On 30 June 2021, EnQuest PLC issued a prospectus setting out details of a firm placing, placing and open offer to qualifying
shareholders in the Company. The open offer, having been approved by shareholders on 23 July 2021, took effect on 26 July 2021. The
Committee subsequently exercised its discretion to make an adjustment to unexercised employee share awards. This was to
ensure that rights under the various share schemes were not adversely affected by the open offer. In the case of the PSP, awards
were adjusted by a factor of 1.0046
1
(rounded down to the nearest whole share).
Note:
1 Adjustment factor shown to four decimal places
Pension allowance
Executive Directors do not participate in the EnQuest pension plan and instead receive cash in lieu. Amjad Bseisu received £50,000
and Jonathan Swinney received £33,829 in 2021. This was equivalent to 10.4% of Amjad Bseisu’s 2021 salary and 10.0% of Jonathan
Swinney’s 2021 salary.
Directors’ Remuneration Report
continued
89
EnQuest PLC –
Annual Report and Accounts 2021
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 2021 are shown below:
In 2021, the following awards were granted, lapsed and adjusted for the Executive Directors
PSP
31 December
2020
Granted
Lapsed
Adjusted
1
31 December
2021
Vesting period Expiry date
Amjad Bseisu
3,587,060
1,293,494
10,606
2,304,172
24 Apr 2018 – 24 Apr 2021 24 Apr 2028
5,215,886
24,120
5,240,006
24 Apr 2019 – 24 Apr 2022 24 Apr 2029
7,057,406
32,636
7,090,042
10 Sep 2020 – 9 Sep 2023 9 Sep 2030
7,407,792
34,256
7,442,04827 Apr 2021 – 26 Apr 2024 26 Apr 2031
PSP
31 December
2020
Granted
Lapsed
Adjusted
1
31 December
2021
Vesting period Expiry date
Jonathan Swinney
2,335,759
842,275
6,906
1,500,390
24 Apr 2018 – 24 Apr 2021 24 Apr 2028
3,658,260
16,917
3,675,177
24 Apr 2019 – 24 Apr 2022 24 Apr 2029
4,949,819
22,889
4,972,708
10 Sep 2020 – 9 Sep 2023 9 Sep 2030
5,230,210
24,816
5,254,396
27 Apr 2021 – 26 Apr 2024 26 Apr 2031
Note:
1 Adjustment relates to the open offer of 26 July 2021. Full details on page 88
The table above shows the maximum number of shares that could be released if awards were to vest in full. These awards first vest
on the third anniversary of the award date, subject to the achievement of performance conditions (as described elsewhere in this
report). Awards vesting from 2022 onwards will then be subject to an additional two-year holding period which, unless the
Committee determines otherwise, will apply up to the fifth anniversary of the date of grant.
Statement of Directors’ shareholdings and share interests
Executive Directors are currently required to build up and hold shares in the Company worth 200% of salary and are expected to
retain 50% of shares from vested awards under the PSP (other than sales to settle any tax or social security withholdings due) until
they hold at least 200% of salary in shares (this includes shares which are beneficially owned directly or indirectly by family
members of an Executive Director).
Legally owned
(number of
shares)
Value of
legally
owned
shares as %
of salary
1
Unvested and
subject to
performance
conditions
under the PSP
Vested but
not exercised
under the PSP
Vested but
not exercised
under the RSP
Sharesave
Executive
deferrals
Total at
31 December
2021
Value of
shareholding
as a % of
salary
1
Amjad Bseisu
215,823,042
2
9,712%
19,772,096
2,304,172
– –
72,475
237,971,785
10,708%
Jonathan Swinney
960,446
61%
4,968,028 13,902,281
– –
2,205,323
22,036,078
1,404%
Martin Houston
528,085
n/a n/a n/a n/a n/a n/a
528,085n/a
Howard Paver
457,617
n/a n/a n/a n/a n/a n/a
457,617n/a
Philip Holland
295,605
n/a n/a n/a n/a n/a n/a
295,605n/a
Carl Hughes
109,390
n/a n/a n/a n/a n/a n/a
109.390n/a
Farina Khan
211,235
n/a n/a n/a n/a n/a n/a
211,235n/a
Liv Monica Stubholt
–
n/a n/a n/a n/a n/a n/a
–n/a
John Winterman
221,123
n/a n/a n/a n/a n/a n/a
221,123n/a
Notes:
1 Shares are valued by taking the average closing share price on each trading day of the period 1 October 2021 to 31 December 2021
2 As at 31 December 2021, 188,833,544 shares were held by Double A Limited, a company beneficially owned by the extended family of Amjad Bseisu. 26,812,583 shares were
also held by The Amjad and Suha Bseisu Foundation and the remaining 176,959 shares were held by Amjad Bseisu directly
90
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.
180
06 Apr 20
06 Apr 19
06 Apr 18
31 Dec 21
06 Apr 17
06 Apr 16
EnQuest
FTSE AIM All-Share – Oil & Gas
06 Apr 10
06 Apr 11
06 Apr 12
06 Apr 13
06 Apr 14
06 Apr 15
160
140
120
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 2021 and the previous six 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:
2015 2016 2017 2018 2019 2020
2021
‘Single figure’ of total remuneration (£’000s)
884
941
998
1,306
1,275
1,244
1,418
Annual bonus (as a % of maximum)
27
33
57
79
81
60
65
Long-term incentive vesting rate
(as a % of maximum PSP)
77
56
11
5650
64
44
CEO pay ratio 2021
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 2021 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)
2021
15:1 13:1 11:1
2020
A
STFR
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 2021, with remuneration of part-time
employees and those employees on statutory leave included on a full-time equivalent basis.
Data points reflect the 25th, 50th and 75th percentile of all UK employees’ total remuneration as follows:
UK STFR
Financial year
Methodology
CEO
P25
(lower quartile)
P50
(median)
P75
(upper quartile)
2021
£1,418,141
£92,108
£106,862
£128,860
2020
A
STFR
£1,118,892
£78,729
£92,508
£110,817
2019
£1,448,480
£62,717
£104,769
£129,558
2021
£479,136
£65,500
£69,960
£89,920
2020
A
Base salary
£455,179
£52,346
£75,833
£70,874
2019
£469,741
£51,952
£76,503
£87,941
Directors’ Remuneration Report
continued
91
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
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). Whilst 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:
2020
$ million
2021
$ million
Adjusted EBITDA
1
551
743
Net debt
1
1,280
1,222
Distribution to shareholders
0
0
Total employee pay
118
103
Note:
1 Adjusted EBITDA has been chosen as an appropriate measure of return to shareholders and net debt as a measure of EnQuest’s commitment to its lenders
Change in Directors’ pay relative to the workforce between 2020 and 2021
Base salary/fees
1
%
Bonus
%
Benefits
%
Amjad Bseisu
5 9 0
Jonathan Swinney
5 9
(20)
Martin Houston
5 –
n/a
Howard Paver
2
14
–
n/a
Philip Holland
5 –
n/a
Carl Hughes
5 –
n/a
Farina Khan
3
0 –
n/a
Liv Monica Stubholt
4
n/a
–
n/aJohn Winterman
5 –
n/a
UK employees (average)
5
0 3 0
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 actual amounts paid in 2020 and 2021. Benefits include employer pension contribution and/or allowance
1 All Directors in role during April, May and June 2020 took a voluntary 20% salary and fee reduction for that period in light of the uncertainty relating to the COVID crisis. No
uplift to salary or fees was applied in 2021; the change shown above represents a full year without the voluntary reduction
2 Howard Paver was appointed as Senior Independent Director on 31 March 2020 and Chair of the Remuneration ans Social Responsibility Committee on 21 May 2020
3 Farina Khan was appointed to the Board and became a member of the Audit Committee and the Safety, Climate and Risk Committee on 1 November 2020. Her fees for 2020
have been annualised. Farina became a member of the Remuneration and Social Responsibility Committee in February 2021
4 Liv Monica Stubholt was appointed to the Board on 15 February 2021
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 this business unit. The
North Sea performed less well than Malaysia and overall Group performance during 2021
Statement of implementation of the remuneration policy for the year ending 31 December 2022
Base salary and 2022 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 oil and gas industry and
comparable sized companies. In the view of the Committee, it is therefore important to ensure that the base salaries of the
Executive Directors are reviewed annually and that any increase reflects the change in scale and complexity of the role as the
Group grows, as well as the performance of the Executive Director. The table below shows the changes applied to salaries for 2022.
Name
Salary for 2021
£
Salary for 2022
£
Increase
%
Amjad Bseisu
479,136
493,500
3
Jonathan Swinney
338,290 338,290
0
The average salary uplift for Group employees was 3%, although individual uplifts varied according to market position, and
individual experience and performance. In light of his resignation, Jonathan Swinney will not receive a base salary increase for 2022.
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 continues to receive
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.
92
Annual bonus
For the year ended 31 December 2022, the target and maximum annual bonus opportunities for the Chief Executive Officer will
continue to be 75% of salary at target and 125% of salary at maximum.
The annual bonus scheme for 2022 is structured as follows:
•
Awards will be determined based on a balanced combination of financial and operational performance measures;
•
Executive Directors (and other executive management) will have threshold, target and stretch performance levels attributed to
key performance objectives;
•
Executive Directors’ bonuses will be determined predominantly by the performance of the Group;
•
Each part of the bonus will represent a discrete element which will be added together to determine the performance award for
the year; and
•
Stretching targets will continue to apply to achieve maximum payout.
The 2022 metrics and weightings, which will determine the level of short-term incentive awards for the CEO, are set out below.
Group 2022 performance measures scorecard
Metric
Weighting
Production
25%
Expenditure
15%
ESG, Culture and D&I
15%
Liquidity Management
25%
Growth – Organic and Inorganic
20%
Notes:
Precise targets are commercially sensitive and are not being disclosed in advance at this time
Performance in HSEA is central to EnQuest’s overall results. This category may be used as an overlay on overall Group performance
Maximum bonus will only be payable when performance significantly exceeds expectations. To the extent that the targets are no
longer commercially sensitive, they will be disclosed in next year’s report.
Any amount of bonus earned above 100% of salary will be deferred into EnQuest shares for two years, subject to
continuedemployment.
In light of his resignation, Jonathan Swinney will not earn bonus during 2022.
Performance share awards
2022 PSP awards
After due consideration of business performance in 2021 and the performance of the Executive Directors, as well as other factors, the
Remuneration and Social Responsibility Committee decided to award a grant equal to 250% of salary to Amjad Bseisu, to be
granted in April 2022. In light of his resignation, Jonathan Swinney will not receive a PSP award in 2022.
Summary of 2022 PSP performance measures and targets
The PSP share awards granted in 2022 will have two performance metrics, both measured over a three-year financial period:
•
80% of the award relates to relative TSR against a comparator group of 20 oil and gas companies; and
•
20% relates to emissions reduction over three years.
2022 PSP – schedule for 2025 vesting
Relative TSR
Emissions reduction
Performance Vesting Performance Vesting
Below threshold
Below median
0%
<10%
0%Threshold
Median
25%
10%
25%Maximum
Upper quartile (or better)
100%
12% (or better)
100%
2022 PSP award TSR comparator group
Africa Oil
Genel Energy
Maurel & Prom
Aker BP
Harbour Energy
Okea
BW Energy
Hibiscus
Pharos Energy
Capricorn Energy
Hurricane Energy
Santo
Diversified Oil and Gas
Jadestone
Serica Energy
DNO
Kosmos
Tullow Oil
Energean
Lundin
Directors’ Remuneration Report
continued
93
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
Non-Executive Directors
The fees for the Non-Executive Directors with effect from 1 January 2022 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 not to increase Director
fees in 2022 following the benchmark review.
Advisers to the Committee
Mercer Kepler provided advice to the Remuneration and Social Responsibility Committee.
The Committee satisfied itself that the advice given was objective and independent by reviewing it against other companies in
EnQuest’s comparator group. Mercer Kepler are signatories to the Remuneration Consultants Group Code of Conduct which sets
out guidelines for managing conflicts of interest. Mercer Kepler do not provide any other services to the Group.
The fees in respect of 2021 paid to Mercer Kepler totalled £57,040 (excluding VAT). These fees were charged on the basis of the
number of hours worked.
Statement of voting at the Annual General Meeting
The table below summarises the voting at the AGM held on 12 May 2021 in respect of the Remuneration Policy and the Directors’
Remuneration Report. 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 Policy (2021)
741,982,160
95.35%
36,162,580
4.65%778,144,740
23,130,306
Remuneration Report (2021)
755,467,860
97.72%
17,623,7102.28%
773,091,570
28,183,476
The Directors’ Remuneration Report was approved by the Board and signed on its behalf by Howard Paver.
Howard Paver
Chair of the Remuneration and Social Responsibility Committee
23 March 2022
9494
Governance and Nomination
Committee report
“ Good governance ismore than a requirement, it is the key
tobusiness success.”
Martin Houston
Chairman of the Governance andNomination Committee
Dear fellow shareholder
In 2021, the Committee focused on Board composition and
tenure. We recommended to the Board that Rani Koya be invited
to join the Company as a Non-Executive Director and also as a
member of the Technical and Reserves Committee. The
recruitment process relating to her appointment can be found
below. Rani has worked extensively in major energy companies
in a variety of technical, project management and executive
management roles across the globe and is currently the CEO of
a renewable energy company. Her extensive technical
experience will be of great value to our team and her
experiences running a renewable energy company will deepen
our Board capabilities in this crucial area.
Additional changes, which I highlighted in the 2020 Annual
Report and Accounts, are that Liv Monica Stubholt was
appointed to the Board in January 2021, while Laurie Fitch
stepped down from the Board in the same month.
As mentioned in my letter on page 62, Philip Holland, currently
Chairman of the Safety, Climate and Risk Committee, has
served on the Board of the Company for six years and will be
stepping down as a Director at the Company’s 2022 Annual
General Meeting. I thank Philip for his valuable contributions over
the years and excellent steering of the Safety, Climate and Risk
Committee, which has significantly increased in scope since its
inception. Liv Monica Stubholt will replace Philip as Chair of the
Committee in May 2022.
The Board evaluation for 2021 was conducted externally by
Grant Thornton and BoardClic using both traditional methods
and online questionnaires, more information on which can be
found in the main body of this report. I am encouraged by their
findings which, as with all such processes, illuminated where we
can improve. Our Board has made great strides in the past two
years and I believe we now have a very good mix of diversity
and skills.
Martin Houston
Chairman of the Governance and Nomination Committee
23 March 2022
Governance and Nomination Committee membership
The Governance and Nomination Committee comprises the
Chairman of the Company, the SID and the Chief Executive. Both
the Chairman and SID are deemed independent. Appointment
dates and attendance at the five scheduled meetings are set
out below:
Member
Date appointed
Committee member
Attendance at
meetings during
the year
Martin Houston
1 October 2019
5
Amjad Bseisu
22 February 2010
5
Howard Paver
15 October 2019
5
Main responsibilities
The core work of the Governance and Nomination Committee is
to ensure that the Board and its Committees support the
strategy of the Group. Currently, the Board consists of eight
Non-Executive Directors and two Executive Directors, who
collectively bring a diverse mix of skills and experience to
theCompany, collaborating with each other to provide
strongleadership.
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 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
ontheGroup’s website, www.enquest.com, under
CorporateGovernance.
9595
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
EnQuest PLC –
Annual Report and Accounts 2021
Committee activities during the year
The Governance and Nomination Committee met five times in
2021. Its key activities included:
Appointment of Non-Executive Director
The Committee launched a Board search process in 2021 to
recruit an additional Director. The Company appointed
Ridgeway, who were cognisant of the Company’s Board
diversity policy, to lead the process. A skills matrix mapping the
experience of the existing Directors was prepared to identify the
requirements for a new Director. The Committee met to review
the longlist of candidates, before selecting a shortlist to
interview. Interviews were mainly conducted over Microsoft
Teams and, after a successful selection process, Rani Koya was
invited to meet Board members. Following discussion at the
December 2021 Board meeting there was unanimous approval
for Rani to join the Board as a Director and she was appointed
on 1 January 2022. Rani was deemed independent
onappointment.
In making an appointment, the Committee actively considers
Board diversity in all its forms as part of its thorough review of
each candidate, including the balance of skills, knowledge and
level of independence they would bring to the Board, and
screens for potential conflicts of interest. The Committee also
gives careful consideration to other existing commitments a
candidate may have and whether they will be able to devote
the appropriate amount of time in order to fully meet what is
expected of them.
Structured Board succession planning
Succession planning is an important part of both the
Committee and the Board’s deliberations. This includes for both
senior management and the wider organisation, such as
individuals who are considered as having high potential. This
ensures that the Board has oversight of the Group’s talent
pipeline and future leaders and can progress and support
development within the organisation. A workforce succession
framework has been developed and this will be reviewed on an
annual basis.
In considering the composition of the Board which will best
serve the strategy, Values and purpose of the Company into the
future, the Board has adopted diversity targets. Its membership
represents a spread of experience which covers the oil and gas
and other industries, including diverse approaches to the
energy transition. See pages 58 to 59 for Board biographies.
Development and employee succession planning
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. Over the course of the
year, the Committee has considered executive and senior
management development and succession planning is
regularly discussed. The Board has also discussed such matters
at the recommendation of the Committee, including
particularly at the Board’s annual Strategy Day. The Group
continues to work to identify capability strengths and
development gaps and to develop the process for encouraging
and supporting high-potential employees.
Annual evaluation
During 2021, an external Board evaluation was held in
accordance with the requirements of the Corporate
Governance Code. In line with the Chartered Governance
Institute’s voluntary principles of good practice, the Governance
and Nomination Committee convened to choose a provider
and after meeting with individuals and companies providing
such services, agreed to appoint Grant Thornton in association
with BoardClic. Grant Thornton was deemed independent on
appointment and prior to this evaluation had not been
previously used for evaluation purposes. BoardClic’s online
survey was previously used in 2020 to facilitate the Company’s
internal annual Board review.
The evaluation comprised of a review of the Board papers for
2021, an online survey facilitated by BoardClic and one-to-one
interviews. Interviews were held with each Director and, to gain
an additional perspective, interviews were also held with the
Company’s management team, brokers, auditor and a major
shareholder. Grant Thornton, who conducted the interviews, also
observed the December 2021 Board and Committee meetings.
The final results of the evaluation were reported to the Board at
the February 2022 Board meeting.
It was concluded that the Board was well-performing and that
itbenefited from a strong group of individuals who brought
significant subject matter expertise and corporate experience
to the table. Increasing diversity in the Board’s composition was
providing fresh perspectives, technical expertise and market
knowledge which added value to the Board’s thinking around
strategy, sustainability and ESG.
Following the results of the evaluation it was agreed that the
areas of key focus for 2022 would include reviewing the Board
dynamics to optimise the individual Board members’ strengths;
to continue to refine the Group’s strategy; and to provide
oversight of the evolving organisational culture.
While Grant Thornton took into account the Chairman’s
performance as part of its broader Board evaluation, the SID
also conducted a formal performance review following
consultation with all other Directors; their observations were
subsequently provided by the SID to the Chairman. It was
concluded that the Chairman exercises his role and carries out
his duties in a first-rate manner.
Progress against the 2020 internal evaluation was reviewed
during the year and matters such as diversity were addressed
through the appointment of additional Board members in 2021
and the planned retirement by Philip Holland. Strategic matters
were discussed at the October Strategy Day, which was attended
by the Executive Committee and Directors. The results of the
previous evaluation were also provided to Grant Thornton to
provide them with context when conducting their external review.
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 58 to 59.
9696
Governance and Nomination
Committee report
continued
Priorities for the coming year
As well as addressing those issues highlighted in the annual
evaluation, the main focus of the Committee in 2022 will be to
consider the optimal structure for leadership of operational
matters across the Group and succession planning to best
match such a structure.
Boardroom diversity
Much work over the year has been on enhancing the Group’s
diversity strategy in order to have the most effective Board
possible and to be able to discharge its duties and
responsibilities to the highest standard. The Board is absolutely
committed to recruiting a diverse boardroom and therefore the
Committee recommended, with the approval of the Board, that
the Hampton-Alexander Review target of 33% representation of
women on FTSE 350 Boards and that the Parker Review target of
at least one Director of colour both be met. The Company has
met the Parker Review target and will reach the Hampton-
Alexander Review’s target on Philip Holland’s departure in
May2022. While the Company is outside the FTSE 350, the
Committee is mindful of the recently released targets of the
FTSEWomen Leaders Review and will be reviewing them as a
continuing element of the Board’s succession planning process.
The Board has also agreed diversity targets for leadership roles
(including the Executive Committee, Aberdeen Leadership Team
and Malaysia Leadership Team) by 2025 of: 30% of
management roles to be occupied by women and 15-20% of
management roles to be occupied by ethnic minorities. The
Group’s diversity policy can be found on the Group’s website at
www.enquest.com/environmental-social-and-governance/
social/people.
In addition, the EnQuest-wide Diversity and Inclusion Policy
aligns with the Company’s Values, which incorporate both
respect and openness. The Group seeks diversity in its employee
base, recognising that those from different backgrounds,
experience and abilities can bring fresh ideas, perspectives and
innovation to improve the business and working practices.
Activities within the Group to encourage awareness of diversity
considerations include a staff-wide diversity survey and
education of the workforce.
The chart below illustrates gender breakdown among EnQuest’s
Directors and workforce as at 31 December 2021
1
.
Directors
Senior managers
Employees
76.6%
23.4%
77.8%
22.2%
82.0%
18.0%
Female
Male
0
20
40
60
80
100
Note:
1 Breakdown of percentages: Directors (2 female, 7 male), Senior managers
(15female, 49 male), employees (129 female, 587 male)
On 1 January 2022, Rani Koya was appointed as a Director; the
breakdown of the Directors is therefore now 30% female and
70%male.
Senior management and total employee figures include
EnQuest’s employees in Dubai, Malaysia and the UK.
9797
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
EnQuest PLC –
Annual Report and Accounts 2021
Safety, Climate and Risk
Committee report
“ The Group continues to positively evolve its processes for identifying
and managing risks and mitigating their impact.”
Philip Holland
Chairman of the Safety, Climate and Risk Committee
Dear fellow shareholder
On behalf of the Board and my fellow Committee members,
Iam pleased to present EnQuest’s Safety, Climate and Risk
Committee report. During 2021, the COVID-19 pandemic and
climate change have been high on the agenda for everyone,
particularly with the 26th Conference of the Parties being hosted
in Scotland.
As always, the health and safety of our personnel remained our
key priority and we achieved ‘LTI free’ status for the entire year in
the North Sea, which is an impressive performance. Accordingly,
as outlined in this report, throughout 2021, we continued to
undertake detailed analysis of specific risk areas and
associated controls.
In conjunction with a variety of stakeholders, including industry
and medical organisations, the Group continued to monitor the
evolving situation with regard to the potential impact of
COVID-19 on its workforce and operations. Appropriate actions,
including practical support and guidance, were implemented in
accordance with expert advice and the level of risk (please see
pages 36 to 38 for more details), in particular, as the ‘Omicron’
variant of COVID-19 was understood to be more transmissible
and therefore could have presented additional challenges for
the Group. Clearly, this will remain an ever-evolving focus area
for the organisation in 2022.
Throughout 2021, the Committee continued to consider the
impact of the energy transition on the Group, particularly given
the changing regulatory environment reflected in the UK
Government’s North Sea Transition Deal (‘NSTD’) requiring the
industry to deliver material, progressive CO
2
equivalent
reductions by 2025, 2027 and 2030 against a 2018 baseline.
Progress was reported to the Committee in relation to the
Group’s own emissions reduction performance and the
identification of economically viable emissions savings
opportunities that are aligned to EnQuest’s emission
management strategy. These initiatives facilitate the delivery of
the Group’s own emission reduction target and those set out by
the NSTD. A deep dive of the Group’s standalone ‘climate
change’ risk to assess that the controls and risks associated with
it remain accurate was undertaken in the year, with the results to
be reported to the Committee in early 2022.
In 2021, an independent asset integrity review was undertaken
across the Group looking at people, plant and process aspects
in relation to the management of risk. The outcome was a more
transparent and robust approach to cost allocation in key risk
areas that could impact asset integrity. EnQuest received
improvement notices at the Sullom Voe Terminal (‘SVT’) and
Magnus in relation to the management of deadlegs and the
manual draining of a relief valve that contained liquid
hydrocarbons, respectively. The Committee will continue to
ensure that the Group strives for continuous improvement, such
that personal integrity and asset integrity are never
compromised and that personnel are not exposed to any
danger to life or liberty. Throughout the year, the Committee has
continued to receive regular HSEA reports. Although
disappointed with the improvement notices, I am pleased that
the HSEA key performance indicators that were evolved in early
2021 have contributed to an improvement in overall HSEA
performance in terms of preventing injuries and hydrocarbon
releases. Good progress has continued to be made with HSEA
arrangements in place across the Group and a capability
review has provided greater capability, particularly for
assurance and career progression. This has been achieved
through better structural alignment internally across the North
Sea and Malaysia HSEA functions.
The Committee has determined that the Group continues to
positively evolve its processes for identifying and managing risks
and mitigating their impact, which in turn supports the Group in
achieving its strategy. Further, continuing to undertake in-depth
analysis of specific risk areas (as described below) has allowed
the Committee to mitigate any potential deficiencies and
refineexisting controls for reviewed risk areas. The Committee
remains confident that these exercises will be critical in
achieving excellence and robustness in the Group’s risk
management processes.
The report also looks ahead to those matters that I expect the
Committee will be considering in the forthcoming year,
including further detailed analysis of key risk areas, and
continuous improvement in the evolution and application of our
Risk Management Framework.
Philip Holland
Chairman of the Safety, Climate and Risk Committee
23 March 2022
9898
Safety, Climate and Risk
Committee report
continued
Safety, Climate and Risk Committee membership
Membership of the Committee and attendance at the four
meetings held during 2021 is provided in the table below:
Member
Date appointed
Committee member
Attendance at
meetings during
the year
Philip Holland
25 January 2016
4
Carl Hughes
1 January 2017
4
Farina Khan
1
1 November 2020
4
John Winterman
9 December 2020
4
Liv Monica Stubholt
2
15 February 2021
3/3
Notes:
1 Farina Khan stepped down from her position on the Committee on 2 February 2022
2 Liv Monica Stubholt became a member of the Committee at the same time as her
appointment to the Board on 15 February 2021
Safety, Climate and Risk Committee responsibilities
The main responsibilities of the Committee are to:
•
Undertake in-depth analysis of specific risks, including
emerging risks, in relation to the Group and consider existing
and potential new controls;
•
Support the implementation and progression of the Group’s
Risk Management Framework;
•
Review the Group’s HSEA performance and the effectiveness
of its policies and guidelines in managing HSEA risks
andreporting;
•
Conduct detailed reviews of key non-financial risks not
reviewed within the Audit Committee;
•
Assess the Group’s exposure to managing risks from ‘climate
change’ (including assessing emissions updates) and review
actions to mitigate these risks in line with its assessment of
other risks;
•
Review and monitor the Group’s decarbonisation activities,
including reviewing the adequacy of the associated
framework; and
•
Review targets and milestones for the achievement of
decarbonisation objectives.
The Committee’s full terms of reference can be found
ontheGroup’s website, www.enquest.com, under
CorporateGovernance.
Committee activities during the year
During 2021, the Committee:
•
Considered the impact of COVID-19 on 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 deep-dive reviews of ‘human resources’, ‘project
execution and delivery’ and ‘HSEA’ risks, in each case
identifying improvements to certain controls; and
•
Received routine updates on HSEA (including reviewing the
Group’s performance along with ongoing and planned HSEA
activities) and cyber-security risk (covering the evolving key
risks and the remedial solutions such as disaster recovery
plans and technical design standards), both of which
continue to be key focus areas for the Committee.
For further information on these risks, please see the Risks and
uncertainties section on pages 42 to 53.
Priorities for the coming year
In 2022, the Committee is continuing its focus on undertaking
detailed analysis of key risk areas, including those relating to
HSEA, the results of the asset integrity review and ‘climate
change’, in particular emissions reductions. Ongoing
assessment of existing and emerging risks, and the associated
controls in place, will ensure that their potential effects continue
to be identified, considered and risk assessed appropriately
within the Group’s Risk Management Framework. Additionally,
the Committee will monitor progress of the project to further
automate the Group’s Risk Management Framework.
9999
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
EnQuest PLC –
Annual Report and Accounts 2021
Technical and Reserves
Committee report
“ The Committee remains focused on providing technical expertise to
the Board to assist in its decisions.”
John Winterman
Chairman of the Technical and Reserves Committee
Dear fellow shareholder
On behalf of the Board and my fellow Committee members, I
am pleased to present the Technical and Reserves Committee
report. The Committee was established in October 2019 and
since then has continued to support management and the
wider Board in their decision making in relation to technical
matters. As in 2020, much employee and Committee interaction
over 2021 has necessarily been virtual, but this has not impacted
on the quality of the discussions that have taken place.
As highlighted in my 2020 report, for confidentiality reasons I am
unable to report on the details of the various business
development opportunities which have been recommended to
the Committee for further in-depth discussion over the year,
however they did include the agreement to purchase Suncor’s
entire 26.69% non-operated equity interest in the Golden Eagle
area. The Committee also held several deep dives on existing
assets into various aspects of the business, including on Kraken
and also on the 2022 drilling and workover programmes in both
Malaysia and at Magnus.
Finally, I would like to welcome Rani Koya, our most recently
appointed Board member, to the Committee, and also give my
thanks to Philip Holland who will be stepping down as a Board
member in May 2022. Rani’s previous experience of working
within large multinational, independent and start-up energy
companies will both enhance and complement the existing
skills of the Committee members and will ensure that on Philip’s
departure the effectiveness of the Committee remains robust.
Philip has been a member of the Committee since it was
established in 2019 and I thank him for his valuable work and
contribution during his tenure.
John Winterman
Chairman of the Technical and Reserves Committee
23 March 2022
Technical and Reserves Committee responsibilities
The main responsibility of the Committee is to provide the
Boardwith additional technical insight when making Board
decisions. The Committee’s full terms of reference can be
foundon the Group’s website, www.enquest.com, under
Corporate Governance.
Technical and Reserves Committee membership
Membership of the Committee and attendance at the five
meetings held during 2021 is provided in the table below.
RaniKoya joined the Committee on 1 January 2022.
Member
Date appointed
Committee member
Attendance at
meetings during
the year
John Winterman
15 October 2019
5
Philip Holland
15 October 2019
5
Martin Houston
15 October 2019
5
Howard Paver
15 October 2019
5
Committee activities during the year
During 2021, the Committee:
•
Reviewed the Group’s annual reserves report;
•
Provided input into the 2021 Business Plan;
•
Considered business development opportunities; and
•
Held several deep dives.
Priorities for the coming year
In 2022, the Committee will continue to focus on supporting
thebusiness, in particular when assessing new opportunities,
reserve and resource maturation and asset integrity
management across its assets. Deep dives, with presentations
by asset personnel, will remain a key part of this process.
100100
Directors’ report
“ The Directors of EnQuest present their Annual Report together with
the Group and Company audited financial statements for the year
ended 31 December 2021.”
Stefan Ricketts
Company Secretary
Directors
The Directors’ biographical details are set out on pages 58 to 59. Rani Koya will offer herself for election at the Annual General
Meeting (‘AGM’) on 19 May 2022, with the other Directors, with the exception of Philip Holland who will step down from the Board
following the AGM, offering themselves for re-election.
Directors’ indemnity provisions
Under the Company’s Articles, the Directors of the Company may be indemnified out of the assets of the Company against certain
costs, charges, expenses, losses or liabilities which may be sustained or incurred in or about the execution of their duties. Such
qualifying third-party indemnity provision remains in force as at the date of approving the Directors’ report. Such indemnities are in
a form consistent with the limitations imposed by law.
Substantial interests in shares
The table below shows the holdings in the Company’s issued share capital, which had been notified to the Company in accordance
with Chapter 5 of the Disclosure Guidance and Transparency Rules (‘DTR’):
Name
Number of
Ordinary shares
held at
31 December
2021
% of issued
share capital
held at
31 December
2021
2
Number of
Ordinary shares
held as at
23 March
2022
% of issued
share capital
held as at
23 March
2022
2
Bseisu consolidated interests
1
215,823,042
11.44
215,823,04211.44
Aberforth Partners LLP
159,159,438
8.44
156,238,438
8.28
Baillie Gifford & Co Ltd
114,661,665
6.08
111,347,662
5.90
Schroders Plc
105,391,117
5.59 104,271,672
5.53
Hargreaves Lansdown Asset Management
87,594,029
4.64
88,699,742
4.70
Cobas Asset Management
74,925,880
4.97
80,235,468
4.25
Dimensional Fund Advisors
65,677,293
3.48
65,886,272
3.49
Avanza Fonder AB
58,166,854
3.08
2.9455,361,355
Notes:
1 188,833,544 shares are held by Double A Limited, a company beneficially owned by the extended family of Amjad Bseisu. 26,812,539 shares are also held by The Amjad &
Suha Bseisu Foundation and 176,959 shares are held directly by Amjad Bseisu
2 Rounding applies
101
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
Directors’ interests
The interests of the Directors in the Ordinary shares of the Company are shown below:
Name
At
31 December
2021
At
23 March
2022
Amjad Bseisu
1
215,823,042 215,823,042
Martin Houston
528,085 528,085
Carl Hughes
109,390 109,390
Philip Holland
295,605 295,605
Farina Khan
211,235 211,235
Rani Koya
n/a
0
Howard Paver
457,617 457,617
Liv Monica Stubholt
0 0
Jonathan Swinney
960,446 960,446
John Winterman
21,123 221,123
Note:
1 188,833,544 shares are held by Double A Limited, a company beneficially owned by the extended family of Amjad Bseisu. 26,812,539 shares are also held by The Amjad &
Suha Bseisu Foundation and 176,959 shares are held directly by Amjad Bseisu
Share capital
The Company’s share capital during the year consisted of Ordinary shares of £0.05 each (‘Ordinary shares’). Each Ordinary share
carries one vote. Prior to the shareholder-approved firm placing, placing and open offer, there were 1,695,801,955 Ordinary shares in
issue. Following admission to the market of an additional 190,122,384 Ordinary shares on 26 July 2021, there were 1,885,924,339
Ordinary shares in issue. No further shares have been issued subsequent to that date. 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 149. No person has any special rights with respect to control of the Company.
The Company did not purchase any of its own shares during 2021 or up to and including 23 March 2022, being the date of this
Directors’ report. At the 2022 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
www.enquest.com/shareholder-information/annual-general-meetings.
Company share schemes
The trustees of the Employee Benefit Trust (‘EBT’) did not purchase any Ordinary shares in the Company during 2021, except for
2,159,903 Ordinary shares which were acquired through the open offer, having been funded by a loan from EnQuest Britain Limited of
£410,382. At year end, the EBT held 2.14% of the issued share capital of the Company (2020: 2.8%) for the benefit of employees and
their dependants. The voting rights in relation to these shares are exercised by the trustees.
Employee engagement
EnQuest operates a framework for employee information and consultation which complies with the requirements of the Information
and Consultation of Employees Regulations 2005. Employees are informed about significant business issues and other matters of
concern via regular business briefings, country-level Town Hall meetings, Global Town Hall meetings (whereby staff in all geographic
locations are invited to attend), email and other electronic communications, particularly the Company’s intranet and internal
‘Yammer’ channel. Face-to-face briefing meetings would also normally take place; however, during the continuing COVID-19
pandemic, reliance has through necessity been placed on virtual communications. Appropriate consultations take place with
employees when business change is undertaken. An Employee Forum, to allow for direct employee engagement with the Board of
Directors, was established in early 2019 in line with the Corporate Governance Code and information on its activities can be found on
page 41. EnQuest offers employees the opportunity to participate directly in the success of the Company through participation in
share schemes, such as the Save As You Earn (‘SAYE’) Share Scheme. 70% of eligible employees currently participate in SAYE. Eligibility
for participation in other share schemes depends on a number of factors, such as seniority.
Articles of Association
The Company’s Articles of Association may only be amended by special resolution at a General Meeting of shareholders. The
Company’s Articles, found on the Company’s website at www.enquest.com/corporate-governance, contain provisions on the
appointment, retirement and removal of Directors, along with their powers and duties. While there are no specific restrictions, the
transfer of shares in the Company is also provided for in the Articles.
Annual General Meeting
The Company’s AGM will be held at Sofitel London St James, 6 Waterloo Place, London SW1Y 4AN on 19 May 2022. Formal notice of the
AGM, including details of special business, is set out in the Notice of AGM which is due to be published in April 2022. It will be available
on the Group’s website at www.enquest.com/shareholder-information/annual-general-meetings.
Registrars
In connection with the Ordinary shares traded on the London Stock Exchange, the Company’s share registrar is Link Asset Services.
For the Ordinary shares traded on NASDAQ OMX Stockholm, the Company’s share registrar is Euroclear Sweden. Full details of both
registrars can be found in the Company information section on page 174.
102
Political donations
At the 2021 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 2021 by the Company, or any of its subsidiaries.
Dividends
The Company has not declared or paid any dividends since incorporation and does not plan to pay dividends in the immediate
future. However, the Board anticipates reviewing the policy when appropriate, the timing of which will be subject to the earnings and
financial condition of the Company meeting the conditions for dividend payments which the Company has agreed with its lenders
and such other factors as the Board of Directors of the Company consider appropriate, including the Company’s expected future
cash flows.
Change of control agreements
The Company (or other members of the Group) are not party to any significant agreements which take effect, alter or terminate
upon a change of control of the Company following a takeover bid, except in respect of:
(a) the 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 working capital facility, originally dated 1 December 2017, in respect of the operation of the Sullom Voe Terminal, which
includes provisions that upon a change of control, permit the lender not to provide certain funding under that facility and to
cancel its commitment to provide that facility and to require repayment of the credit which may already have been advanced
to the borrower (EnQuest Heather Limited) under the facility;
(c) the deeds of indemnity, originally dated 10 June 2021, pursuant to which the sureties have agreed to consider requests to issue,
procure or participate in surety bonds, each include provisions that, upon a change of control, permit each surety to require the
indemnitors to provide cash cover in respect of the liability assumed by the sureties (and costs and fees of the sureties) in
relation to the Company and the other indemnitors under the deeds;
(d) the Company’s Euro Medium Term Note Programme (under which the Company has in issue Euro Medium Term Notes originally
due 2022 with an aggregate nominal amount of approximately £190.5 million, including capitalised interest, at the date of this
report), pursuant to which, if there is a change of control of the Company, a holder of a note has the option to require the
Company to redeem such note at its principal amount, together with any accrued interest thereon; and
(e) under the indenture governing the Company’s high yield notes originally due 2022, which at the date of this report have an
aggregate nominal amount of approximately $827.2 million, including capitalised interest, if the Company undergoes certain
events defined as constituting a change of control, each holder of the high yield notes may require the Company to repurchase
all or a portion of its notes at 101% of their principal amount, plus any accrued and unpaid interest.
Directors’ statement of disclosure of information to auditor
The Directors in office at the date of the approval of this Directors’ report have each confirmed that, so far as they are aware, there is
no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which the Company’s auditor is unaware,
and each of the Directors has taken all the steps he/she ought to have taken as a Director to make himself/herself aware of any
relevant audit information and to establish that the Company’s auditor is aware of that information. This confirmation is given and
should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.
Responsibility statements under the DTR
The Directors who held office at the date of the approval of the Directors’ report confirm that, to the best of their knowledge, the
financial statements, prepared in accordance with UK-adopted IFRS, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and the Directors’
report, Operating review and Financial review include a fair review of the development and performance of the business and the
position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
Independent auditor
Having reviewed the independence and effectiveness of the auditor, the Audit Committee has recommended to the Board that the
existing auditor, Deloitte, be reappointed. Deloitte has expressed its willingness to continue as auditor. An ordinary resolution to
reappoint Deloitte as auditor of the Company and authorising the Directors to set its remuneration will be proposed at the
forthcoming AGM. Information on the Company’s policy on audit tendering and rotation is found on page 74 to 75.
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 2 to 57. The financial position of the Group, its cash flow, liquidity position and borrowing facilities are
described in the Financial review on pages 26 to 31. The Board’s assessment of going concern and viability for the Group is set out
on pages 30 to 31. In addition, note 27 to the financial statements on pages 157 to 159 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.
Directors’ report
continued
103
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
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’ reports) 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
ofEnQuest.
2021
2020 2015
1
Emissions
SECR (Operational
Control) Scope
ISO-14064
Verified Scope
SECR (Operational
Control) Scope
ISO-14064
Verified Scope
Baseline
Total Emissions tCO
2
e
2
1,145,273
733,043
1,342,765
921,804
1,149,743
Scope 1
Extraction Emissions tCO
2
e
2
1,046,579
634,700
1,232,911
812,750
868,287Scope 2
Extraction Emissions tCO
2
e
2
787
435
1,394
594
1,405
Extraction Intensity ratio kgCO
2
e/Boe
2
48.21
35.18
40.63
31.69
45.65Scope 1 Terminal (SVT) Emissions tCO
2
e
2, 3
29,296 29,296 31,125 31,125
152,191
Scope 2 Terminal (SVT) Emissions tCO
2
e
2, 3
68,612 68,612
77,335 77,335
127,680
Terminal (SVT) Intensity ratio kgCO
2
e/
Boe
2
throughput
3
2.09 2.09
4.31 4.31
6.87
2021
2020
Energy
Consumption
4
SECR (Operational
Control) Scope
ISO-14064
Verified Scope
SECR (Operational
Control) Scope
ISO-14064
Verified Scope
Total kWh
4,819,664,098
3,107,301,989 5,594,120,915 3,856,964,264
Scope 1
Extraction kWh
4,290,105,255
2,578,230,766
5,019,083,379
3,283,035,465
Scope 2
Extraction kWh
2,446,472
1,958,852
3,577,499
2,468,762
Extraction Intensity ratio kWh/Boe
2
197.60
142.93
165.34
128.01
Scope 1 Terminal (SVT) kWh
2, 3
143,280,355 143,280,355
151,047,275 151,047,275
Scope 2 Terminal (SVT) kWh
2, 3
383,832,016 383,832,016
420,412,762 420,412,762
Terminal (SVT) Intensity ratio kWh/Boe
2
throughput
3
11.24 11.24
22.70 22.70
2021
2020
UK & Overseas Breakdown
SECR (Operational
Control) Scope
ISO-14064
Verified Scope
SECR (Operational
Control) Scope
ISO-14064
Verified Scope
Scope 1 UK On-shore tCO
2
e
29,318 29,318
31,146 31,146
UK Off-Shore tCO
2
e
634,678 634,678
812,730 812,730
Non-UK tCO
2
e
411,878
0420,160
0
Scope 2 UK On-shore tCO
2
e
69,019 69,019
77,901 77,901
UK Off-Shore tCO
2
e 0 0 0 0
Non-UK tCO
2
e
380
28 828 28
Scope 1 UK On-shore kWh
143,390,072 143,390,072
151,149,442 151,149,442
UK Off-shore kWh
2,578,121,049 2,578,121,049
3,282,933,298 3,282,933,298
Non-UK kWh
1,711,874,489
0
1,736,047,914
0Scope 2 UK On-shore kWh
385,749,524 385,749,524
422,840,180 422,840,180
UK Off-shore kWh
0 0 0 0
Non-UK kWh
528,964
41,344
1,150,08141,344
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,
isrecalculated to an appropriate comparative period for which good data is available. As such, the baseline is currently 2015
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 3.95%. SVT emissions in isolation are not with 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
104
Energy efficiency strategy
A number of emission reduction opportunities have previously been identified via energy saving workshops and developed as
projects. These include compressor remapping on Kittiwake and the commissioning of Waste Heat Recovery Units on Kraken, both
completed during 2020 with ongoing reductions achieved in 2021. It is recognised that improved environmental performance is a
continuous process, and during 2021, the Group established an Infrastructure and New Energy business with overall responsibility for
delivering the Group’s emission reduction and other decarbonisation ambitions. A number of projects, which range from minor
modifications, such as ‘right-sizing’ export pumps, to material technical alterations, such as flaring reconfiguration, are currently
being assessed against a range of criteria. Additional workshops will be scheduled to ensure the correct projects continue to be
identified, shortlisted and progressed to realise further emission reduction opportunities across the Group’s portfolio of assets.
SECR (Operational Control) scope
EnQuest has a number of financial interests, e.g. 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 again voluntarily opted to have its 2021 emissions reported within the SECR scope verified to the internationally
recognised ISO 14064-1 standard by a UKAS accredited verification body. This verification, dated 3 March 2022, was conducted to a
reasonable level of assurance and 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. Some data for the Group’s
Malaysian assets (Seligi and associated land-based offices) do not currently meet ISO 14064-1 requirements, and so are excluded
from the ISO 14064-1 reported figures. Efforts are being made to improve data quality with the objective of including these assets
within the ISO 14064-1 verified scope in future years.
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
15
Acquisitions and disposals
24-25, 139
Fair treatment of disabled employees
40
Anti-slavery disclosure
54
Corporate governance statement
64-68
Gender diversity
40-41, 96
Financial risk and financial instruments
157-159
Important events subsequent to year end
n/a
Branches outside of the UK
160
s.172 statement and stakeholder engagement
6-7
Research and development
n/a
Related party transactions
156
The Directors’ report was approved by the Board and signed on its behalf by the Company Secretary on 23 March 2022.
Stefan Ricketts
Company Secretary
Directors’ report
continued
105105
EnQuest PLC –
Annual Report and Accounts 2021
Corporate Governance
EnQuest PLC –
Annual Report and Accounts 2021
Statement of Directors’ Responsibilities
forthe Group Financial Statements
The Directors are responsible for preparing the Annual Report
and the Group financial statements in accordance with
applicable United Kingdom law and regulations. Company law
requires the Directors to prepare Group financial statements for
each financial year. Under that law, the Directors are required to
prepare Group financial statements under International
Financial Reporting Standards (‘IFRS’) as adopted by the UK.
Under Company law the Directors must not approve the Group
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and of the
profit or loss of the Group for that period. In preparing the Group
financial statements, International Accounting Standard 1 (‘IAS’)
requires that the Directors:
•
Properly select and apply accounting policies;
•
Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
•
Provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other
events and conditions on the Group’s financial position and
financial performance; and
•
Make an assessment of the Group’s ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any
time the financial position of the Group and enable them to
ensure that the Group financial statements comply with the
Companies Act 2006 and Article 4 of the IAS Regulation. They are
also responsible for safeguarding the assets of the Group and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic
Report, Directors’ Report, the Directors’ Remuneration Report
and the Corporate Governance Statement in accordance with
the Companies Act 2006 and applicable regulations, including
the requirements of the Listing Rules and the Disclosure and
Transparency Rules.
Fair, balanced and understandable
In accordance with the principles of the UK Corporate
Governance Code, the Directors are responsible for establishing
arrangements to evaluate whether the information presented in
the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s position and performance,
business model and strategy, and making a statement to that
effect. This statement is set out on page 70 of the Annual Report.
106
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 (together 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 2021 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
accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting
Standards Board (IASB);
•
the parent company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
•
the Group Income Statement;
•
the Group and Company Balance Sheets;
•
the Group and Company Statements of Changes in Equity;
•
the Group Statement of Cash Flows;
•
the related notes 1 to 29 to the Group financial statements; and
•
the related notes 1 to 11 to the Company financial statements.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law,
United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial reporting framework that
has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting
Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit
services provided to the group and parent company for the year are disclosed in note 5(g) to the financial statements. We confirm
that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
•
Valuation of oil and gas related assets and liabilities; and
•
Valuation of decommissioning liability.
Within this report, key audit matters are identified as follows:
Materiality
The materiality that we used for the group financial statements was $20m which was determined on
thebasis of 3% of adjusted EBITDA (earnings before interest, tax, depreciation, amortisation and
exceptionalitems).
Our materiality represents 5.7% of reported profit before tax.
Scoping
EnQuest PLC has two significant operating segments, being the North Sea and Malaysia. They accounted for
100% of the group’s revenue, 100% of the group’s adjusted EBITDA and 100% of the group’s net assets.
Significant changes
in our approach
Going concern has been removed as a key audit matter. In the prior year, there was a material uncertainty
related to going concern due to the Revolving Credit Facility expiring and the new facility not being signed at
the time of the publication of the group’s results. In June 2021 a new long term Reserves Base Lending Facility
of $600 million was signed, as such we do not consider there to be a material uncertainty in relation to going
concern at the date of this opinion.
Independent Auditor’s Report
to the Members Of EnQuest PLC
107
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern
basis of accounting included:
•
we obtained an understanding of the relevant controls relating to the going concern assumption;
•
we have tested the clerical accuracy of the model used to prepare the going concern forecasts;
•
we have assessed the historical accuracy of forecasts prepared by management;
•
we have evaluated the consistency of key inputs relating to future costs, hedging and production to other financial and
operational information obtained during our audit;
•
we have challenged management as to the reasonableness of commodity pricing assumptions applied, based on
benchmarking to market data;
•
we have agreed the available facilities to underlying agreements and external confirmation from debt providers and tested
covenant calculation forecasts performed by management;
•
we have assessed the reasonableness of management’s sensitivity analysis on the forecast, including the downside scenarios
such as lower oil prices and reduced production, and considered the mitigating actions highlighted by management in the event
that they were required; and
•
we have assessed the adequacy of disclosures made in the Annual Report and Accounts.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group’s and 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.
108
Independent Auditor’s Report
to the Members Of EnQuest PLC continued
5.1. Valuation of oil and gas related assets and liabilities
Key audit matter
description
We identified a key audit matter in relation to the valuation of oil and gas related assets and liabilities. More
specifically we identified this around the forecast significant assumptions and estimates, such as commodity
prices and discount rate, that impact the forecast future cash flows used for valuation purposes. These
impact the following as part of this key audit matter:
•
Impairment charge and reversal on oil and gas assets;
•
Potential impairment of goodwill;
•
Valuation of Magnus contingent consideration;
•
Impairment of the parent company investment; and
•
Valuation of the deferred tax asset.
Management performed an impairment assessment for oil and gas assets and goodwill carrying value,
byreference to IAS36. As at 31 December 2021, the net book value of oil and gas assets was $2,347 million
(2020: $2,124 million) and management have recorded a pre-tax impairment reversal of $40 million
(2020:$422 million impairment charge) against oil and gas assets, including related right of use assets,
asdisclosed in note 10.
As at 31 December 2021, the net book value of goodwill was $134 million (2020: $134 million). No goodwill
impairment charge has been recorded, as disclosed in note 11.
The valuation of Magnus contingent consideration was $366 million (2020: $522 million) as at 31 December
2021, based on the fair value of the future cash flows for the Magnus asset, as disclosed in note 22. The
acquisition of Magnus resulted in the recognition of contingent consideration for both the initial 25%
acquisition in 2017 and the subsequent 75% acquisition in 2018.
Management also performed an assessment of the parent company investment carrying value by reference
to IAS 36 Impairment of Assets and IFRS 9 Financial Instruments. As at 31 December 2021, the net book value of
investments in the parent company was $397 million (2020: $71 million) and management have recorded an
impairment reversal of $319 million (2020: $1,072 million impairment charge), as disclosed in note 3 to the
parent company financial statements.
As at 31 December 2021, a deferred tax asset of $703m (2020: $660m) was recognised, based on the expected
utilisation of historical tax losses, underpinned by the future profitability. Management identified an
inconsistency in the prior year in the calculation of the deferred tax asset associated with the Magnus
contingent consideration and the relevant estimated future cash flows used in the calculation of future
taxable profits. As a result, the prior year deferred tax asset was restated. Further details are as disclosed
innote 2.
The oil and gas assets are required to be reviewed for indicators of impairment, and then tested for
impairment where indicators are identified. Goodwill is required to be tested for impairment at least annually.
Oil and gas assets and goodwill are subject to significant estimation uncertainty, as set out below and further
disclosed in note 2. Consequently, they represent a high risk of impairment charge or reversal. There is a risk
that these oil and gas assets and goodwill are not recoverable, or the reversal of previous impairments of oil
and gas assets is required. The impairment reversal recorded in the year on oil and gas assets was primarily
because of a change in the future commodity price assumptions. There was no impairment recognised on
goodwill as the recoverable amount of estimated North Sea future cash flows was higher than its book value,
including the carrying value of goodwill.
The impairment assessment involves management judgement in considering whether the carrying value of
those assets or cash generating units are recoverable. The key assumptions and judgements underpinning
the impairment assessments include:
•
forecast future commodity prices, including the potential impact of climate change on those prices;
•
forecast future production; and
•
determining appropriate discount rates.
The group’s accounting policies are detailed in notes 2, 10 and 11, these notes also include details of the
sensitivity to changes in assumptions.
Consistent assumptions are used in the impairment assessments, the valuation of the Magnus contingent
consideration and the deferred tax assets.
The group’s Audit Committee has included this key audit matter in their Audit Committee Report for the year
ended 31 December 2021 on pages 72 and 73.
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Financial Statements
How the scope of
our audit
responded to the
key audit matter
Procedures on the overall impairment review, Magnus contingent consideration valuation and valuation of
the group’s deferred tax asset
•
we have understood management’s process for identifying indicators of impairment and for performing
their impairment assessment and related valuations;
•
we obtained an understanding of the relevant controls and then evaluated the associated design and
implementation of such controls relating to the impairment assumptions, the Magnus contingent
consideration modelling, deferred tax asset modelling and reviews;
•
we evaluated and challenged the key assumptions and inputs into the impairment and valuation models,
which included performing sensitivity analysis, to evaluate the impact of selecting alternative assumptions.
•
we evaluated the reasonableness and supportability of current year changes to the key assumptions;
•
we worked with our modelling specialists to evaluate the arithmetical accuracy of the impairment and
valuation models. We recalculated the impairment charges and headroom, as well as valuation changes,
and agreed these to financial records;
•
we challenged management’s cash generating unit determination and considered whether there was
any contradictory evidence present;
•
we evaluated the impairment and valuation judgements taken, with reference to our assessment of the
key assumptions as outlined above and the outcome of the sensitivities performed; and
•
we evaluated and challenged management’s disclosures including in relation to the sensitivity on oil and
gas assets and goodwill, Magnus contingent consideration and deferred tax assets for oil and gas price
assumptions to reduced demand scenarios, whether due to climate change or other reasons.
Procedures relating to oil and gas prices
•
we independently developed a reasonable range of forecasts based on external data, against which
wecompared the group’s future oil and gas price assumptions in order to challenge whether they
arereasonable;
•
in developing this range we obtained a variety of reputable third party forecasts, peer information and
market data;
•
we performed sensitivity analysis on the pricing assumptions to determine the impact on the impairment
conclusion and amount and the related changes to valuations of reasonably possible changes in the
assumption; and
•
in challenging management’s price assumptions, we considered the extent to which they and each of the
forecast pricing scenarios obtained from third parties reflect the impact of lower oil and gas demand due
to climate change.
Procedures relating to forecast future cash flows and reserves estimates
•
we assessed whether forecast cash flows were consistent with Board approved forecasts, and analysed
reasonably possible downside sensitivities;
•
we evaluated production profiles by reference to external reserve estimates and agreed these to the cash
flow forecast assumptions with involvement from our petroleum engineering experts;
•
we compared hydrocarbon production forecasts used in impairment tests to estimates and reports and
our understanding of the life of fields;
•
we agreed estimates of oil and gas reserves to third party reserve reports, assessing the competence,
objectivity and capability of those third-party experts, using our own internal specialists; and
•
we challenged and evaluated the adequacy of the operating and capital cost assumptions within
themodel.
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5.1. Valuation of oil and gas related assets and liabilities
continued
How the scope of
our audit
responded to the
key audit matter
continued
Procedures relating to the discount rate
•
we independently evaluated the group’s discount rates used in impairment tests, valuations and cash flow
analysis with input from our valuation specialists; and
•
we assessed whether country risks and tax adjustments were appropriately reflected in the group’s
discount rates.
Procedures relating to the impairment of parent company investments
•
we evaluated the methodology applied in reviewing the investments for impairment and assessing the
recoverability of intercompany balances, with reference to the requirements of IAS 36
‘Impairment of
Assets’
and IFRS 9
‘Financial Instruments’
respectively;
•
we challenged the key assumptions within management’s cash flow forecasts as described in this key
audit matter;
•
we tested the mechanical accuracy of the model; and
•
we evaluated the adequacy of the parent company’s disclosures regarding the investment impairment
and intercompany recoverability in notes 3 and 4 of the Financial Statements.
Procedures relating to the carrying value of the deferred tax asset
•
we evaluated the methodology applied in calculating the group’s deferred tax assets and liabilities;
•
we agreed the deferred tax balances relating to assets and liabilities recognised on the group’s balance
sheet to those assets and liabilities, applying the relevant tax rates;
•
we agreed the inputs used in the group’s calculations of tax losses to be recognised to the group’s cash
flow forecasts used for the purposes of impairment testing, as discussed further within this key audit
matter; and
•
we assessed the appropriateness of the carrying value of the closing deferred tax asset.
Key observations
•
The group’s future commodity price assumptions are within our acceptable range from external sources
for the period to 2024. The commodity price assumptions from 2025 onwards are lower than our
acceptable range, but this does not result in a material change in the impairment charge when
considering the range of pricing assumptions for the life of each CGU;
•
The group’s discount rate is within the acceptable range calculated by our internal valuation specialists;
•
From the work performed, we are satisfied that the impairment reversal recorded and the carrying value of
the investments in subsidiaries are appropriate;
•
The carrying value of the Magnus contingent consideration is reasonable. The significant assumptions and
cash flows are consistent with the impairment model;
•
The deferred tax asset recognition is appropriate and the carrying value is appropriate;
•
We are satisfied that the prior year deferred tax restatement appropriately corrects the 2020 position; and
•
Based on the procedures performed we are satisfied that the group’s impairment and reversals are
appropriately estimated in accordance with the requirements of IAS 36
‘Impairment of Assets’
, and the
carrying value of the Magnus contingent consideration and deferred tax assets are appropriate.
5.2. Valuation of decommissioning liability
Key audit matter
description
The decommissioning provision at 31 December 2021 was $880 million (2020: $831 million). The provision
represents the present value of decommissioning costs which are expected to be incurred up to 2048,
assuming no further development on the group’s assets. Further details on the key sources of estimation
uncertainty underpinning the valuation of decommissioning provisions can be found in note 2. Details on the
sensitivity to changes in key assumptions such as discount rates are disclosed in note 23.
Decommissioning liabilities are inherently judgemental areas, in particular in relation to cost estimates. The
key assumptions and judgements underpinning the provision include:
•
cessation of production dates;
•
post cessation-of-production operating cost estimates;
•
rates and norms assumptions;
•
discount rate; and
•
inflation rate.
The two key management estimates that have an increased likelihood of resulting in a material
misstatement within the estimation are:
•
internal well cost estimates (rig services; vessels; onshore time-writing costs) included in the
decommissioning model; and
•
internal cost reduction factors applied to the gross decommissioning cost estimates.
The Group’s Audit Committee has included this key audit matter in their Audit Committee Report for the year
ended 31 December 2021 on page 73.
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Financial Statements
How the scope of
our audit
responded to the
key audit matter
Procedures relating to internal control
•
we assessed management’s decommissioning processes, and the oversight and governance of those
processes in relation to decommissioning; and
•
we obtained an understanding of the relevant controls and then evaluated the associated design and
implementation of such controls relating to the decommissioning provision.
General procedures relating to the decommissioning model
•
we held meetings with the group’s internal experts responsible for determining the 2021 decommissioning
estimates to understand the key changes in underlying assumptions and methodology applied;
•
we assessed the technical competence, objectivity and capability of internal and external experts;
•
we assessed decommissioning calculations for clerical accuracy and compliance with IAS 37
‘Provisions,
Contingent Liabilities and Contingent Assets’
;
•
we challenged the group’s key assumptions, outlined above, for reasonableness and consistency with the
external market expectations (see below for procedures on internal well cost estimates and internal cost
reduction factors);
•
tested the mechanical accuracy of the cost estimate;
•
we tested for actual decommissioning costs incurred during the period and recognised against the
provision; and
•
we evaluated management’s disclosures including in the sensitivity of decommissioning assumptions.
Procedures on internal well cost estimates
•
we challenged the group’s rate assumptions within the cost estimate and benchmarked to peer and
market rates; and
•
we assessed the duration assumptions for plug and abandonment of wells, by comparison to available
benchmarking data and contradictory evidence available from active decommissioning projects or
operator estimates.
Procedures on internal cost reduction factors
•
we challenged the group’s cost reduction factors applied to the decommissioning model through
obtaining supporting evidence for the factors applied; and
•
benchmarking and considering contradictory evidence from peers.
Key observations
•
We have not identified any material errors in the decommissioning estimates and concluded that the
inputs and key assumptions used to estimate the future costs were reasonable;
•
We are satisfied that the group’s decommissioning provision is appropriately estimated in accordance
with the requirements of IAS 37
‘Provisions, Contingent Liabilities and Contingent Assets’
; and
•
We are satisfied the disclosures in the financial statements are appropriate.
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
$20 million (2020: $16.5 million) $10.3 million (2020: $1.1 million)
Basis for
determining
materiality
We determined group materiality on the basis of 3%
of adjusted EBITDA (earnings before interest, tax,
depreciation, amortisation, remeasurements and
exceptional items) (2020: 3% of adjusted EBITDA).
Management has presented a reconciliation of
$743million adjusted EBITDA to profit from continuing
activities in the glossary to the financial statements
on page 170.
We determined the parent company materiality
based on 3% of net assets (2020: 3% of net assets).
Rationale for the
benchmark applied
Adjusted EBITDA was considered to be the most
relevant benchmark as it is of most interest to
stakeholders and is a key performance measure
used by investors.
The parent company acts principally as a holding
company and therefore net assets is a key measure
for this business.
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6. Our application of materiality
continued
6.1. Materiality
continued
Adjusted EBITDA
$743 million
Group materiality
Component materiality range $8.5 million to $15 million
Audit Committee reporting threshold $1 million
Group materiality $20 million
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
60% (2020: 60%) of group materiality 60% (2020: 60%) of parent company materiality
Basis and rationale
for determining
performance
materiality
In determining performance materiality, we considered factors including the size and nature and volume of
uncorrected and corrected misstatements identified in the previous audit, the quality of the control
environment, the stability of the finance team following restructuring in 2020, 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 $1m (2020: $0.8m), as
well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and
assessing the risks of material misstatement at the group level. In the current year we performed full scope audit procedures on the
North Sea and Malaysia components. Audit procedures were performed by the group audit team or the North Sea component and
by the Malaysia component team for the Malaysia component.
The materiality applied by the Malaysia component for the 2021 year-end was $8.5 million (2020: $7.5m). The materiality applied by
the UK component for the 2021 year-end was $15 million (2020: $12.5m).
In the current year the North Sea and Malaysia components, where we performed full scope audit procedures, accounted for 100%
of the group’s revenue, 100% of the group’s adjusted EBITDA and 100% of the group’s net assets, consistent with the prior year. The
Malaysia component contributed 7% of the group’s revenue, 7% of the group’s adjusted EBITDA and 6% of the group’s total assets
(2020: 7% of the group’s revenue, 4% of the group’s adjusted EBITDA and 6% of the group’s total assets).
7.2. Our consideration of the control environment
We obtained an understanding of the relevant controls in relation to key business processes as well as IT systems that were relevant
to the audit, being the financial reporting system. We worked with our IT specialists to test the operating effectiveness of the
generalenvironment.
We have not relied on the operation of controls in the current year.
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Financial Statements
7.3. Our consideration of climate-related risks
We performed enquiries of management to understand the impact of climate-related risks and controls relevant to the group. We
performed a review of the climate change risk assessment and related documentation prepared by management and considered
the completeness and accuracy of the climate-related risks identified and summarised in the Task Force on Climate-related
Financial Disclosures report on page 55.
Management identified key judgements and estimates with elevated climate-related risk, relating to impairment of oil and gas
assets, valuation of contingent consideration, valuation of the decommissioning provision, valuation of deferred tax assets, and
estimation of oil and gas reserves.
We considered whether the risks identified by management within their climate change risk assessment and related
documentation were complete and challenged assumptions impacting the financial statements. The key piece of climate-related
regulation enacted to date and impacting the group related to carbon costs and emission allowances. The key market-related
matter which could have a material impact on the valuation of the items noted above is in respect of future demand for, and
pricing of, oil and gas as the energy mix evolves in response to climate change risk and other matters.
We also performed a review of the disclosures within the Annual Report, with the involvement of our Environmental, Social and
Governance specialists, and considered whether these were materially consistent with the financial disclosures, complete and
consistent with our understanding of the climate-related risks, assumptions and judgements during the year. Both of our key audit
matters are considered to contain climate-related risks, being the key market-related matter which could have a material impact
on the valuation of oil and gas related assets and liabilities and valuation of the decommissioning provision. The procedures
performed for these key audit matters are discussed in detail in the key audit matters section above.
7.4. Working with other auditors
The North Sea component was audited by the group audit team and we oversaw the Malaysia component audit through regular
meetings and direct supervision. We organised planning and working meetings virtually, led by the audit partner or other senior
members of the engagement team. Throughout the year, the group audit team has been directly involved in overseeing the
component audit planning and execution, through frequent conversations, team meetings, debate, challenge and review of
reporting and underlying work papers. In addition to our direct interactions, we sent detailed instructions to the component audit
team and attended audit closing meetings. We are satisfied that the level of involvement of the lead audit partner and team in the
component audit has been extensive and has enabled us to conclude that sufficient appropriate audit evidence has been
obtained in support of our opinion on the group financial statements as a whole.
8. Other information
The other information comprises the information included in the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud orerror.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
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Independent Auditor’s Report
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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
financialstatements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
•
the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
•
results of our enquiries of management, internal audit and the Audit Committee about their own identification and assessment of
the risks of irregularities;
•
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 significant 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 – cut off.
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, the UK Corporate
Governance Code and the Listing Rules of the UK Listing Authority and the relevant tax compliance regulations in the jurisdictions in
which the group operates.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty. These included Market
Abuse Regulation, environmental laws and regulations in the countries in which the group operates.
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Financial Statements
11.2. Audit response to risks identified
As a result of performing the above, we identified the valuation of oil and gas related assets and liabilities and the valuation of
thedecommissioning provision as key audit matters related to the potential risk of fraud. The key audit matters section of our
reportexplains the matters in more detail and also describes the specific procedures we performed in response to those key
auditmatters.
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 and external 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 where matters identified were significant;
•
for revenue recognition associated with the cut-off of crude oil sales, we tested a sample of invoices from a population of
December 2021 and January 2022 sales invoices; and
•
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments, assessing whether the judgements made in making accounting estimates are indicative of a potential bias, and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
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to the Members Of EnQuest PLC continued
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
•
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
•
the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 30 and 31;
•
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 30 and 31;
•
the directors’ statement on fair, balanced and understandable set out on page 70 and 71;
•
the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 42
to53;
•
the section of the annual report that describes the review of effectiveness of risk management and internal control systems
set out on page 74; and
•
the section describing the work of the audit committee set out on page 70 to 73.
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.
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Financial Statements
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by shareholders on 21 May 2020 to audit the financial
statements for the year ending 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is two years, covering the years ended 31 December 2020 and
31 December 2021.
15.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with
ISAs(UK).
16. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial
statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage
Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report provides no
assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS.
James Leigh FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
23 March 2022
118
2021
2020 restated
(i)
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) 1,265,814 863,852
1,320,265
(54,451)
855,074
8,778
Cost of sales
5(b)
(900,433)
(7,201)
(907,634 )
(785,455)
(13,626)
(799,081 )
Gross profit/(loss)
419,832 358,180
(61,652)
69,619 64,771
(4,848)
Net impairment
/( reversal
charge) tooiland gas assets
4
–
39,715 39,715
–
(422,495)
(422,495 )
General and administration expenses
5(c)
(363)
–
(363 )
(6,105)
–
(6,105 )
Other income
5(d) 193,637 156,349
30,990
162,647
18,100
138,249
Other expenses
5(e)
(7,278)
(3,832)
(11,110 )
(101,633)
(956)
(102,589 )
Profit/(loss) from operations before
taxand finance income/(costs) 580,059
443,181
136,878
(20,019)
(290,050)
(310,069 )
Finance costs
6
(169,451)
(58,395)
(227,846 )
(179,818)
(77,259)
(257,077 )
Finance income
6
228
– 228
1,171
– 1,171
Profit/(loss) before tax
273,958 352,441
78,483
(198,666)
(367,309)
(565,975 )
Income tax
7 24,547 96,030
(53,674)
78,221
172,479
(76,449)
Profit/(loss) for the year attributable
toowners of the parent 376,988
220,284
156,704
(26,187)
(443,758)
(469,945 )
Total comprehensive profit/(loss)
forthe year, attributable to owners
ofthe parent 376,988
(469,945 )
(i) The comparative information has been restated as a result of change in accounting policy and prior period error. For more information, see note 2 Basis of
preparation–Restatements
There is no comprehensive income attributable to the shareholders of the Group other than the profit for the period. Revenue and
operating (
)/loss
profit are all derived from continuing operations.Earnings per share
8 $
$ $
$Basic 0.217
0.127
(0.016)
(0.290 )
Diluted
0.125 0.214
(0.016)
(0.290 )
The attached notes 1 to 29 form part of these Group financial statements.
Group Income Statement
For the year ended 31 December 2021
119
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Group Balance Sheet
At 31 December 2021
Notes
2021
$’000
2020
restated
(i)
$’000
ASSETS
Non-current assets
Property, plant and equipment
10 2,821,998 2,633,917
Goodwill
11 134,400 134,400
Intangible assets
12 47,667 27,546
Deferred tax assets
7(c) 702,970 659,803
Other financial assets
19 6 7
Current assets
Inventories
13 73,023 59,784
Trade and other receivables
16 296,068 118,715
Current tax receivable 2,368 5,601
Cash and cash equivalents 222,830
14 286,661
Other financial assets
19 472
–
TOTAL ASSETS 4,365,633 3,862,603
EQUITY AND LIABILITIES
Equity
Share capital and premium
20 392,196 345,420
Share-based payment reserve 6,791 1,016
Retained earnings
20 121,769
(255,219 )
TOTAL EQUITY 520,756 91,217
Non-current liabilities
Borrowings
18 191,109 37,854
Bonds
18 1,081,596 1,045,041
Leases liabilities
24 442,500 548,407
Contingent consideration
22 380,301 448,384
Provisions
23 754,266 741,453
Deferred tax liabilities
7(c) 3,418 6,385
Current liabilities
Borrowings
18 210,505 414,430
Leases liabilities
24 128,281 99,439
Contingent consideration
22 30,477 73,877
Provisions
23 140,676 98,954
Trade and other payables
17 420,544 255,155
Other financial liabilities
19 55,247 2,007
Current tax payable 5,957
–
TOTAL LIABILITIES 3,844,877 3,771,386
TOTAL EQUITY AND LIABILITIES 4,365,633 3,862,603
(i) The comparative information has been restated as a result of change in accounting policy and prior period error. For more information, see note 2 Basis of
preparation–Restatements
The attached notes 1 to 29 form part of these Group financial statements.
The financial statements were approved by the Board of Directors and authorised for issue on 23 March 2022 and signed on its
behalf by:
Jonathan Swinney
Chief Financial Officer
120
Share capital
and share
premium
$’000
Merger
reserve
(i)
$’000
Share-based
payments
reserve
$’000
Retained
earnings
$’000
Total
$’000
Balance at 1 January 2020 345,420 662,855 559,061
(1,085 )
(448,129 )
Profit/(loss) for the year (restated)
(ii)
– – –
(469,945 )
(469,945 )
Total comprehensive loss for the year (restated)
(ii)
– – –
(469,945 )
(469,945 )
Share-based payment (
21)see note
– – 3,401 – 3,401
Shares purchased on behalf of Employee Benefit Trust
– – –
(1,300 )
(1,300 )
Write down of oil and gas assets
– – 662,855 –
(662,855 )
Balance at 31 December 2020 (restated)
(ii)
– 1,016 91,217
(255,219 )
Profit/(loss) for the year
– – – 376,988 376,988
Total comprehensive profit for the year
– – – 376,988 376,988
Issue of share capital, net of expenses 46,200 46,200
– – –
Share-based payment (
21)see note
– – 6,351 – 6,351
Shares purchased on behalf of Employee Benefit Trust 576
–
(576 )
– –
Balance at 31 December 2021 392,196 6,791 121,769 520,756
–
(i) In 2020, the merger reserve was released to retained earnings as the assets which gave rise to its original recognition were fully written down
(ii) The comparative information has been restated as a result of change in accounting policy and prior period error. For more information, see note 2 Basis of
preparation–Restatements
The attached notes 1 to 29 form part of these Group financial statements.
Group Statement of Changes in Equity
For the year ended 31 December 2021
121
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Group Statement of Cash Flows
For the year ended 31 December 2021
Notes
2021
$’000
2020
restated
(i)
$’000
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations 756,928 567,165
29
Cash received from insurance 674
–
Cash received/(paid) on sale/(purchase) of financial instruments 6,226
(277 )
Decommissioning spend
(65,791 )
(41,605 )
Income taxes paid
(17,396 )
(10,366 )
Net cash flow 674,138 521,420
/(s from
used in) operating activitiesINVESTING ACTIVITIES
Purchase of property, plant and equipment
(43,712 )
(131,376 )
Purchase of intangible oil and gas assets
(8,127 )
–
Purchase of other intangible assets
12
(10,052 )
–
Net cash received on termination of Tanjong Baram risk service contract 51,054
–
Repayment of Magnus contingent consideration – profit share
22
(968 )
(41,071 )
Acquisitions
(258,627 )
–
Interest received 256 796
Net cash flows (used in)/from investing activities
(321,230 )
(120,597 )
FINANCING ACTIVITIES
Net proceeds of share issue 47,782
–
Proceeds of loans and borrowings 125,000
–
Repayment of loans and borrowings
(184,276 )
(210,671 )
Repayment of Magnus contingent consideration – vendor loan
22
(73,728 )
(20,702 )
Shares purchased by Employee Benefit Trust
(576 )
(1,153 )
Repayment of obligations under financing leases
24
(136,651 )
(123,001 )
Interest paid
(63,025 )
(42,961 )
Other finance costs paid
–
(2,526 )
Net cash flow
/(s from
used in) financing activities(285,474 )
(401,014 )
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 67,434
(191 )
Net foreign exchange on cash and cash equivalents 2,566
(3,603 )
Cash and cash equivalents at 1 January 222,830 220,455
CASH AND CASH EQUIVALENTS AT 31 DECEMBER 286,661 222,830
Reconciliation of cash and cash equivalents
Total cash at bank and in hand
14 276,970 221,155
Restricted cash
14 9,691 1,675
Cash and cash equivalents per balance sheet 286,661 222,830
(i) The comparative information has been restated as a result of change in accounting policy and prior period error. For more information, see note 2 Basis of
preparation–Restatements
The attached notes 1 to 29 form part of these Group financial statements.
122
1. Corporate information
Companies Act and is registered in England and Wales and listed on the London Stock Exchange and on the Stockholm NASDAQ
OMX. The address of the Company’s registered office is shown on page 174.
The principal activities of the Company and its subsidiaries (together the ‘Group’) are to responsibly optimise production ,
leverage existing infrastructure, deliver a strong decommissioning performance and explore new energy and further
decarbonisation opportunities.
The Group’s financial statements for the year ended 31 December 2021 were authorised for issue in accordance with a resolution of
the Board of Directors on 23 March 2022.
A listing of the Group’s companies is contained in note 28 to these Group financial statements.
2. Basis of preparation
The consolidated financial statements have been prepared in accordance with UK-adopted International Accounting
Standardsand International Financial Reporting Standards as issued by the IASB and in conformity with the requirements of the
CompaniesAct 2006. The accounting policies which follow set out those policies which apply in preparing the financial statements
for the year ended 31 December 2021.
The Group financial information has been prepared on an historical cost basis, except for the fair value remeasurement of certain
financial instruments, including derivatives and contingent consideration, as set out in the accounting policies. The presentation
currency of the Group financial information is US Dollars (‘$’) and all values in the Group financial information are rounded to the
nearest thousand ($’000) except where otherwise stated.
The Group’s results on an 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.
Restatements
Presentation of rental income
EnQuest receives rental income for sub-leasing space in its corporate offices. The Group previously presented the rental income
associated with office sub-leases within revenue and other operating income in the income statement. The Group has determined
that the revenue derived from this income is not related to the principal activities of the Group and should be presented within other
income in the income statement. Comparative information has been restated, resulting in a $1.8 million reduction in revenue and
other operating income and a $1.8 million increase in other income. There is no impact on comparative information for profit/(loss)
from operations before tax and finance income/(costs) or earnings per share.
Presentation of Group Statement of Cash Flows
Following a review of the Group’s primary statements, the Group has updated the presentation of the Group Statement of Cash
Flows to reconcile to cash and cash equivalents per the balance sheet. In previous years, the Group Statement of Cash Flows was
reconciled to cash and cash equivalents excluding restricted cash. Following this change, the presentation of the Group Statement
of Cash Flows in 2020 has been restated, which has resulted in a $0.7 million reduction in cash flows from operating activities.
Deferred tax asset restatement
Subsequent to the publication of the Group’s 2020 consolidated financial statements and as part of the preparation of its interim
report, the Group determined there was an inconsistency in the calculation of the deferred tax asset recognised on the balance
sheet associated with Magnus contingent consideration and the relevant estimated future cash flows used in the calculation of
future taxable profits to support the recognition of this deferred tax asset and the deferred tax asset associated with other available
tax losses. This inconsistency resulted in excess deferred tax being derecognised within Remeasurements and exceptional items of
$155.9 million with respect to the year ended 31 December 2020. There are no changes to the underlying amounts recognised in
relation to contingent consideration or to amounts recognised in respect of deferred tax in earlier periods. The tables below reflect
the corrections to the comparative periods which are disclosed in these Group financial statements.
Notes to the Group Financial Statements
For the year ended 31 December 2021
123
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Group Income Statement
(i)
2020
(as previously reported)
Restatement
adjustment
2020 restated
Business
performance
$’000
Remeasurements
and exceptional
items (note 4)
$’000
Reported in
period
$’000 $’000
Business
performance
$’000
Remeasurements
and exceptional
items (note 4)
$’000
Reported in
year
$’000
Profit/(loss) before tax
(198,666)
(367,309)
(565,975)
(198,666)
(367,309)
(565,975)
Income tax
172,479
(232,306)
(59,827)
155,857
172,479
(76,449) 96,030
Profit/(loss) for the year attributable
toowners of the parent
(26,187)
(599,615)
(625,802)
155,857
(26,187)
(443,758)
(469,945)
Total comprehensive profit/(loss) for
the period, attributable to owners of
the parent
(625,802)
155,857
(469,945)
Earnings per share
$ $
$ $
Basic
(0.016)
(0.378)
0.088
(0.016)
(0.290)
Diluted
(0.016)
(0.378)
0.088
(0.016)
(0.290)
(i) Only the impact of the material deferred tax asset restatement presented
Group Balance Sheet
(i)
2020
(as previously
reported)
$’000
Restatement
adjustment
$’000
2020
restated
$’000
ASSETS
Non-current assets
Deferred tax assets
503,946
155,857
659,803
TOTAL ASSETS
3,706,746
155,857
3,862,603
EQUITY AND LIABILITIES
Equity
Retained earnings
(411,076)
155,857
(255,219)
TOTAL EQUITY
(64,640)
155,857
91,217
TOTAL EQUITY AND LIABILITIES
3,706,746
155,857
3,862,603
(i) Only the impact of the material deferred tax asset restatement presented
Going concern
The financial statements have been prepared on the going concern basis.
The Group closely monitors and manages its funding position and liquidity risk throughout the year, including monitoring forecast
covenant results, to ensure that it has access to sufficient funds to meet forecast cash requirements. Cash forecasts are regularly
produced and sensitivities considered for, but not limited to, changes in crude oil prices (adjusted for hedging undertaken by the
Group), production rates and costs. These forecasts and sensitivity analyses allow management to mitigate liquidity or covenant
compliance risks in a timely manner.
The health, safety and wellbeing of the Group’s employees is its top priority and it continues to monitor actively the impact on
operations from COVID-19. The Group remains compliant with UK, Malaysia and Dubai government and industry policy. The Group
has also been working with a variety of stakeholders, including industry and medical organisations, to ensure its operational
response and advice to its workforce is appropriate and commensurate with the prevailing expert advice and level of risk. The
Group is cognisant of the ongoing risks presented by the evolving situation. At the time of publication of EnQuest’s full-year results,
the Group’s day-to-day operations continue without being materially affected by COVID-19.
During 2021, the Group signed a new senior secured borrowing base debt facility (the ‘RBL’) of $600.0 million and an additional
amount of $150.0 million for letters of credit for up to seven years, subject to refinancing the Group’s existing high yield bonds. The RBL
is initially repaid based on an amortisation schedule and via a cash sweep mechanism, whereby any unrestricted cash in excess of
$75.0 million is swept to repay outstanding amounts at calendar quarter ends. Application of the amortisation schedule ensures the
RBL is fully repaid by June 2023.
Upon refinancing of the Group’s High Yield Bond, the maturity of the RBL is extended to seven years from its signing date (11 June
2021), or the point at which the remaining economic reserves for all borrowing base assets are projected to fall below 25% of the
initial economic reserves forecast, if earlier.
124
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
2. Basis of preparation
continued
At 31 December 2021, $415.0 million was drawn on the RBL, with early voluntary repayments of $85.0 million made in the first quarter
of2022.
The Group continues to explore options to refinance its Retail and High Yield Bonds ahead of maturity in October 2023. For the
purposes of assessing going concern it is assumed that the refinancing of the bonds occurs outside of the going concern period.
However, in the scenario that the Group concluded a successful refinancing of the bonds within the next 12 months, then the going
concern basis at the date of release of this Annual Report would also be considered appropriate.
The Group’s latest approved business plan underpins management’s base case (‘Base Case’) and is in line with the Group’s
production guidance and uses oil price assumptions of $75.0/bbl for 2022 and $70.0/bbl for 2023, adjusted for hedging
activityundertaken.
The Base Case has been subjected to stress testing by considering the impact of the following plausible downside risks (the
‘Downside Case’):
•
10.0% discount to Base Case prices resulting in Downside Case prices of $67.5/bbl for 2022 and $63.0/bbl for 2023;
•
Production risking of c.5.0% for 2022 and 2023; and
•
2.5% increase in operating costs.
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. The Directors have also performed reverse stress testing on the
BaseCase, with the liquidity break-even price in the going concern period being less than $60.0/bbl in order to maintain a minimum
unrestricted cash balance of above $50.0 million across all periods (as required by the RBL).
Should circumstances arise that differ from the Group’s projections, the Directors believe that a number of mitigating actions,
including asset sales or other funding options, can be executed successfully in the necessary timeframe to meet debt repayment
obligations as they become due and in order to maintain liquidity.
After making appropriate enquiries and assessing the progress against the forecast, projections and the status of the mitigating
actions referred to above, the Directors have a reasonable expectation that the Group will continue in operation and meet its
commitments as they fall due over the going concern period. Accordingly, the Directors continue to adopt the going concern basis
in preparing these financial statements.
New standards and interpretations
The following new standards became applicable for the current reporting period. No material impact was recognised
uponapplication:
•
Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
•
COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)
Standards issued but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Standards
that have been issued but are not yet effective:
IFRS 17
Insurance Contracts
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Amendments to IAS 1 Classification of Liabilities as Current or Non-current and Disclosure
ofAccountingPolicies
Amendments to IAS 8
Disclosure of Accounting Policies
Amendments to IFRS 3
Reference to the Conceptual Framework
Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction
Amendments to IAS 16
Property, Plant and Equipment – Proceeds before Intended Use
Amendments to IAS 37 Onerous Contracts – Cost of Fulfilling a Contract
Annual Improvements to IFRS Standards
2018–2020 Cycle
Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards,
IFRS 9 Financial Instruments, IFRS 16 Leases, and IAS 41 Agriculture
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.
Basis of consolidation
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.
125
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
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 when 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 relating to
transactions between the members of the Group are eliminated on consolidation.
Joint arrangements
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 (‘JV’). The Annual Report and
Accounts therefore refers to ‘joint ventures’ as standard terms 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 2021, the Group did not have any material interests in joint ventures or in associates as defined in IAS 28.
Foreign currencies
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 Group 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 exchange gains and losses are taken
to profit and loss in the Group income statement.
Emissions liabilities
The Group operates in an energy intensive industry and is therefore required to partake in emission trading schemes (‘ETS’) (2021: UK
ETS, 2020: EU 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.
Use of judgements, estimates and assumptions
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. 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 within the next financial year, this is specifically noted.
126
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
2. Basis of preparation
continued
Climate change and energy transition
As covered in our principal risks on oil and gas prices on page 47, the Group recognises that the energy transition is likely to impact
the demand, and hence the future prices, of commodities such as oil and natural gas. This in turn may affect the recoverable
amount of property, plant and equipment, and goodwill in the oil and gas industry. The Group acknowledges that there are a range
of possible energy transition scenarios that may indicate different outcomes for oil prices. There are inherent limitations with
scenario analysis and it is difficult to predict which, if any, of the scenarios might eventuate.
The Group has assessed the potential impacts of climate change and the transition to a lower-carbon economy in preparing the
consolidated financial statements, including the Group’s current assumptions relating to demand for oil and natural gas and their
impact on the Group’s long-term price assumptions. See Recoverability of asset carrying values: Oil prices.
While the pace of transition to a lower-carbon economy is uncertain, oil and natural gas demand is expected to remain a key
element of the energy mix for many years based on stated policies, commitments and announced pledges to reduce emissions.
Therefore, given the useful lives of the Group’s current portfolio of oil and gas assets, a material adverse change is not expected to
the carrying values of EnQuest’s assets and liabilities as a result of climate change and the transition to a lower-carbon economy.
Management will continue to review price assumptions as the energy transition progresses and this may result in impairment
charges or reversals in the future.
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
outbelow.
Recoverability of asset carrying values
Judgements:
The Group assesses each asset or cash-generating unit (‘CGU’) (excluding goodwill, which is assessed annually
regardless of indicators) in each reporting period to determine whether any indication of impairment exists. Assessment of
indicators of impairment or impairment reversal and the determination of the appropriate grouping of assets into a CGU or the
appropriate grouping of CGUs for impairment purposes require significant management judgement. For example, individual oil and
gas properties may form separate CGUs whilst certain oil and gas properties with shared infrastructure may be grouped together
to form a single CGU. Alternative groupings of assets or CGUs may result in a different outcome from impairment testing. See note 11
for details on how these groupings have been determined in relation to the impairment testing of goodwill.
Estimates:
Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to
be the higher of the fair value less costs to dispose (‘FVLCD’) and value in use (‘VIU’). The assessments require the use of estimates
and assumptions such as the effects of inflation and deflation on operating expenses, discount rates, capital expenditure,
production profiles, reserves and resources, and future commodity prices, including the outlook for global or regional market
supply-and-demand conditions for crude oil and natural gas.
As described above, the recoverable amount of an asset is the higher of its VIU and its FVLCD. When the recoverable amount is
measured by reference to FVLCD, in the absence of quoted market prices or binding sale agreement, estimates are made
regarding the present value of future post-tax cash flows. These estimates are made from the perspective of a market participant
and include prices, future production volumes, operating costs, capital expenditure, decommissioning costs, tax attributes, risking
factors applied to cash flows and discount rates. Reserves and resources are included in the assessment of FVLCD to the extent that
it is considered probable that a market participant would attribute value to them.
Details of impairment charges and reversals recognised in the income statement and details on the carrying amounts of assets
are shown in note 10, note 11 and note 12.
The estimates for assumptions made in impairment tests in 2021 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. Fair value less costs of disposal
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 2021, the post-tax discount
rate was 10% (2020: 10%).
Oil prices
The price assumptions used for FVLCD impairment testing were based on latest internal forecasts as at 31 December 2021, which
assume short-term market prices will revert to the Group’s assessment of long-term price. These price forecasts reflect EnQuest’s
long-term views of global supply and demand, including the potential financial impacts on the Group of climate change and the
transition to a low-carbon economy as outlined in the Basis of Preparation, and are benchmarked with external sources of
information such as analyst forecasts. The Group’s price forecasts are reviewed and approved by management and challenged by
the Audit Committee.
127
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
EnQuest revised its oil price assumptions for FVLCD impairment testing compared to those used in 2020. The assumptions up to 2024
were increased to reflect an improved demand outlook as at the end of 2021. Oil prices rose 51% in 2021 from 2020 due to a strong
rebound in oil demand as the impact of COVID-19 eased and there were measured increases in OPEC+ supply combined with
continued capital discipline across the industry impacting supply. 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
and are considered by EnQuest to be broadly in line with a range of transition paths consistent with the Paris climate goals. However,
they do not correspond to any specific Paris-consistent scenario. An inflation rate of 2% (2020: 2%) is applied from 2025 onwards to
determine the price assumptions in nominal terms. Discounts or premiums are applied to price assumptions based on the
characteristics of the oil produced and of the terms of the relevant sales contracts.
2022
2023
2024 2025>
Brent oil ($/bbl)
75.0
70.0 70.0 60.0
The increase in oil prices in the first quarter of 2022 relating to the Russia-Ukraine conflict is a result of conditions that arose after the
balance sheet date. As such, the Group’s future oil price assumptions used in impairment tests to assess the recoverable amount of
assets at the balance sheet date have not been adjusted.
A net impairment reversal was recognised in 2021. See note 10 for further information.
The price assumptions used in 2020 were $47.0/bbl (2021), $55.0/bbl (2022), $60.0/bbl (2023) and $60.0/bbl real thereafter, inflated at
2.0% per annum from 2024.
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 enhance hydrocarbon recovery and extend the useful lives of mature
and underdeveloped assets and associated infrastructure in a profitable and responsible manner. 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
thedata.
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
priceassumptions.
Price reductions of this magnitude in isolation could indicatively lead to a reduction in the carrying amount of EnQuest’s oil and gas
properties by approximately $283.5 million, which is approximately 10% of the net book value of property, plant and equipment as at
31 December 2021.
The oil price sensitivity analysis above 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.
Management also tested the impact of a one percentage point change in the discount rate used for FVLCD impairment testing of
oil and gas properties. If the discount rate was one percentage point higher across all tests performed, the net impairment reversal
recognised in 2021 would have been approximately $35.1 million lower. If the discount rate was one percentage point lower, the net
impairment reversal recognised would have been approximately $38.3 million higher.
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
(2020:$134.4million), principally relating to the Magnus oil field transactions. Sensitivities and additional information relating
toimpairment testing of goodwill are provided in note 11.
Deferred tax
The Group assesses the recoverability of its deferred tax assets at each period end. Sensitivities and additional information relating
to deferred tax assets/liabilities are provided in note 7(d).
128
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
2. Basis of preparation
continued
75% Magnus acquisition contingent consideration
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.
The timing and amount of future expenditures relating to decommissioning and environmental liabilities are reviewed annually. The
interest rate used in discounting the cash flows is reviewed half-yearly. The nominal interest rate used to determine the balance
sheet obligations at the end of 2021 was 2% (2020: 2%). 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 an
inflation rate of 2% (2020: 2%) to decommissioning costs.
Further information about the Group’s provisions is provided in note 23. Changes in assumptions in relation to the Group’s provisions
could result in a material change in their carrying amounts within the next financial year. A 0.5 percentage point decrease in the
nominal discount rate applied could increase the Group’s provision balances by approximately $40.9 million (2020: $38.4 million).
The pre-tax impact on the Group income statement would be a charge of approximately $5.9 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 a
stage which permits a reasonable assessment of the existence of reserves.
3. Segment information
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 2021, 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 2021. The North Sea’s activities include Upstream operations, Decommissioning and Infrastructure & New Energy.
Malaysia’s activities include Upstream operations. The Group’s reportable segments may change in the future depending on the
way that resources may be allocated and performance assessed by the Chief Operating Decision Maker, who for EnQuest is the
Chief Executive. The information reported to the Chief Operating Decision Maker does not include an analysis of assets and liabilities,
and accordingly this information is not presented.
Year ended 31 December 2021
$’000
North Sea
Malaysia
All other
segments
Total
segments
Adjustments
and
eliminations
(i)
Consolidated
Revenue:
Revenue from contracts with customers
1,283,939
99,959
–
1,383,898
–
1,383,898Other operating income
3,811
–
235
4,046
(122,130)
(118,084)
Total revenue and other operating income
1,287,750
99,959
235
1,387,944
(122,130)
1,265,814
Income/(expenses) line items:
Depreciation and depletion
(299,324)
(13,612)
(134)
(313,070)
–
(313,070)Net impairment (charge)/reversal to oil and gas assets
39,715
– –
39,715–
39,715Segment profit/(loss)
(ii)
653,301
35,625
(291)
688,635
(108,576)
580,059
Other disclosures:
Capital expenditure
(iii)
459,302
17,419
314
477,035–
477,035
129
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Restated Year ended 31 December 2020
(iv)
$’000
North Sea
Malaysia
All other
segments
Total
segments
Adjustments
and
eliminations
(i)
Consolidated
Revenue:
Revenue from contracts with customers
792,508
62,917
–
855,425
– 855,425
Other operating income
5,428
–
8,427 280
5,708
2,719
Total revenue and other operating income
797,936
62,917
280
862,929 2,719
863,852
Income/(expenses) line items:
Depreciation and depletion
(430,169)
(15,638)
(56)
(445,863)
–
(445,863) Net impairment (charge)/reversal to oil and gas assets
(422,495)
– –
(422,495)–
(422,495)Segment profit/(loss)
(ii)
(318,952)
4,153
(311,427) 3,372
1,358
(310,069)
Other disclosures:
Capital expenditure
(iii)
81,504
2,144
–
83,648
– 83,648
(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
(iv) Comparative information for 2020 has been restated for the changes to the presentation of rental income effective 1 January 2021. For more information, see note 2 Basis
of preparation – Restatements
Reconciliation of profit/(loss):
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
Segment profit/(loss)
688,635
(311,427)
Finance costs
(227,846)
(257,077)
Finance income
228
1,171
Gain/(loss) on oil and foreign exchange derivatives
(i)
(108,576)
1,358
Profit/(loss) before tax
352,441
(565,975)
(i) Includes $54.6 million realised losses on derivatives and $54.0 million unrealised losses on derivatives
Revenue from two customers relating to the North Sea operating segment each exceeds 10% of the Group’s consolidated revenue
arising from sales of crude oil, with amounts of $241.7 million and $150.6 million per each single customer (2020: four customers;
$188.9 million, $143.4 million, $113.1 million and $84.9 million per each single customer).
4. Remeasurements and exceptional items
Accounting policy
As permitted by IAS 1 (Revised) Presentation of Financial Statements, certain items of income or expense which are material are
presented separately. Additional line items, headings, sub-totals and disclosures of the nature and amount are presented to
provide relevant understanding of the Group’s financial performance.
Remeasurements and exceptional items are items that management considers not to be part of underlying Business performance
and are disclosed in order to enable shareholders to understand better and evaluate the Group’s reported financial performance.
The items that the Group separately presents as exceptional on the face of the Group income statement are those material items of
income and expense which, because of the nature or expected infrequency of the events giving rise to them, merit separate
presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate
comparison with prior periods and to better assess trends in financial performance. Remeasurements relate to those items which
are remeasured on a periodic basis and are applied consistently year-on-year. If an item is assessed as a remeasurement or
exceptional item, then subsequent accounting to completion of the item is also taken through remeasurement and exceptional
items. Management has exercised judgement in assessing the relevant material items disclosed as exceptional.
The following items are classified as remeasurements and exceptional items (‘exceptional’):
•
Unrealised mark-to-market changes in the remeasurement of open derivative contracts at each period end are recognised
within remeasurements, with the recycling of realised amounts from remeasurements into Business performance income when
a derivative instrument matures;
•
Impairments on assets, including other non-routine write-offs/write-downs where deemed material, are remeasurements and
are deemed to be exceptional in nature;
•
Fair value accounting arising in relation to business combinations is deemed as exceptional in nature, as these transactions do
not relate to the principal activities and day-to-day Business performance of the Group. The subsequent remeasurements of
contingent assets and liabilities arising on acquisitions, including contingent consideration, are presented within
remeasurements and are presented consistently year-on-year; and
•
Other items that arise from time to time that are reviewed by management as non-Business performance and are disclosed
further below.
130
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
4. Remeasurements and exceptional items
continued
Year ended 31 December 2021
$’000
Fair value
remeasurement
(i)
Impairments
and
write offs
(ii)
Other
(iii)
Total
Revenue and other operating income
(54,451)
– –
(54,451)Cost of sales
472
–
(7,673) (7,201)
Net impairment (charge)/reversal on oil and gas assets
–
39,715
–39,715
Other income
140,079
–
22,568
162,647
Other expense
– –
(3,832) (3,832)
Finance costs
– –
(58,395) (58,395)
86,100
39,715
(47,332)
78,483
Tax on items above
(36,518)
(14,722)
(26,325)24,915
Recognition of undiscounted deferred tax asset
(iv)
–
104,546
–104,546
49,582 129,539
(22,417)
156,704
Restated Year ended 31 December 2020
$’000
Fair value
remeasurement
(i)
Impairments
and
write offs
(ii)
Other
(iii)
Total
Revenue and other operating income
8,778
– –
8,778 Cost of sales
(1,932)
–
(11,694)
(13,626)
Net impairment (charge)/reversal on oil and gas assets
–
(422,495)
– (422,495)
Other income
138,249
– –
138,249Other expenses
– –
(956) (956)
Finance costs
– –
(77,259) (77,259)
145,095
(422,495)
(89,909)
(367,309)
Tax on items above
(57,687)
163,267
33,175
138,755
Derecognition of undiscounted deferred tax asset (restated)
(iv)
–
(215,204)
–(215,204)
87,408
(474,432)
(56,734)
(443,758) (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 $(54.0) million. Other income relates to the fair value
remeasurement of contingent consideration relating to the acquisition of Magnus and associated infrastructure of $140.1 million (note 22) (2020: $138.2 million)
(ii) Impairments and write offs include a net impairment reversal of tangible oil and gas assets and right-of-use assets totalling $39.7 million (note 10) (2020: impairment of
$422.5 million)
(iii) Other items are made up of the following: Cost of sales includes $7.7 million mainly related to a provision for a dispute with a third-party contractor. In 2020 cost of sales
included $11.7 million for the provision on the PM8/Seligi riser repair and redundancy costs in relation to the Group’s transformation programme. Other income in 2021 of
$22.6 million (2020: nil) includes the finalisation of previous asset acquisitions, $12.0 million, and the recognition of insurance income, $9.0 million, related to the PM8/Seligi
riser incident. Other expense of $3.8 million relates to expenses incurred on the repayment of the BP vendor loan and Finance costs relates to Magnus contingent
consideration of $58.3 million (note 22) (2020: $77.3 million). These are largely non-cash items
(iv) Non-cash deferred tax recognition (2020 restated see note 2 Basis of preparation – Restatements) following the Group’s acquisition of Golden Eagle and the Group’s
higher oil price assumptions
5. Revenue and expenses
(a) Revenue and other operating income
Accounting policy
Revenue from contracts with customers
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 term is 30 days or less upon
performance of the obligation.
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
apoint 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,
ifapplicable.
131
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Tariff revenue for the use of Group infrastructure
Tariffs are charged to customers for the use of infrastructure owned by the Group. The revenue represents the performance of an
obligation for the use of Group assets over the life of the contract. The use of the assets is not separable as they are interdependent
in order to fulfil the contract and no one item of infrastructure can be individually isolated. Revenue is recognised as the
performance obligations are satisfied over the period of the contract, generally a period of 12 months or less, on a monthly basis
based on throughput at the agreed contracted rates.
Other operating income
Other revenue includes rental income from vessels, which is recognised to the extent that it is probable economic benefits will flow
to the Group and the revenue can be reliably measured.
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 and are included
within other operating income (see note 19).
Year ended
31 December
2021
$’000
Year ended
31 December
2020
restated
$’000
Revenue from contracts with customers:
Revenue from crude oil sales
1,139,171
779,865
Revenue from gas and condensate sales
(i)
244,073
60,486
Tariff revenue
654
15,074
Total revenue from contracts with customers
1,383,898
855,425
Rental income from vessels
(ii)
702
3,910
Realised (losses)/gains on oil derivative contracts (see note 19)
(67,679)
(6,059)
Other
3,344
1,798
Business performance revenue and other operating income
1,320,265
855,074
Unrealised (losses)/gains on oil derivative contracts
(iii)
(see note 19)
(54,451)
8,778
Total revenue and other operating income
1,265,814
863,852
(i) Includes onward sale of third-party gas purchases not required for injection activities at Magnus
(ii) Comparative information for 2020 has been restated for the changes to the presentation of rental income effective 1 January 2021. For more information, see note 2 Basis
of preparation – Restatements
(iii) Unrealised gains and losses on oil derivative contracts are disclosed as fair value remeasurement items in the income statement (see note 4)
Disaggregation of revenue from contracts with customers
Year ended
31 December 2021
$’000
Year ended
31 December 2020
$’000
North Sea
Malaysia
North Sea
Malaysia
Revenue from contracts with customers:
Revenue from crude oil sales
1,040,577
98,594
719,504
60,361
Revenue from gas and condensate sales
(i)
242,708
1,365
57,930
2,556
Tariff revenue
654
–
15,074
–
Total revenue from contracts with customers
1,283,939
99,959
792,508
62,917
(i) Includes onward sale of third-party gas purchases not required for injection activities at Magnus
132
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
5. Revenue and expenses
continued
(b) Cost of sales
Accounting policy
Production imbalances, movements in under/over-lift and movements in inventory are included in cost of sales. The over-lift liability
is recorded at the cost of the production imbalance to represent a provision for production costs attributable to the volumes sold in
excess of entitlement. The under-lift asset is recorded at the lower of cost and net realisable value, consistent with IAS 2, to represent
a right to additional physical inventory. An under-lift of production from a field is included in current receivables and an over-lift of
production from a field is included in current liabilities.
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
Production costs
292,252
265,529
Tariff and transportation expenses
39,414
63,685
Realised loss/(gain) on derivative contracts related to operating costs (see note 19)
(10,693)
(572)
Change in lifting position
62,868
(31,508)
Crude oil inventory movement
(561)
(3,293)
Depletion of oil and gas assets
(i)
305,578
438,247
Other cost of operations
(ii)
211,575
53,367
Business performance cost of sales
900,433
785,455
Unrealised (gains)/losses on derivative contracts related to operating costs
(iii)
(see note 19)
(472)
1,932
Movement in other provisions
7,673
11,694
Total cost of sales
907,634
799,081
(i) Includes $45.7 million (2020: $68.5 million) Kraken FPSO right-of-use asset depreciation charge and $14.3 million (2020: $10.5 million) of other right-of-use assets
depreciation charge
(ii) Includes $199.6 million of purchases and associated costs of third-party gas not required for injection activities at Magnus which is sold on (2020: $24.7 million of inventory
provisions and also includes purchases of third-party gas not required for injection activities at Magnus which is sold on)
(iii) Unrealised gains and losses on derivative contracts are disclosed as fair value remeasurement in the income statement (see note 4)
(c) General and administration expenses
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
Staff costs (see note 5(f))
80,098
85,813
Depreciation
(i)
7,492
7,616
Other general and administration costs
21,322
21,831
Recharge of costs to operations and joint venture partners
(108,549)
(109,155)
Total general and administration expenses
363
6,105
(i) Includes $4.0 million (2020: $3.7 million) right-of-use assets depreciation charge on buildings
(d) Other income
Year ended
31 December
2021
$’000
Year ended
31 December
restated
(i)
2020
$’000
Net foreign exchange gains
391
–
Gain on termination of Tanjong Baram risk service contract
–
10,209
Change in decommissioning provisions
19,327
–
Rental income from office sublease
(i)
1,702
1,796
Other
9,570
6,095
Business performance other income
30,990
18,100
Fair value changes in contingent consideration (see note 22)
140,079
138,249
Other non-Business performance
22,568
–
Total other income
193,637
156,349
(i) Comparative information for 2020 has been restated for the changes to the presentation of rental income effective 1 January 2021. For more information, see note 2 Basis
of preparation – Restatements
133
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
(e) Other expenses
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
Net foreign exchange losses
–
4,625
Change in decommissioning provisions
–
83,199
Change in Thistle decommissioning provisions (note 23)
6,184
11,998
Other
1,094
1,811
Business performance other expenses
7,278
101,633
Loss on derecognition of assets related to the Seligi riser detachment
–
956
Other non-Business performance
3,832
–
Total other expenses
11,110
102,589
(f) Staff costs
Accounting policy
Short-term employee benefits, such as salaries, social premiums and holiday pay, are expensed when incurred.
The Group’s pension obligations consist of defined contribution plans. The Group pays fixed contributions with no further payment
obligations once the contributions have been paid. The amount charged to the Group income statement in respect of pension
costs reflects the contributions payable in the year. Differences between contributions payable during the year and contributions
actually paid are shown as either accrued liabilities or prepaid assets in the balance sheet.
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
Wages and salaries
71,391
85,913
Social security costs
7,120
9,118
Defined contribution pension costs
5,464
6,871
Expense of share-based payments (see note 21)
6,351
3,401
Other staff costs
12,475
12,781
Total employee costs
102,801
118,084
Contractor costs
33,871
39,371
Total staff costs
136,672
157,455
General and administration staff costs (see note 5(c))
80,098
85,813
Non-general and administration costs
56,574
71,642
Total staff costs
136,672
157,455
The average number of persons, excluding contractors, employed by the Group during the year was 734, with 339 in the general
and administration staff costs and 395 directly attributable to assets (2020: 885 of which 383 in general and administration and
502directly attributable to assets). Compensation of key management personnel is disclosed in note 26 and in the remuneration
report on page 76.
134
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
5. Revenue and expenses
continued
(g) Auditor’s remuneration
The following amounts for the year ended 31 December 2021 and for the comparative year ended 31 December 2020 were payable
by the Group to Deloitte:
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
Fees payable to the Company’s auditor for the audit of the parent company and Group financial statements
847
649
The audit of the Company’s subsidiaries
145
178
Total audit
992
827
Audit-related assurance services
(i)
1,419
180
Total audit and audit-related assurance services
2,411
1,007
Tax services
–
10
Total auditor’s remuneration
2,411
1,017
(i) Audit-related assurance services include the review of the Group’s interim results and audit and assurance work in respect of the Group’s Golden Eagle acquisition
6. Finance costs/income
Accounting policy
Borrowing costs are recognised as interest payable within finance costs in accordance with the effective interest method.
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
Finance costs:
Loan interest payable
20,206
32,791
Bond interest payable
69,085
73,476
Unwinding of discount on decommissioning provisions (see note 23)
15,856
14,512
Unwinding of discount on other provisions (see note 23)
1,061
796
Finance charges payable under leases
45,359
50,851
Amortisation of finance fees on loans and bonds
13,623
5,417
Other financial expenses
4,261
1,975
Business performance finance expenses
169,451
179,818
Finance costs on Magnus-related contingent consideration (see note 22)
58,395
77,259
Total finance costs
227,846
257,077
Finance income:
Bank interest receivable
228
896
Unwinding of discount on financial asset (see note 19(f))
–
275
Total finance income
228
1,171
7. Income tax
(a) Income tax
Accounting policy
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.
Deferred tax is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the Group financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset
or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred tax is measured on an undiscounted basis using tax rates (and laws) that have been enacted or
substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the
deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be
available against which the temporary differences can be utilised.
135
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
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 taxes relate
to the same taxation authority and that authority permits the Group to make a single net payment.
Production taxes
In addition to corporate income taxes, the Group’s financial statements also include and disclose production taxes on net income
determined from oil and gas production.
Production tax relates to Petroleum Revenue Tax (‘PRT’) within the UK and is accounted for under IAS 12 Income Taxes since it has the
characteristics of an income tax as it is imposed under government authority and the amount payable is based on taxable profits
of the relevant fields. Current and deferred PRT is provided on the same basis as described above for income taxes.
Investment allowance
The UK taxation regime provides for a reduction in ring-fence supplementary charge tax where investment in new or existing UK
assets qualify for a relief known as investment allowance. Investment allowance must be activated by commercial production from
the same field before it can be claimed. The Group has both unactivated and activated investment allowances which could reduce
future supplementary charge taxation. The Group’s policy is that investment allowance is recognised as a reduction in the charge to
taxation in the years claimed.
The major components of income tax (credit)/expense are as follows:
Year ended
31 December
2021
$’000
Year ended
31 December
2020
restated
$’000
Current UK income tax
Current income tax charge
3,559
–
Adjustments in respect of current income tax of previous years
199
140
Current overseas income tax
Current income tax charge
18,050
2,424
Adjustments in respect of current income tax of previous years
(221)
(295)
Total current income tax
21,587
2,269
Deferred UK income tax
Relating to origination and reversal of temporary differences
(43,325)
(97,673)
Adjustments in respect of changes in tax rates
–
1
Adjustments in respect of deferred income tax of previous years
157
2,660
Deferred overseas income tax
Relating to origination and reversal of temporary differences
(5,320)
(5,135)
Adjustments in respect of deferred income tax of previous years
2,354
1,848
Total deferred income tax
(46,134)
(98,299)
Income tax (credit)/expense reported in profit or loss
(24,547)
(96,030)
136
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
7. Income tax
continued
(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
asfollows:
Year ended
31 December
2021
$’000
Year ended
31 December
2020
restated
(i)
$’000
Profit/(loss) before tax
352,441
(565,975)
UK statutory tax rate applying to North Sea oil and gas activities of 40% (2020: 40%)
140,976
(226,390)
Supplementary corporation tax non-deductible expenditure
4,331
17,761
Petroleum revenue tax (net of income tax benefit)
2,548
(2,548)
Non-deductible expenditure/income
(1,442)
(3,449)
North Sea tax reliefs
(113,593)
(106,685)
Tax in respect of non-ring-fence trade
23,378
3,222
Deferred tax asset (recognition)/impairment in respect of non-ring-fence trade
21,241
3,515
Deferred tax asset (recognition)/impairment in respect of ring-fence trade
(104,546)
215,204
Adjustments in respect of prior years
2,489
4,352
Overseas tax rate differences
(594)
(1,250)
Share-based payments
1,526
1,097
Other differences
(861)
(859)
At the effective income tax rate of 7% (2020: 17%)
(24,547)
(96,030)
(c) Deferred income tax
Deferred income tax relates to the following:
Group balance sheet
(Credit)/charge for the year
recognised in profit or loss
2021
$’000
2020
restated
(i)
$’000
2021
$’000
2020
restated
(i)
$’000
Deferred tax liability
Accelerated capital allowances
768,630
821,253
(52,623)
(236,551)
768,630
821,253
Deferred tax asset
Losses
(1,017,107)
(981,445)
(35,653)
121,089
Decommissioning liability
(286,045)
(310,697)
24,652
(26,640)
Other temporary differences
(165,030)
(182,529)
17,490
43,803
(1,468,182)
(1,474,671)
(46,133)
(98,299)
Net deferred tax (assets)
(699,552)
(653,418)
Reflected in the balance sheet as follows:
Deferred tax assets
(702,970)
(659,803)
Deferred tax liabilities
3,418
6,385
Net deferred tax (assets)
(699,552)
(653,418)
Reconciliation of net deferred tax assets/(liabilities)
2021
$’000
2020
restated
(i)
$’000
At 1 January
653,418
555,119
Tax income/(expense) during the period recognised in profit or loss
46,134
98,299
At 31 December
699,552
653,418
(i) Comparative information for 2020 has been restated for the changes to the presentation of rental income effective 1 January 2021. For more information, see note 2 Basis
of preparation – Restatements
137
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
(d) Tax losses
The Group’s deferred tax assets at 31 December 2021 are recognised to the extent that taxable profits are expected to arise in the
future against which tax losses and allowances in the UK can be utilised. A $127.6 million tax credit has been recognised as an
exceptional item, reflecting the reversal of the previous deferred tax asset derecognition. In accordance with IAS 12 Income Taxes, the
Group assesses the recoverability of its deferred tax assets at each period end. Sensitivities have been run on the oil price
assumption, with a 10% change being considered a reasonable possible change for the purposes of sensitivity analysis (see note 2).
A 10% reduction in oil price would result in a deferred tax asset derecognition of $318.6 million and a 10% increase in oil price would
result in an increase in deferred tax asset recognition of $107.9 million.
The Group has unused UK mainstream corporation tax losses of $431.7 million (2020: $320.7 million), and ring-fence tax losses of
$957.8 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 $12.9 million (2020: $15.1 million) remaining unrecognised.
The Group has unused overseas tax losses in Canada of approximately CAD$13.5 million (2020: CAD$13.5 million) for which no
deferred tax asset has been recognised at the balance sheet date. The tax losses in Canada have expiry periods of 20 years, none
of which expire in 2021, and which arose following the change in control of the Stratic Group in 2010.
The Group has unused Malaysian income tax losses of $15.7 million (2020: $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
The Finance Act 2020 enacted a change in the mainstream corporation tax rate to 19% with effect from 1 April 2020. As all UK
mainstream corporation tax losses are not recognised there is minimal impact in 2020 resulting from this change. In the Budget
statement on 3 March 2021, it was announced that the corporation tax rate will increase to 25% from 1 April 2023. This change is
expected to have no impact.
8. Earnings per share
The calculation of earnings per share is based on the profit after tax and on the weighted average number of Ordinary shares in
issue during the period. Diluted earnings per share is adjusted for the effects of Ordinary shares granted under the share-based
payment plans, which are held in the Employee Benefit Trust, unless it has the effect of increasing the profit or decreasing the loss
attributable to each share.
Basic and diluted earnings per share are calculated as follows:
Profit/(loss) after tax
Weighted average number
of Ordinary shares
Earnings per share
Year ended 31 December Year ended 31 December Year ended 31 December
2021
$’000
2020
restated
(ii)
$’000
2021
million
2020
million
2021
$
2020
restated
(ii)
$
Basic
376,988
(469,945)
1,736.4
1,655.0
0.217
(0.290)
Dilutive potential of Ordinary shares granted under
share-based incentive schemes
–
–
24.7
15.1
– –
Diluted
(i)
376,988
(469,945)
1,761.1
1,670.1
0.214
(0.290)
Basic (excluding remeasurements and exceptional items)
220,284
(26,187)
1,736.4
1,655.0
0.127
(0.016)
Diluted (excluding remeasurements and exceptional items)
(i)
220,284
(26,187)
1,761.1
1,670.1
0.125
(0.016)
(i) Potential Ordinary shares are not treated as dilutive when they would decrease a loss per share
(ii) 2020 comparative restated, see note 2 Basis of preparation – Restatements
9. Dividends paid and proposed
The Company paid no dividends during the year ended 31 December 2021 (2020: none). At 31 December 2021, there are no proposed
dividends (2020: none).
138
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
10. Property, plant and equipment
Accounting policy
Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment charges.
Cost
Cost comprises the purchase price or cost relating to development, including the construction, installation and completion of
infrastructure facilities such as platforms, pipelines and development wells and any other costs directly attributable to making that
asset capable of operating as intended by management. The purchase price or construction cost is the aggregate amount paid
and the fair value of any other consideration given to acquire the asset.
The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no future economic benefits
are expected from its use. The gain or loss arising from the derecognition of an item of property, plant and equipment is included in
the other operating income or expense line item in the Group income statement when the asset is derecognised.
Development assets
Expenditure relating to development of assets including the construction, installation and completion of infrastructure facilities such
as platforms, pipelines and development wells, is capitalised within property, plant and equipment.
Carry arrangements
Where amounts are paid on behalf of a carried party these are capitalised. Where there is an obligation to make payments on
behalf of a carried party and the timing and amount are uncertain, a provision is recognised. Where the payment is a fixed
monetary amount, a financial liability is recognised.
Borrowing costs
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 such time as the
assets are substantially ready for their intended use.
Depletion and depreciation
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
ofsales.
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
financial year end. No depreciation is charged on assets under construction.
Impairment of tangible and intangible assets (excluding goodwill)
At each balance sheet date, the Group assesses assets or groups of assets, called cash-generating units (‘CGUs’), for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset or CGU may not be recoverable. If any
such indication exists, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher
of its fair value less costs of disposal and its value in use. 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. The life of a field depends on the interaction of a number of variables such as the recoverable quantity of
hydrocarbons, the production profile of the hydrocarbons, the capex necessary to recover the hydrocarbons, production costs and
the selling price of the hydrocarbons produced. 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.
139
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
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 recognised
immediately in the Group income statement.
Oil and gas
assets
$’000
Office
furniture,
fixtures and
fittings
$’000
Right-of-use
assets
(note 24)
$’000
Total
$’000
Cost:
At 1 January 2020
8,547,769
62,453
857,089 9,467,311
Additions
78,926
1,910
2,812
83,648
Change in decommissioning provision
10,200
– –
10,200 Disposals and termination of Tanjong Baram risk service contract
(84,724)
(143)
(1,412)
(86,279)
At 1 January 2021
8,552,171
64,220
858,489
9,474,880
Acquisition
386,210
– –
386,210Additions
61,704
1,165
17,815
80,684Change in decommissioning provision
(2,732)
– –
(2,732)Disposal
– –
(8,411) (8,411)
At 31 December 2021
8,997,353
65,385
867,893
9,930,631
Accumulated depreciation, depletion and impairment:
At 1 January 2020
5,797,924
46,568
171,890
6,016,382
Charge for the year
359,258
3,902
82,703
445,863
Disposals and termination of Tanjong Baram risk service contract
(42,958)
(113)
(706)
(43,777)
Impairment charge for the year
314,335
–
108,160
422,495
At 1 January 2021
6,428,559
50,357
362,047
6,840,963
Charge for the year
245,645
3,472
63,953
313,070
Net impairment reversal for the year
(24,046)
–
(15,669)
(39,715)
Disposal
– –
(5,831) (5,831)
Other
146
– –
146At 31 December 2021
6,650,304
53,829
7,108,633404,500
Net carrying amount:
At 31 December 2021
2,347,049
11,556
463,393
2,821,998
At 31 December 2020
2,123,612
13,863
496,442
2,633,917
At 1 January 2020
2,749,845
15,885 685,199
3,450,929
The amount of borrowing costs capitalised during the year ended 31 December 2021 was nil (2020: nil).
Acquisitions
The Group acquired a 26.69% non-operated interest in the producing Golden Eagle area from Suncor Energy UK on 22 October 2021.
The Group applied the optional concentration test for this transaction in accordance with IFRS 3. Accordingly, it has been concluded
that as substantially all of the value arising from the transaction relates to the producing oil and gas asset, the acquired assets
donot represent a business and therefore the transaction has been accounted for as an asset acquisition at cost. Consideration
included cash of $249.7 million and a contingent payment based on the average oil price between July 2021 and June 2023.
Thenetpresent value of the contingent payment has been valued at $44.7 million and has been included within contingent
consideration (see note 22). Other directly attributable costs of $10.4 million were also included in the cost of the acquisition. The total
oil and gas asset recognised in relation to the acquisition is $386.2 million. A decommissioning liability of $119.3 million was also
recognised as part of the acquisition (see note 23).
Impairments
Impairments to the Group’s producing assets and reversals of impairments are set out in the table below:
Impairment
(charge)/reversal
Recoverable amount
(i)
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
31 December
2021
$’000
31 December
2020
$’000
North Sea
39,715
(422,495)
1,496,219
1,518,832
Net pre-tax impairment reversal/(charge)
39,715
(422,495)
(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
140
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
10. Property, plant and equipment
continued
For information on judgements, estimates and assumptions made in relation to impairments see ‘Use of judgements, estimates
and assumptions’ within note 2.
The 2021 net impairment reversal of $39.7 million relates to producing assets in the UK North Sea. Impairment reversals were primarily
driven by an increase in EnQuest’s near-term future oil price assumptions. The CGUs on which impairment reversals relate were
$53.7 million for Kraken and $6.1 million for Alba. In addition, impairment losses of $20.1 million were incurred relating to the GKA and
Scolty/Crathes CGU, primarily as a result of forecast increased costs and lower production.
The 2020 impairment charge of $422.5 million related to producing assets in the UK North Sea. Impairment losses were primarily
driven by a reduction in EnQuest’s future oil price assumptions and the decision to cease production at Dons. The principal CGUs
onwhich significant impairment losses were incurred in 2020 were $380.3 million for Kraken, $28.2 million for Alba and $14.6 million
forDons.
11. Goodwill
Accounting policy
Cost
Goodwill arising on a business combination is initially measured at cost, being the excess of the cost of the business combination
over the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity at the date of acquisition. If the fair
value of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has
correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets
acquired over the aggregate consideration transferred, the gain is recognised in profit or loss.
Impairment of goodwill
Following initial recognition, goodwill is stated at cost less any accumulated impairment losses. In accordance with IAS 36
Impairment of Assets, goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances
indicate the recoverable amount of the CGU to which the goodwill relates should be assessed.
For the purposes of impairment testing, goodwill acquired is allocated to the CGU that is expected to benefit from the synergies of
the combination. Each unit or units to which goodwill is allocated represents the lowest level within the Group at which the goodwill
is monitored for internal management purposes. Impairment is determined by assessing the recoverable amount of the CGU to
which the goodwill relates. Where the recoverable amount of the CGU is less than the carrying amount of the CGU containing
goodwill, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. For
information on significant estimates and judgements made in relation to impairments see Use of judgements, estimates and
assumptions: recoverability of asset carrying values within note 2.
A summary of goodwill is presented below:
2021
$’000
2020
$’000
Cost and net carrying amount
At 1 January
134,400
134,400
At 31 December
134,400
134,400
The majority of the goodwill, $94.6 million, relates to the 75% acquisition of the Magnus oil field and associated interests. The
remaining goodwill balance arose from the acquisition of Stratic and PEDL in 2010 and the Greater Kittiwake Area asset in 2014.
Impairment testing of goodwill
Goodwill, which has been acquired through business combinations, has been allocated to the UK North Sea segment CGU, and this
is therefore the lowest level at which goodwill is reviewed. The UK North Sea is a combination of oil and gas assets, as detailed within
property, plant and equipment (note 10).
The recoverable amounts of the CGU and fields have been determined on a fair value less costs of disposal basis. Discounted cash
flow models comprising asset-by-asset life of field projections, based on current estimates of reserves and resources, and risks
specific to assets, using Level 3 inputs (based on IFRS 13 fair value hierarchy), have been used to determine the recoverable amounts.
The life of a field depends on the interaction of a number of variables such as the recoverable quantity of hydrocarbons, the
production profile of the hydrocarbons, the capex necessary to recover the hydrocarbons, production costs and the selling price of
the hydrocarbons produced. 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. An impairment charge of nil was taken in 2021 (2020: nil) based on a fair
value less costs to dispose valuation of the North Sea CGU, as described above.
141
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Sensitivity to changes in assumptions
The Group’s recoverable value of assets is highly sensitive, inter alia, to oil price achieved and production volumes. A sensitivity has
been run on the oil price assumption, with a 10% change being considered to be a reasonable possible change for the purposes of
sensitivity analysis (see note 2). A 10% reduction in oil price would result in a net impairment of $54.7 million (2020: 10% reduction
would result in a net impairment of $14.0 million). A 20% reduction in oil price would fully impair goodwill (2020: 13%).
12. Intangible assets
Accounting policy
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
isno longer the case, the costs are written off as exploration and evaluation expenses in the Group income statement. When
exploration licences are relinquished without further development, any previous impairment loss is reversed and the carrying costs
are written off through the Group income statement. When assets are declared part of a commercial development, related costs
are transferred to property, plant and equipment. All intangible oil and gas assets are assessed for any impairment prior to transfer
and any impairment loss is recognised in the Group income statement.
During the year ended 31 December 2021, there was no impairment of historical exploration and appraisal expenditures (2020: nil).
Other intangibles
UK emissions allowances (‘UKAs’) purchased to settle the Group’s liability related to emissions are recognised on the balance sheet
as an intangible asset at cost. The UKAs will be derecognised upon settling the liability with the respective regulator.
Exploration
and
appraisal
assets
$’000
UK emissions
allowances
$’000
Total
$’000
Cost:
At 1 January 2020
174,964
–
174,964Write-off of relinquished licences previously impaired
(12,645)
–
(12,645) Other
(7)
–
(7) At 1 January 2021
162,312
–
162,312
Additions
10,141
10,052
20,193
Write-off of relinquished licences previously impaired
(72)
–
(72) At 31 December 2021
172,381
10,052
182,433
Accumulated impairment:
At 1 January 2020
(147,411)
–
(147,411) Write-off of relinquished licences previously impaired
12,645
–
12,645 At 1 January 2021
(134,766)
–
(134,766)
At 31 December 2021
(134,766)
–
(134,766) Net carrying amount:
At 31 December 2021
37,615
10,052
47,667At 31 December 2020
27,546
–
27,546
At 1 January 2020
27,553
–
27,553
142
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
13. Inventories
Accounting policy
Inventories of consumable well supplies and inventories of hydrocarbons are stated at the lower of cost and NRV, cost being
determined on an average cost basis.
2021
$’000
2020
$’000
Hydrocarbon inventories
22,835
20,509
Well supplies
50,188
39,275
73,023
59,784
During 2021, a net gain of $0.4 million was recognised within cost of sales in the Group income statement relating to inventory
(2020:charge of $21.6 million).
The inventory valuation at 31 December 2021 is stated net of a provision of $43.2 million (2020: $56.7 million) to write down well
supplies to their estimated net realisable value. During the year a portion of the provided for well supplies was disposed of, resulting
in a net charge to the income statement of $0.2 million (2020: $24.9 million).
14. Cash and cash equivalents
Accounting policy
Cash and cash equivalents includes cash at bank, cash in hand, outstanding bank overdrafts and highly liquid interest-bearing
securities with original maturities of three months or fewer.
2021
$’000
2020
$’000
Available cash
276,970
221,155
Restricted cash
9,691
1,675
Cash and cash equivalents
286,661
22,830
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.
Restricted cash
Included within the cash balance at 31 December 2021 is restricted cash of $9.7 million. This includes $8.2 million on deposit relating
to bank guarantees for the Group’s Malaysian assets and $1.5 million related to cash collateralised letters of credit. In 2020, the
restricted cash balance of $1.7 million related to cash held in escrow in respect of the unwound acquisition of the Tunisian assets of
PA resources. This balance was fully collected in 2021.
15. Financial instruments and fair value measurement
Accounting policy
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument
ofanother 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
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 asset and substantially all the risks and rewards are transferred.
143
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
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.
Impairment of financial assets
The Group recognises a provision for expected credit loss (‘ECL’), where material, for all financial assets held at the balance sheet
date. ECLs are based on the difference between the contractual cash flows due to the Group, and the discounted actual cash flows
that are expected to be received. Where there has been no significant increase in credit risk since initial recognition, the loss
allowance is equal to 12-month expected credit losses. Where the increase in credit risk is considered significant, lifetime credit
losses are provided. For trade receivables, a lifetime credit loss is recognised on initial recognition where material.
The provision rates are based on days past due for groupings of customer segments with similar loss patterns (i.e. by geographical
region, product type, customer type and rating) and are based on historical credit loss experience, adjusted for forward-looking
factors specific to the debtors and the economic environment. The Group evaluates the concentration of risk with respect to trade
receivables and contract assets as low, as its customers are joint venture partners and there are no indications of change in
risk.Generally, trade receivables are written off when they become past due for more than one year and are not subject to
enforcement activity.
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 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.
Financial instruments at fair value through profit or loss
The Group holds derivative financial instruments classified as held for trading, not designated as effective hedging instruments.
Thederivative financial instruments include forward currency contracts and commodity contracts, to address the respective risks;
see note 27. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value
isnegative.
Financial instruments at FVPL are carried in the Group balance sheet at fair value with net changes in fair value recognised in the
Group income statement. Unrealised mark-to-market changes in the remeasurement of open derivative contracts at each period
end are recognised within remeasurements, with the recycling of realised amounts from remeasurements into Business
performance income when a derivative instrument matures. Option premium received or paid for commodity derivatives are
recognised in remeasurements.
Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value
through profit or loss, irrespective of the business model. All financial assets not classified as measured at amortised cost or FVOCI
as described above are measured at FVPL. Financial instruments with embedded derivatives are considered in their entirety when
determining whether their cash flows are solely payment of principal and interest.
The Group also holds contingent consideration (see note 22) and a listed equity investment (see note 19). The movements of both
are recognised within remeasurements in the Group income statement.
144
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
15. Financial instruments and fair value measurement
continued
Fair value measurement
The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities:
31 December 2021
Notes
Total
$’000
Quoted
prices
inactive
markets
(Level 1)
$’000
Significant
observable
inputs
(Level 2)
$’000
Significant
unobservable
inputs
(Level 3)
$’000
Financial assets measured at fair value:
Derivative financial assets measured at FVPL
Forward UKAs contracts
90
–
90–
Forward foreign currency contracts
382
–
382–
Other financial assets measured at FVPL
Quoted equity shares
6 6 – –
Total financial assets measured at fair value
478
6
472–
Liabilities measured at fair value:
Derivative financial liabilities measured at FVPL
Oil commodity derivative contracts
19
55,247
–
55,247–
Other financial liabilities measured at FVPL
Contingent consideration
22
410,778
– –
410,778Total liabilities measured at fair value
466,025 –
55,247
410,778
Liabilities measured at amortised cost for which fair values are
disclosed below:
Interest-bearing loans and borrowings
18
424,864
– –
424,864Obligations under leases
24
570,781
– –
570,781Retail bond
18
244,387 244,387
– –
High yield bond
18
773,499 773,499
– –
Total liabilities measured at amortised cost for which fair values
aredisclosed
2,013,531
1,017,886
–
995,645
31 December 2020
Notes
Total
$’000
Quoted
prices
inactive
markets
(Level 1)
$’000
Significant
observable
inputs
(Level 2)
$’000
Significant
unobservable
inputs
(Level 3)
$’000
Financial assets measured at fair value:
Other financial assets at FVPL
Quoted equity shares
7 7
– –
Total financial assets measured at fair value
7 7 – –
Liabilities measured at fair value:
Derivative financial liabilities at FVPL
Oil commodity derivative contracts
19
2,007
–
2,007 –
Other financial liabilities measured at FVPL
Contingent consideration
22
522,261
– –
522,261
Total liabilities measured at fair value
524,268
2,007
522,261
Liabilities measured at amortised cost for which fair values are
disclosed below:
Interest-bearing loans and borrowings
18
454,209
– –
454,209 Obligations under leases
24
647,846
– –
647,846 Retail bond
18
225,943 225,943
– –
High yield bond
18
537,602 537,602
– –
Total liabilities measured at amortised cost for which fair values
aredisclosed
1,865,600
763,545
–
1,102,055
145
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Fair value hierarchy
All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, based on the
lowest level input that is significant to the fair value measurement as a whole, as follows:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly (i.e. as
prices) or indirectly (i.e. derived from prices) observable;
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
Derivative financial instruments are valued by counterparties, with the valuations reviewed internally and corroborated with readily
available market data (Level 2). Contingent consideration is measured at FVPL using the Level 3 valuation processes disclosed in
note 22. There have been no transfers between Level 1 and Level 2 during the period (2020: no transfers).
For the financial liabilities measured at amortised cost but for which fair value disclosures are required, the fair value of the bonds
classified as Level 1 was derived from quoted prices for that financial instrument. Both interest-bearing loans and borrowings and
obligations under finance leases were calculated using the discounted cash flow method to capture the present value (Level 3).
16. Trade and other receivables
2021
$’000
2020
$’000
Current
Trade receivables
94,992
24,604
Joint venture receivables
68,157
53,121
Under-lift position
35,769
15,690
VAT receivable
–
10,307
Other receivables
11,703
1,441
210,621
105,163
Prepayments and accrued income
85,447
13,552
296,068
118,715
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 recognised as at
31 December 2021 or 2020. The Group’s ECL estimates were not significantly impacted by COVID-19 during 2021.
17. Trade and other payables
2021
$’000
2020
$’000
Current
Trade payables
49,701
41,090
Accrued expenses
297,744
179,590
Over-lift position
53,742
12,732
Joint venture creditors
10,852
16,647
VAT payable
7,561
–
Other payables
944
5,096
420,544
255,155
The carrying value of the Group’s trade and other payables as stated above is considered to be a reasonable approximation to
their fair value largely due to the short-term maturities. Certain trade and other payables will be settled in currencies other than the
reporting currency of the Group, mainly in Sterling. Trade payables are normally non-interest-bearing and settled on terms of
between 10 and 30 days.
Accrued expenses include accruals for capital and operating expenditure in relation to the oil and gas assets and interest accruals.
146
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
18. Loans and borrowings
2021
$’000
2020
$’000
Borrowings
401,614
452,284
Bonds
1,081,596
1,045,041
1,483,210
1,497,325
(a) Borrowings
The Group’s borrowings are carried at amortised cost as follows:
2021
2020
Principal
$’000
Fees
$’000
Total
$’000
Principal
$’000
Fees
$’000
Total
$’000
RBL
415,000
(23,250)
391,750
– – –
Credit facility
– – –
377,270
–
377,270 Sculptor Capital facility
– – –
67,701
(1,925)
65,776
SVT working capital facility
9,864
–
9,864 9,238
–
9,238 Total borrowings
424,864
(23,250)
401,614
454,209
(1,925)
452,284
Due within one year
210,505
414,430
Due after more than one year
191,109
37,854
Total borrowings
401,614
452,284
See liquidity risk – note 27 for the timing of cash outflows relating to loans and borrowings.
RBL facility
On 11 June 2021, the Group signed a new RBL facility of approximately $600.0 million and an additional amount of $150.0 million for
letters of credit for up to seven years. Upon refinancing of the Group’s existing high yield bonds, the maturity of the new facility is
extended to the earlier of seven years from its signing date, or the point at which the remaining economic reserves for all borrowing
base assets are projected to fall below 25% of the initial economic reserves forecast. In the event the maturity of the new facility is
not extended, any amounts drawn amortise such that they are fully repaid by the end of September 2023. In 2021 interest accrued at
a rate of 4.25% plus USD LIBOR. From 1 January 2022, following the LIBOR transition, interest will accrue at a rate of 4.25% plus a margin.
The margin will be a combination of a fixed rate based on the interest period and SOFR. From October 2022, the fixed rate
percentage will increase from 4.25% to 4.50%.
During 2021 the Group utilised $485.0 million of the RBL, $360.0 million in July and $125.0 million in October. In December 2021, the
Group voluntarily repaid $70.0 million ahead of the planned amortisation schedule. As at 31 December 2021, the carrying value of the
facility was $391.8 million, comprising the principal of $415.0 million and unamortised fees of $23.3 million.
At 31 December 2021, after allowing for letter of credit utilisation of $53.0 million, $32.0 million remained available for drawdown under
the credit facility.
Credit facility
During the period, the Group repaid its outstanding debt on the Credit facility of $378.1 million.
Sculptor Capital facility
During the period, the Group repaid its outstanding debt on the Sculptor Capital facility of $67.7 million.
SVT working capital facility
On 1 December 2020, EnQuest extended, for a further three years, the £42.0 million revolving loan facility with a joint operator partner
to fund the short-term working capital cash requirements on the acquisition of SVT and associated interests. The facility is
guaranteed by BP EOC Limited. The facility is able to be drawn down against, in instalments, and accrues interest at 1.0% per annum
plus GBP LIBOR.
(b) Bonds
The Group’s bonds are carried at amortised cost as follows:
2021
2020
Principal
$’000
Fees
$’000
Total
$’000
Principal
$’000
Fees
$’000
Total
$’000
High yield bond
827,166
(1,725)
825,441
799,194
(2,666)
796,528
Retail bond
256,574
(419)
256,155 249,161
(648)
248,513
Total bonds due after more than one year
1,083,740
(2,144)
1,081,596
1,048,355
(3,314)
1,045,041
147
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
High yield bond
In April 2014, the Group issued a $650.0 million high yield bond. On 21 November 2016, the high yield bond was amended pursuant to
a scheme of arrangement whereby all existing notes were exchanged for new notes. The new high yield notes continue to accrue a
fixed coupon of 7.0% payable semi-annually in arrears. The interest is only payable in cash if the ‘Cash Payment Condition’ is
satisfied, being the average of the Daily Brent Oil Prices during the period of six calendar months immediately preceding the ‘Cash
Payment Condition Determination Date’ is equal to or above $65/bbl. The ‘Cash Payment Condition Determination Date’ is the date
falling one calendar month prior to the relevant interest payment date. If the ‘Cash Payment Condition’ is not satisfied, interest will
not be paid in cash but instead will be capitalised and satisfied through the issue of additional high yield notes (‘Additional HY
Notes’). $27.5 million of accrued, unpaid interest as at the restructuring date was capitalised and added to the principal amount of
the new high yield notes issued pursuant to the scheme.
During 2020, the maturity date of the new high yield notes was automatically extended to 15 October 2023 as the credit facility had
not been repaid or refinanced in full prior to 15 October 2020.
The above carrying value of the bond as at 31 December 2021 is $825.4 million (2020: $796.5 million). This includes bond principal of
$827.2 million (2020: $799.2 million) less unamortised fees of $1.7 million (2020: $2.7 million). The high yield bond does not include
accrued interest of $12.2 million (2020: $11.8 million) and liability for the IFRS 9 Financial Instruments loss on modification of $2.6 million
(2020: $4.6 million), which are reported within trade and other payables. The fair value of the high yield bond is disclosed in note 15.
Retail bond
In 2013, the Group issued a £155.0 million retail bond. On 21 November 2016, the retail bond was amended pursuant to a scheme of
arrangement whereby all existing notes were exchanged for new notes. The new retail notes continue to accrue a fixed coupon of
7.0% payable semi-annually in arrears. The interest is only payable in cash if the ‘Cash Payment Condition’ is satisfied, being the
average of the Daily Brent Oil Prices during the period of six calendar months immediately preceding the ‘Cash Payment Condition
Determination Date’ is equal to or above $65/bbl. The ‘Cash Payment Condition Determination Date’ is the date falling one calendar
month prior to the relevant interest payment date. If the ‘Cash Payment Condition’ is not satisfied, interest will not be paid in cash but
instead will be capitalised and satisfied through the issue of additional retail notes (‘Additional Retail Notes’).
During 2020, the maturity date of the new high yield notes was automatically extended to 15 October 2023 as the credit facility had
not been repaid or refinanced in full prior to 15 October 2020.
The above carrying value of the bond as at 31 December 2021 is $256.2 million (2020: $248.5 million). This includes bond principal of
$256.6 million (2020: $249.2 million) less unamortised fees of $0.4 million (2020: $0.6 million). The retail yield bond does not include
accrued interest of $6.2 million (2020: $6.3 million) and liability for the IFRS 9 Financial Instruments loss on modification of $7.4 million
(2020: $11.9 million), which are reported within trade and other payables. The fair value of the retail bond is disclosed in note 15.
19. Other financial assets and financial liabilities
(a) Summary as at year end
2021
2020
Assets
$’000
Liabilities
$’000
Assets
$’000
Liabilities
$’000
Fair value through profit or loss:
Derivative commodity contracts
–
55,245
–
2,007
Derivative foreign exchange contracts
382
–
– –
Commodity futures
– 2
– –
Derivative UKAs contracts
90
–
– –
Total current
472 55,247
–
2,007
Fair value through profit or loss:
Quoted equity shares
6 –
7
–
Total non-current
6 –
7
–
148
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
19. Other financial assets and financial liabilities
continued
(b) Income statement impact
The income/(expense) recognised for derivatives are as follows:
Revenue and other
operating income
Cost of sales
Year ended 31 December 2021
Realised
$’000
Unrealised
$’000
Realised
$’000
Unrealised
$’000
Commodity options
(62,016) (55,570)
– –
Commodity swaps
(4,258)
1,121
– –
Commodity futures
985
(2)
– –
Foreign exchange contracts
– –
(4)
382
UKA contracts
– –
10,697
90
(65,289) (54,451)
10,693
472
Revenue and other
operating income
Cost of sales
Year ended 31 December 2020
Realised
$’000
Unrealised
$’000
Realised
$’000
Unrealised
$’000
Commodity options
24,659
(136)
– –
Commodity swaps
(36,912)
8,941
– –
Commodity futures
6,194
(27)
– –
Foreign exchange contracts
– –
572
(1,932)
(6,059)
8,778
572
(1,932)
(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 2021, losses totalling $119.7 million (2020: gains of $2.7 million) were recognised in respect of
commodity contracts designated as FVPL. This included losses totalling $65.3 million (2020: losses of $6.1 million) realised on
contracts that matured during the year, and mark-to-market unrealised losses totalling $54.5 million (2020: gains of $8.8 million).
Ofthe realised amounts recognised during the year, a loss of $1.0 million (2020: gain of $6.2 million) was realised in Business
performance revenue in respect of the premium expense received on sale of these options.
The mark-to-market value of the Group’s open commodity contracts as at 31 December 2021 was a liability of $55.2 million
(2020:liability of $2.0 million).
(d) Foreign currency contracts
The Group enters into a variety of foreign currency contracts, primarily in relation to Sterling. During the year ended 31 December
2021, gains totalling $0.4 million (2020: losses of $1.4 million) were recognised in the Group income statement. This included realised
gains totalling $0.1 million (2020: gains of $0.6 million) on contracts that matured in the year.
The mark-to-market value of the Group’s open contracts as at 31 December 2021 was $0.4 million (2020: nil).
(e) UK emissions allowance forward contracts
The Group enters into forward contracts for the purchase of UKAs to manage its exposure to price. In 2020 these contracts were
treated as own use contracts and not accounted for as derivatives. During 2021 a number of open contracts were closed out early.
The result of this was the Group no longer being able to account for UKAs forwards as own use and recognising them as derivatives.
During the year ended 31 December 2021, gains totalling $10.8 million (2020: nil) were recognised in the income statement. This
included realised gains totalling $10.7 million (2020: nil) on contracts that matured in the year.
The mark-to-market value of the Group’s open contracts as at 31 December 2021 was $0.1 million (2020: nil).
149
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
(f) Other receivables
2021
$’000
2020
$’000
At 1 January
7
6,874
Change in fair value
(1)
(4)
Utilised during the year
–
(7,138)
Unwinding of discount
–
275
At 31 December
6
7
Non-current
6
7
6
7
20. Share capital and premium
Accounting policy
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
ofregistered 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.
Retained earnings
Retained earnings contain the accumulated profits/(losses) of the Group.
Share-based payments reserve
Equity-settled share-based payment transactions are measured at the fair value of the services received, and the corresponding
increase in equity is recorded. EnQuest PLC shares held by the Group in the Employee Benefit Trust are recognised at cost and are
deducted from the share-based payments reserve. Consideration received for the sale of such shares is also recognised in equity,
with any difference between the proceeds from the sale and the original cost being taken to reserves. No gain or loss is recognised
in the Group income statement on the purchase, sale, issue or cancellation of equity shares.
Authorised, issued and fully paid
Ordinary shares
of £0.05 each
Number
Share
capital
$’000
Share
premium
$’000
Total
$’000
At 1 January 2021
1,695,801,955
118,271 227,149
345,420
Issuance of equity shares
190,122,384
13,379
37,346
50,725
Expenses of issuance of equity shares
– –
(3,949) (3,949)
At 31 December 2021
1,885,924,339
131,650
260,546
392,196At 31 December 2021, there were 39,718,323 shares held by the Employee Benefit Trust (2020: 46,492,546). On 26 July 2021, 2,159,903
shares were acquired by the Employee Benefit Trust pursuant to the firm placing, placing and open offer. The remaining movement
in the year was due to shares used to satisfy awards made under the Company’s share-based incentive schemes.
On 26 July 2021, the Group completed a firm placing, placing and open offer pursuant to which 190,122,384 new Ordinary shares
were issued at a price of £0.19 per share, generating gross aggregate proceeds of $50.7 million. Following the admission to the
market of an additional 190,122,384 Ordinary shares on 26 July 2021, there were 1,885,924,339 Ordinary shares in issue at the end of
the year.
21. Share-based payment plans
Accounting policy
Eligible employees (including 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 Directors is shown in the Directors’ Remuneration Report on pages 86 to 88.
The cost of these equity-settled transactions is measured by reference to the fair value at the date on which they are granted. The
fair value of awards is calculated in reference to the scheme rules at the market value, being the average middle market quotation
of a share for the three immediately preceding dealing days as derived from the Daily Official List of the London Stock Exchange,
provided such dealing days do not fall within any period when dealings in shares are prohibited because of any dealing restriction.
150
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
21. Share-based payment plans
continued
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 participants that leave
for qualifying reasons.
The share-based payment expense recognised for each scheme was as follows:
2021
$’000
2020
$’000
Performance Share Plan
5,241
3,277
Other performance share plans
135
364
Sharesave Plan
975
(240)
6,351
3,401
The following table shows the number of shares potentially issuable under equity-settled employee share plans, including the
number of options outstanding and the number of options exercisable at the end of each year.
Share plans
2021
Number
2020
Number
Outstanding at 1 January
110,263,670
77,374,961
Granted during the year
35,552,383
53,223,408
Exercised during the year
(8,056,525)
(6,288,132)
Forfeited during the year
(12,265,533)
(14,046,567)
Outstanding at 31 December
125,493,995
110,263,670
Exercisable at 31 December
14,249,920
11,894,904
In addition, the Group operates an approved savings-related share option scheme (the Sharesave Plan). The plan is based on
eligible employees being granted options and their agreement to opening a Sharesave account with a nominated savings carrier
and to save over a specified period, either three or five years. The right to exercise the option is at the employee’s discretion at the
end of the period previously chosen, for a period of six months.
The following table shows the number of shares potentially issuable under equity-settled employee share option plans, including
the number of options outstanding, the number of options exercisable at the end of each year and the corresponding weighted
average exercise prices.
2021
2020
Share options
Number
Weighted
average
exercise
price
$
Number
Weighted
average
exercise
price
$
Outstanding at 1 January
42,383,654
0.13
42,589,522
0.16
Granted during the year
1,370,748
0.25
34,719,941
0.13
Exercised during the year
(885,646)
0.10
(452,545)
0.14
Forfeited during the year
(5,349,829)
0.15
(34,473,264)
0.17
Outstanding at 31 December
37,518,927
0.14
42,383,654
0.13
Exercisable at 31 December
422,981
0.16
449,912
0.15
151
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
22. Contingent consideration
Accounting policy
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 that is classified as equity
is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Other contingent
consideration is remeasured to fair value at subsequent reporting dates with changes in fair value recognised in profit or loss.
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 with the asset will
flow to the Group and can be measured reliably.
Magnus 75%
$’000
Magnus
decommissioning-
linked liability
$’000
Golden
Eagle
$’000
Total
$’000
At 31 December 2020
507,660
14,601
–
522,261
Additions
– –
44,668 44,668
Change in fair value (see note 5(d))
(145,273)
5,194
–
(140,079)
Unwinding of discount (see note 6)
50,766
1,460
507
52,733
Interest on vendor loan (see note 6)
6,169
– –
6,169Utilisation
(74,695)
(279)
–
(74,974)
At 31 December 2021
344,627
20,976
45,175
410,778
Classified as:
Current
26,225
4,252
–30,477
Non-current
318,402
16,724
45,175
380,301
344,627
20,976
45,175
410,778
75% Magnus acquisition contingent consideration
On 1 December 2018, EnQuest completed the acquisition of the additional 75% interest in the Magnus oil field (‘Magnus’) and
associated interests (collectively the ‘Transaction assets’) which was part funded through a vendor loan and profit share
arrangement with BP. This acquisition followed on from the acquisition of initial interests completed in December 2017.
The consideration for the acquisition was $300.0 million, consisting of $100.0 million cash contribution, paid from the funds received
through the rights issue undertaken in October 2018, and $200.0 million deferred consideration financed by BP. The deferred
consideration financed by BP was fully settled in June 2021. The consideration also included a contingent profit-sharing
arrangement whereby EnQuest and BP share the net cash flow generated by the 75% interest on a 50:50 basis, subject to a cap of
$1billion received by BP. Together, the deferred consideration and contingent profit-sharing arrangement are known as contingent
consideration. The contingent consideration is a financial liability classified as measured at fair value through profit or loss. The fair
value of contingent consideration has been determined by calculating the present value of the future expected cash flows
expected to be paid and is considered a level 3 valuation under the fair value hierarchy. Future cash flows are estimated based on
inputs including future oil prices, production volumes and operating costs. Oil price assumptions and discount rate assumptions
used were as disclosed in Use of judgements, estimates and assumptions within note 2. The contingent consideration was fair
valued at 31 December 2021, which resulted in a decrease in fair value of $145.3 million (2020: decrease of $137.4 million). The
decrease in fair value in 2021 is a result of revised operating cost assumptions. The decrease in 2020 reflected the change in oil price
assumptions. The fair value accounting effect and finance costs of $57.0 million (2020: $77.3 million) on the contingent consideration
were recognised through remeasurements and exceptional items in the Group income statement. The contingent profit-sharing
arrangement cap of $1 billion was not met in 2021 in the present value calculations (2020: cap was not met). Within the statement of
cash flows the profit share element of the repayment, $1.0 million (2020: $41.1 million), is disclosed separately under investing
activities; the repayment of the vendor loan, $73.7 million (2020: $20.7 million), is disclosed under financing activities; and the interest
paid on the vendor loan, $6.2 million (2020: $10.3 million), is included within interest paid under financing activities. As part of the
Golden Eagle area transaction, the repayment of the vendor loan was completed in July 2021. At 31 December 2021, the contingent
consideration for Magnus was $344.6 million (31 December 2020: $507.7 million).
152
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
22. Contingent consideration
continued
Management has considered alternative scenarios to assess the valuation of the contingent consideration including, but not
limited to, the key accounting estimate relating to the oil price and the interrelationship with production and the profit share
arrangement. As detailed in key accounting estimates, a reduction or increase in the price assumptions of 10% are considered to be
reasonably possible changes, resulting in a reduction of $85.1 million or an increase of $85.1 million to the contingent consideration,
respectively (2020: reduction of $91.7 million and increase of $91.7 million, respectively). The change in value represents a change in
timing of cash flows, with the contingent profit-sharing arrangement cap of $1 billion not met in either sensitivity.
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 2021, the maturity analysis of the loan is disclosed in Risk management and financial instruments
– liquidity risk (note 27).
Magnus decommissioning-linked contingent consideration
As part of the Magnus and associated interests acquisition, BP retained the decommissioning liability in respect of the existing
wellsand infrastructure and EnQuest agreed to pay additional consideration in relation to the management of the physical
decommissioning costs of Magnus. At 31 December 2021, the amount due to BP calculated on an after-tax basis by reference
to30%of BP’s decommissioning costs on Magnus was $21.0 million (2020: $14.6 million).
Golden Eagle contingent consideration
On 22 October 2021, the Group completed the acquisition of the entire 26.69% non-operated working interest in the Golden Eagle
Area Development, comprising the producing Golden Eagle, Peregrine and Solitaire fields (see note 10). The consideration for the
acquisition included an amount that was contingent on the average oil price between July 2021 and June 2023. The contingent
consideration is payable in the second half of 2023, if between July 2021 and June 2023 the Dated Brent average crude price equals
or exceeds $55/bbl, upon which $25.0 million is payable, or if the Dated Brent average crude price equals or exceeds $65/bbl, upon
which $50.0 million is payable. The contingent consideration liability is discounted at 7% and is calculated principally based on the
oil price assumptions as disclosed in note 2. At 31 December 2021, the contingent consideration was valued at $45.2 million.
23. Provisions
Accounting policy
Decommissioning
Provision for future decommissioning costs is made in full when the Group has an obligation: to dismantle and remove a facility or
an item of plant; to restore the site on which it is located; and when a reasonable estimate of that liability can be made. The Group’s
provision primarily relates to the future decommissioning of production facilities and pipelines.
A decommissioning asset and liability are recognised, within property, plant and equipment and provisions respectively, at the
present value of the estimated future decommissioning costs. The decommissioning asset is amortised over the life of the
underlying asset on a unit of production basis over proven and probable reserves, included within depletion in the Group income
statement. Any change in the present value of estimated future decommissioning costs is reflected as an adjustment to the
provision and the oil and gas asset for producing assets. For assets that have ceased production, the change in estimate is
reflected as an adjustment to the provision and the Group Income Statement, via other income or expense. The unwinding of the
decommissioning liability is included under finance costs in the Group income statement.
These provisions have been created based on internal and third-party estimates. Assumptions based on the current economic
environment have been made which management believes are a reasonable basis upon which to estimate the future liability.
These estimates are reviewed regularly to take into account any material changes to the assumptions. However, actual
decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning works required, which
will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning liabilities is likely to depend on the
dates when the fields cease to be economically viable. This in turn depends on future oil prices, which are inherently uncertain. See
Use of judgements, estimates and assumptions: provisions within note 2.
153
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Other
Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable
thatan outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amount of
theobligation.
Decommissioning
provision
$’000
Thistle
decommissioning
provision
$’000
Other
provisions
$’000
Total
$’000
At 31 December 2020
778,204
53,066
9,137
840,407
Additions during the year
119,312
–
13,390
132,702
Changes in estimates
(22,059)
6,184
(264)
(16,139)
Unwinding of discount
15,856
1,061
–
16,917Utilisation
(55,594)
(16,553)
(6,970)(79,117)
Foreign exchange
2
172
(2)
172At 31 December 2021
835,721
43,930
15,291
894,942
Classified as:
Current
116,229 9,156
15,291
140,676
Non-current
719,492
34,774
–
754,266
835,721
43,930
15,291
894,942
Decommissioning provision
The Group’s total provision represents the present value of decommissioning costs which are expected to be incurred up to 2048,
assuming no further development of the Group’s assets. Additions during the year relate to the decommissioning provision
recognised as part of the Golden Eagle acquisition. At 31 December 2021, an estimated $409.6 million is expected to be utilised
between one and five years (2020: $329.2 million), $81.4 million within six to ten years (2020: $145.1 million), and the remainder
inlaterperiods.
The Group enters into surety bonds principally to provide security for its decommissioning obligations. The surety bond facilities
which expired in December 2020 were renewed for 12 months, subject to ongoing compliance with the terms of the Group’s
borrowings. At 31 December 2021, the Group held surety bonds totalling $240.8 million (2020: $151.7 million).
Thistle decommissioning provision
In 2017, EnQuest had the option to receive $50.0 million from BP in exchange for undertaking the management of the physical
decommissioning activities for Thistle and Deveron and making payments by reference to 7.5% of BP’s share of decommissioning
costs of Thistle and Deveron fields. The option was exercised in full during 2018 and the liability recognised within provisions.
At31 December 2021, the amount due to BP by reference to 7.5% of BP’s decommissioning costs on Thistle and Deveron was
$43.9million (2020: $53.1 million). Unwinding of discount of $1.1 million is included within finance income for the year ended
31 December 2021 (2020: $0.8 million).
Other provisions
During 2020, a riser at the Seligi Alpha platform which provides gas lift and injection to the Seligi Bravo platform detached.
Aprovision with respect to required repairs to remedy the damage caused was established. During 2021, $4.4 million was utilised
and at 31 December 2021, the provision was $1.5 million (31 December 2020: $5.9 million).
During 2021, the Group recognised $8.2 million in relation to disputes with third-party contractors. The Group expects the dispute to
be settled in 2022.
Other provisions from 31 December 2020 were fully utilised in the year. These included a redundancy provision in relation to the
transformation programme undertaken during 2020/2021 (31 December 2020: $1.2 million) and payment of partners’ share of
pipeline oil stock following cessation of production at Heather (31 December 2020: $1.5 million).
24. Leases
Accounting policy
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,
toobtain an asset of similar value. The incremental borrowing rate is determined based on a series of inputs including: the term,
therisk-free rate based on government bond rates and a credit risk adjustment based on EnQuest bond yields.
154
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
24. Leases
continued
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
carryingamount of the right-of-use asset has been reduced to zero. The Group did not make any such adjustments during the
periods presented.
The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments
made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and
remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers
ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option,
the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the
commencement date of the lease.
The Group applies the short-term lease recognition exemption to those leases that have a lease term of 12 months or less from the
commencement date. It also applies the low-value assets recognition exemption to leases of assets below £5,000. Lease payments
on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.
The Group applies IAS 36 Impairment of Assets to determine whether a right-of-use asset is impaired and accounts for any
identified impairment loss as described in the ‘property, plant and equipment’ policy.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use
asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those
payments occurs and are included within ‘cost of sales’ or ‘general and administration expenses’ in the Group income statement.
For leases within joint ventures, the Group assesses on a lease-by-lease basis the facts and circumstances. This relates mainly to
leases of vessels. Where all parties to a joint operation jointly have the right to control the use of the identified asset and all parties
have a legal obligation to make lease payments to the lessor, the Group’s share of the right-of-use asset and its share of the lease
liability will be recognised on the Group balance sheet. This may arise in cases where the lease is signed by all parties to the joint
operation or the joint operation partners are named within the lease. However, in cases where EnQuest is the only party with the
legal obligation to make lease payments to the lessor, the full lease liability and right-of-use asset will be recognised on the Group
balance sheet. This may be the case if, for example, EnQuest, as operator of the joint operation, is the sole signatory to the lease. If
the underlying asset is used for the performance of the joint operation agreement, EnQuest will recharge the associated costs in line
with 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 the
contract to each component.
155
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
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
theperiod:
Right-of-use
assets
$’000
Lease
liabilities
$’000
As at 31 December 2019
685,199
716,166
Additions in the period
2,812 2,812
Depreciation expense
(82,703)
–
Impairment
(108,160)
–
Disposal
(706) (726)
Interest expense
–
50,851
Payments
–
(123,001)
Foreign exchange movements
–
1,744
As at 31 December 2020
496,442
647,846
Additions in the period (see note 10)
17,815 17,815
Depreciation expense (see note 10)
(63,953)
–
Impairment reversal (see note 10)
15,669
–
Disposal
(2,580)
(3,121)
Interest expense
–
45,359
Payments
–
(136,651)
Foreign exchange movements
–
(467)
As at 31 December 2021
463,393
570,781
Current
128,281
Non-current
442,500
570,781
The Group leases assets including the Kraken FPSO, property and oil and gas vessels, with a weighted average lease term of
fiveyears. The maturity analysis of lease liabilities is disclosed in note 27.
Amounts recognised in profit or loss
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
Depreciation expense of right-of-use assets
63,953
82,703
Interest expense on lease liabilities
45,359
50,851
Rent expense – short-term leases
1,028
12,736
Rent expense – leases of low-value assets
5
43
Total amounts recognised in profit or loss
110,345
146,333
Amounts recognised in statement of cash flows
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
Total cash outflow for leases
136,651
123,001
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 2021 was $1.7 million (2020: $1.7 million).
156
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
24. Leases
continued
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be received after
the reporting date:
2021
$’000
2020
$’000
Less than one year
2,206
2,211
One to two years
2,206
2,211
Two to three years
2,206
2,211
Three to four years
2,206
2,211
Four to five years
2,206
1,508
More than five years
1,204
1,093
Total undiscounted lease payments
12,234
11,444
25. Commitments and contingencies
Capital commitments
At 31 December 2021, the Group had capital commitments amounting to $1.9 million (2020: nil).
Other commitments
In the normal course of business, the Group will obtain surety bonds, letters of credit and guarantees. At 31 December 2021, the
Group held surety bonds totalling $240.8 million (2020: $151.7 million) to provide security for its decommissioning obligations. See note
23 for further details.
Contingencies
The Group becomes involved from time to time in various claims and lawsuits arising in the ordinary course of its business. 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.
26. Related party transactions
The Group financial statements include the financial statements of EnQuest PLC and its subsidiaries. A list of the Group’s principal
subsidiaries is contained in note 28 to these Group financial statements.
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
All sales to and purchases from related parties are made at normal market prices and the pricing policies and terms of these
transactions are approved by the Group’s management. With the exception of the transactions disclosed below, there have been
no transactions with related parties who are not members of the Group during the year ended 31 December 2021 (2020: none).
Office sub-lease
During the year ended 31 December 2021, the Group recognised nil (2020: $0.1 million) rental income in respect of an office sub-lease
arrangement with Levendi Investment Management Limited, a company where 72% of the issued share capital is held by
AmjadBseisu.
Compensation of key management personnel
The following table details remuneration of key management personnel of the Group. Key management personnel comprise of
Executive and Non-Executive Directors of the Company and the Executive Committee.
2021
$’000
2020
$’000
Short-term employee benefits
6,890
7,576
Share-based payments
810
107
Post-employment pension benefits
215
224
7,915
7,907
157
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
27. Risk management and financial instruments
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
ofthe financial instruments is to manage short-term cash flow and raise finance for the Group’s capital expenditure programme.
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 2021 and 2020, 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, the Group is required to hedge a minimum of 60% of volumes of net entitlement production expected to be produced
in the next 12 months, 40% of volumes of net entitlement produced expected for following 12 months and 10% of volumes of net
entitlement production expected to be produced in the subsequent period. 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 2021 are disclosed in note 19. As of
31 December 2021, the Group held financial instruments (options and swaps) related to crude oil that covered 8.0 MMbbls of 2022
production and 3.5 MMbbls of 2023 production. The instruments have an effective average floor price of around $62.5/bbl in 2022
and $57.5/bbl in 2023. The Group utilises multiple benchmarks when hedging production to achieve optimal results for the Group.
Noderivatives were designated in hedging relationships at 31 December 2021.
The following table summarises the impact on the Group’s pre-tax profit of a reasonably possible change in the Brent oil price, on
the fair value of derivative financial instruments, with all other variables held constant. The impact in equity is the same as the
impact on profit before tax.
Pre-tax profit
+$10/bbl
increase
$’000
-$10/bbl
decrease
$’000
31 December 2021
(91,755)
55,267
31 December 2020
(8,020)
1,365
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 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 18% (2020: 8%) of the Group’s sales and 89% (2020: 86%) of
costs (including operating and capital expenditure and general and administration costs) are denominated in currencies other
than the functional currency.
The Group also enters into foreign currency swap contracts from time to time to manage short-term exposures. The following tables
summarise the Group’s financial assets and liabilities exposure to foreign currency.
Year ended 31 December 2021
GBP
$’000
MYR
$’000
Other
$’000
Total
$’000
Total financial assets
103,253
34,255
3,967
141,475
Total financial liabilities
635,840
21,058
839
657,737
Year ended 31 December 2020
GBP
$’000
MYR
$’000
Other
$’000
Total
$’000
Total financial assets
32,150
11,735
2,777
46,662
Total financial liabilities
519,060
23,931
869
543,860
158
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
27. Risk management and financial instruments
continued
The following table summarises the sensitivity to a reasonably possible change in the US Dollar to Sterling foreign exchange rate,
with all other variables held constant, of the Group’s profit before tax due to changes in the carrying value of monetary assets and
liabilities at the reporting date. The impact in equity is the same as the impact on profit before tax. The Group’s exposure to foreign
currency changes for all other currencies is not material:
Pre-tax profit
+$10% rate
increase
$’000
-$10% rate
decrease
$’000
31 December 2021
(50,695)
50,695
31 December 2020
(46,183) 46,183
Credit risk
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
2021 there were $0.2 million of trade receivables past due (2020: $2.6 million) and nil of joint venture receivables past due
(2020:$2.5million) but not impaired. Subsequent to the year end, $0.1 million of these outstanding balances have been collected
(2020: $4.4 million). Receivable balances are monitored on an ongoing basis with appropriate follow-up action taken where
necessary. The impact of ECL is disclosed in note 16.
Ageing of past due but not impaired receivables
2021
$’000
2020
$’000
Less than 30 days
–
2,974
30–60 days
30
1,335
60–90 days
146
164
90–120 days
–
271
120+ days
–
383
176
5,127
At 31 December 2021, the Group had one customer accounting for 84% of outstanding trade receivables (2020: three customers, 77%)
and one joint venture partner accounting for 20% of outstanding joint venture receivables (2020: one joint venture partner, 16%).
Liquidity risk
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 2021, $32.0 million (2020: $61.2 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 loan is
disclosed below. All of the Group’s liabilities, except for the RBL, are unsecured.
Year ended 31 December 2021
On
demand
$’000
Up to
1 year
$’000
1 to 2 years
$’000
2 to 5 years
$’000
Over
5 years
$’000
Total
$’000
Loans and borrowings
– – 446,018
241,937
–204,081
Bonds
(i)
– –
75,862
–1,162,595
1,238,457
Contingent considerations
– 26,225
68,947
115,485 183,969
394,626
Obligations under finance leases
–
125,374
95,464
35,844311,276
567,958
Trade and other payables
– – –
420,543
–420,543
–
889,941
1,531,087
426,761
219,813
3,067,602
159
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Year ended 31 December 2020
On
demand
$’000
Up to
1 year
$’000
1 to 2 years
$’000
2 to 5 years
$’000
Over
5 years
$’000
Total
$’000
Loans and borrowings
– –
430,289
– 39,778
470,067
Bonds
(i)
– – –
1,255,474
– 1,255,474
Contingent considerations
–
78,219
77,055
254,319 401,259
810,852
Obligations under finance leases
–
133,765
130,667
337,177 217,013
818,622 Trade and other payables
– –
249,111 117
– 249,228
–
891,384
247,617
1,846,970
618,272
3,604,243
(i) Maturity analysis profile for the Group’s bonds includes semi-annual coupon interest. This interest is only payable in cash if the average dated Brent oil price is equal to or
greater than $65/bbl for the six months preceding one month before the coupon payment date (see note 18)
The following tables detail the Group’s expected maturity of payables for its derivative financial instruments. The amounts in these
tables are different from the balance sheet as the table is prepared on a contractual undiscounted cash flow basis. When the
amount receivable or payable is not fixed, the amount disclosed has been determined by reference to a projected forward curve at
the reporting date.
Year ended 31 December 2021
On
demand
$’000
Less than
3 months
$’000
3 to 12
months
$’000
1 to 2 years
$’000
Over
2 years
$’000
Total
$’000
Commodity derivative contracts
4,450
17,288
24,035
15,746
–
61,519
4,450
17,288
24,035
15,746
–
61,519
Year ended 31 December 2020
On
demand
$’000
Less than
3 months
$’000
3 to 12
months
$’000
1 to 2 years
$’000
Over
2 years
$’000
Total
$’000
Commodity derivative contracts
3,108
2,007
– – –
5,115
3,108
2,007
– – –
5,115
Capital management
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 18, cash and cash equivalents
and equity attributable to the equity holders of the parent company, comprising issued capital, reserves and retained earnings as
in the Group statement of changes in equity.
The primary objective of the Group’s capital management is to optimise the return on investment, by managing its capital structure
to achieve capital efficiency whilst also maintaining flexibility. The Group regularly monitors the capital requirements of the business
over the short, medium and long term, in order to enable it to foresee when additional capital will be required.
The Group has approval from the Board to hedge external risks, see Commodity price risk – oil prices and Foreign exchange risk. This
is designed to reduce the risk of adverse movements in exchange rates and market prices eroding the return on the Group’s
projects and operations.
The Board regularly reassesses the existing dividend policy to ensure that shareholder value is maximised. Any future payment of
dividends is expected to depend on the earnings and financial condition of the Company and such other factors as the Board
considers appropriate.
The Group monitors capital using the gearing ratio and return on shareholders’ equity as follows. Further information relating to the
movement year-on-year is provided within the relevant notes and within the Financial review (pages 26 to 31).
2021
$’000
2020
restated
$’000
Loans, borrowings and bond
(i)
(A) (see note 18)
1,508,604
1,502,564
Cash and short-term deposits (see note 14)
(286,661)
(222,830)
Net debt (B)
1,221,943
1,279,734
Equity attributable to EnQuest PLC shareholders (C)
543,766
(207,377)
Profit/(loss) for the year attributable to EnQuest PLC shareholders (D)
376,988
(469,927)
Profit/(loss) for the year attributable to EnQuest PLC shareholders excluding exceptionals (E)
220,284
(26,187)
Adjusted EBITDA (F)
742,868
550,606
Gross gearing ratio (A/C)
2.8
n/a
Net gearing ratio (B/C)
2.2
n/a
Net debt/Adjusted EBITDA (B/F)
1.6
2.3
Shareholders’ return on investment (D/C)
74%
n/a
Shareholders’ return on investment excluding exceptionals (E/C)
41%
n/a
(i) Principal amounts drawn, excludes netting off of fees (see note 18)
160
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
28. Subsidiaries
At 31 December 2021, EnQuest PLC had investments in the following subsidiaries:
Name of company
Principal activity
Country of
incorporation
Proportion
of nominal
value of
issued shares
controlled by
the Group
EnQuest Britain Limited
Intermediate holding company and provision of Group
manpower and contracting/procurement services
England
100%
EnQuest Heather Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Thistle Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
Stratic UK (Holdings) Limited
(i)
Intermediate holding company
England
100%
Grove Energy Limited
1
Intermediate holding company
Canada
100%
EnQuest ENS Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest UKCS Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Heather Leasing Limited
(i)
Leasing England
100%
EQ Petroleum Sabah Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Dons Leasing Limited
(i)
Dormant
England
100%
EnQuest Energy Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Production Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Global Limited
Intermediate holding company
England
100%
EnQuest NWO Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EQ Petroleum Production Malaysia
Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
NSIP (GKA) Limited
2
Construction, ownership and operation of an oil pipeline
Scotland
100%
EnQuest Global Services Limited
(i)3
Provision of Group manpower and contracting/procurement
services for the international business
Jersey
100%
EnQuest Marketing and Trading Limited Marketing and trading of crude oil
England
100%
NorthWestOctober Limited
(i)
Dormant
England
100%
EnQuest UK Limited
(i)
Dormant
England
100%
EnQuest Petroleum Developments
(i)4
Exploration, extraction and production of hydrocarbons
Malaysia
100%
EnQuest NNS Holdings Limited
(i)
Intermediate holding company
England
100%
EnQuest NNS Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Advance Holdings Limited
(i)
Intermediate holding company
England
100%
EnQuest Advance Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Forward Holdings Limited
(i)
Intermediate holding company
England
100%
EnQuest Forward Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Progress Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
North Sea (Golden Eagle) Resources Ltd
Exploration, extraction and production of hydrocarbons
England
100%
(i) Held by subsidiary undertaking
The Group has two branches outside the UK (all held by subsidiary undertakings): EnQuest Global Services Limited (Dubai) and
EnQuest Petroleum Production Malaysia Limited (Malaysia).
Registered office addresses:
1 Suite 2200, 1055 West Hastings Street, Vancouver, British Columbia, V6E 2E9
2 Annan House, Palmerston Road, Aberdeen, Scotland, AB11 5QP, United Kingdom
3 Ground Floor, Colomberie House, St Helier, JE4 0RX, Jersey
4 c/o TMF, 10th Floor, Menara Hap Seng, No. 1 & 3, Jalan P. Ramlee 50250 Kuala Lumpur, Malaysia
161
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
29. Cash flow information
Cash generated from operations
Notes
Year ended
31 December
2021
$’000
Year ended
31 December
2020
restated
(i)
$’000
Profit/(loss) before tax
352,441
(565,975)
Depreciation
5(c)
7,492
7,616
Depletion
5(b)
305,578
438,247
Net impairment (reversal)/charge to oil and gas assets
4
(39,715)
422,495
Write down of inventory
151
24,940
Change in fair value of investments
1
4
Share-based payment charge
5(f)
6,351
3,401
Gain on termination of Tanjong Baram risk service contract
5(d)
–
(10,209)
Loss on derecognition of assets related to the Seligi riser detachment
5(e)
–
956
Change in Magnus related contingent consideration
22
(81,684)
(60,991)
Change in provisions
23
16,900
119,642
Other non-cash income
5(d)
(22,568)
–
Other expense on final settlement relating to the Magnus acquisition
5(e)
3,832
–
Change in Golden Eagle related contingent consideration
22
507
–
Option premiums
19
1,030
(6,226)
Unrealised (gain)/loss on commodity financial instruments
5(a)
54,451
(8,778)
Unrealised (gain)/loss on other financial instruments
5(b)
(472)
1,932
Unrealised exchange loss/(gain)
(425)
5,067
Net finance expense
152,306
163,339
Operating profit before working capital changes
756,176
535,460
Decrease/(increase) in trade and other receivables
(171,946)
184,560
(Increase)/decrease in inventories
(13,496)
(5,438)
(Decrease)/increase in trade and other payables
186,194
(147,417)
Cash generated from operations
756,928
567,165
(i) 2020 comparative restated. See note 2 Basis of preparation – Restatements
Changes in liabilities arising from financing activities
Loans and
borrowings
$’000
Bonds
$’000
Lease
liabilities
$’000
Total
$’000
At 1 January 2020
(661,282)
(995,983)
(716,166)
(2,373,431)
Cash movements:
Repayments of loans and borrowings
210,671
– –
210,671 Repayment of lease liabilities
– –
123,001 123,001
Cash interest paid in year
31,056
– –
31,056
Non-cash movements:
Additions
– –
(2,812) (2,812)
Interest/finance charge payable
(32,791)
(73,476)
(50,851)
(157,118)
Fee amortisation
(849)
(2,261)
–
(3,110)
Foreign exchange adjustments
(77)
(7,923)
(1,744)
(9,744)
Disposal
– –
726 726
Other non-cash movements
498
(49)
449 –
At 31 December 2020
(452,774)
(1,079,692)
(647,846)
(2,180,312)
Cash movements:
Repayments of loans and borrowings
184,276 – – 184,276
Drawdowns of loans and borrowings
(125,000) (125,000)
Repayment of lease liabilities
– –
136,651 136,651
Cash interest paid in year
19,428
38,154
–
57,582
Non-cash movements:
Additions
2,082
–
(17,815)
(15,733)
Interest/finance charge payable
(20,206)
(69,085)
(45,359)
(134,650)
Fee amortisation
(9,857)
(1,173)
–
(11,030)
Disposal
– –
3,121 3,121
Foreign exchange and other non-cash movements
(14)
1,876
467
2,329
At 31 December 2021
(402,065)
(1,109,920)
(570,781)
(2,082,766)
162
Notes to the Group Financial Statements
continued
For the year ended 31 December 2021
29. Cash flow information
continued
Reconciliation of carrying value
Loans and
borrowings
(see note 18)
$’000
Bonds
(see note 18)
$’000
Lease
liabilities
(see note 24)
$’000
Total
$’000
Principal
(454,209)
(1,048,355)
(647,846)
(2,150,410)
Unamortised fees
1,925
3,314
–
5,239
Accrued interest (note 17)
(490)
(34,651)
–
(35,141)
At 31 December 2020
(452,774)
(1,079,692)
(647,846)
(2,180,312) Principal
(424,864)
(1,083,740)
(570,781)
(2,079,385)
Unamortised fees
23,250
2,144
–
25,394
Accrued interest (note 17)
(451)
(28,324)
–
(28,775)
At 31 December 2021
(402,065)
(1,109,920)
(570,781)
(2,082,766)
163
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Statement of Directors’ Responsibilities
for the Parent Company Financial Statements
The Directors are responsible for preparing the Directors’ report and the 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). 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.
164
Notes
2021
$’000
2020
$’000
Fixed assets
Investments
3
396,731
71,351
Current assets
Trade and other receivables
– due within one year
4
9
7,340
– due after one year
4
1,178,379
1,046,013
Cash at bank and in hand
317
140
1,178,705
1,053,493
Trade and other payables:
amounts falling due within one year
6
(35,472)
(42,204)
Net current assets
1,143,233
1,011,289
Total assets less current liabilities
1,539,964
1,082,640
Trade and other payables:
amounts falling due after one year
7
(1,081,596)
(1,045,041)
Net assets
458,368
37,599
Share capital and reserves
Share capital and premium
8
392,196
345,420
Other reserve
40,143
40,143
Share-based payment reserve
6,791
1,016
Profit and loss account
19,238
(348,980)
Shareholders’ funds
458,368
37,599
The attached notes 1 to 11 form part of these Company financial statements.
The Company reported a profit for the financial year ended 31 December 2021 of $368.2 million (2020: loss of $1,121.5 million). There
were no other recognised gains or losses in the period (2020: $nil).
The financial statements were approved by the Board of Directors and authorised for issue on 23 March 2022 and signed on its
behalf by:
Jonathan Swinney
Chief Financial Officer
Company Balance Sheet (Registered number: 07140891)
At 31 December 2021
165
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Company Statement of Changes in Equity
For the year ended 31 December 2021
Share
capital
and share
premium
$’000
Merger
reserve
$’000
Other
reserve
$’000
Share-
based
payments
reserve
$’000
Profit and
loss account
$’000
Total
$’000
At 31 December 2019
345,420
661,817
40,143
(1,085)
110,732
1,157,027
Profit/(loss) for the year
– – – –
(1,121,529) (1,121,529)
Total comprehensive income for the year
– – – –
(1,121,529) (1,121,529)
Share-based payment charge
– – –
3,401
–3,401
Shares purchased on behalf of Employee Benefit Trust
– – –
(1,300)
–(1,300)
Impairment of subsidiary undertakings
– –
(661,817)
–661,817
–At 31 December 2020
345,420
– 40,143
1,016
(348,980) 37,599
Profit/(loss) for the year
– – – –
368,218 368,218
Total comprehensive income for the year
– – – –
368,218 368,218
Issue of share capital net of expenses
46,200
– – – –
46,200Share-based payment charge
– – –
6,351
–6,351
Shares purchased on behalf of Employee Benefit Trust
576
– –
(576)– –
At 31 December 2021
392,196
–
40,143
6,791
19,238
458,368
166
1. Corporate information
The separate parent company financial statements of EnQuest PLC (the ‘Company’) for the year ended 31 December 2021 were
authorised for issue in accordance with a resolution of the Directors on 23 March 2022.
EnQuest PLC (‘EnQuest’ or the ‘Company’) is a public limited company incorporated and registered in England and is the holding
company for the Group of EnQuest subsidiaries (together the ‘Group’). The Company address can be found on page 174.
2. Summary of significant accounting policies
Basis of preparation
These separate financial statements have been prepared in accordance with Financial Reporting Standard 101, ‘Reduced Disclosure
Framework’ (‘FRS 101’) and the Companies Act 2006. The Company meets the definition of a qualifying entity under FRS 100,
‘Application of Financial Reporting Requirements’ as issued by the Financial Reporting Council. The Company has previously notified
its shareholders in writing about, and they do not object to, the use of the disclosure exemptions used by the Company in these
financial statements.
These financial statements are prepared under the historical cost basis, except for the fair value remeasurement of certain financial
instruments as set out in the accounting policies below. The functional and presentation currency of the separate financial
statements is US Dollars and all values in the separate financial statements are rounded to the nearest thousand ($’000) except
where otherwise stated.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation
to share-based payments, financial instruments, fair value measurement, capital management, presentation of comparative
information in respect of certain assets, presentation of a cash flow statement, standards not yet effective, impairment of assets
and related party transactions. Where relevant, equivalent disclosures have been given in the Group accounts.
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act 2006 and not presented
an income statement or a statement of comprehensive income for the parent company. The parent company’s accounts present
information about it as an individual undertaking and not about its Group.
Going concern
The Directors’ assessment of going concern concludes that the use of the going concern basis is appropriate and the Directors
have a reasonable expectation that the Group, and therefore the Company, will be able to continue in operation and meet its
commitments as they fall due over the going concern period. See note 2 of the Group financial statements for further details.
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended
31 December 2021.
Critical accounting estimates and judgements
The management of the Group has to make estimates and judgements when preparing the financial statements of the Group.
Uncertainties in the estimates and judgements could have an impact on the carrying amount of assets and liabilities and the
Group’s results. The most important estimates in relation thereto are:
Impairment of investments in subsidiaries
Determination of whether investments have suffered any impairment requires an estimation of the assets’ recoverable value. The
recoverable value is based on the discounted cash flows expected to arise from the subsidiaries’ oil and gas assets, using asset-by-
asset life of field projections as part of the Group’s assessment for the impairment of the oil and gas assets. The Company’s
investment in subsidiaries is tested for impairment annually. See Group critical accounting estimates and judgements.
Foreign currencies
Transactions in currencies other than the Company’s functional currency are recorded at the prevailing rate of exchange on the
date of the transaction. At the year end, monetary assets and liabilities denominated in foreign currencies are retranslated at the
rates of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities that are measured at historical cost in
aforeign 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
2021
$’000
2020
$’000
Subsidiary undertakings
396,725
71,344
Other financial assets at FVPL
6
7
Total
396,731
71,351
Notes to the Financial Statements
For the year ended 31 December 2021
167
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
(b) Subsidiary undertakings
Subsidiary
undertakings
$’000
Cost
At 1 January 2020
1,385,024
Additions
2,783
At 31 December 2020
1,387,807
Additions
6,350
At 31 December 2021
1,394,157
Provision for impairment
At 1 January 2020
244,073
Impairment charge/(reversal) for the year
1,072,390
At 31 December 2020
1,316,463
Impairment charge/(reversal) for the year
(319,031)
At 31 December 2021
997,432
Net book value
At 31 December 2021
396,725
At 31 December 2020
71,344
At 31 December 2019
1,140,951
The Company has recognised an impairment reversal of its investment in subsidiary undertakings of $319.0 million (2020:
impairment of $1,072.4 million). The impairment reversal for the year ended 31 December 2021 is primarily attributable to the value
added from the Golden Eagle acquisition and the change in oil price assumptions during the year.
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 accounts). A 10.0% decrease in oil price would have decreased the impairment reversal by $285.1 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 2021 are provided in note 28 of the Group financial statements.
(c) Other financial assets at FVPL
The interest in other listed investments at the end of the year is part of the Group’s investment in the Ordinary share capital of
AscentResources plc, which is incorporated in the United Kingdom and registered in England and Wales.
4. Trade and other receivables
Financial assets
Financial assets are classified, at initial recognition, as amortised cost, fair value through other comprehensive income (‘FVOCI’),
orfair 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 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 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.
168
Notes to the Financial Statements
continued
For the year ended 31 December 2021
4. Trade and other receivables
continued
Prepayments, which are not financial assets, are measured at historical cost.
Impairment of financial assets
The Company recognises a provision for expected credit loss (‘ECL’), where material, for all financial assets held at the balance sheet
date. The measurement of expected credit losses is a function of the probability of default, loss given default and exposure at
default. ECLs are based on the difference between the contractual cash flows due to the Company, and the discounted actual cash
flows that are expected to be received. Where there has been no significant increase in credit risk since initial recognition, the loss
allowance is equal to 12-month expected credit losses. Where the increase in credit risk is considered significant, lifetime credit
losses are provided. For trade receivables, a lifetime credit loss is recognised on initial recognition where material.
The provision rates are based on days past due for groupings of customer segments with similar loss patterns (i.e. by geographical
region, product type, customer type and rating) and are based on their historical credit loss experience, adjusted for forward-
looking factors specific to the debtors and the economic environment. The Company evaluates the concentration of risk with
respect to intercompany receivables as low, as its customers are intercompany ventures, and has considered the risk relating to the
probability of default on loans that are repayable on demand. The Company has evaluated an expected credit loss of $2.8 million
for the year ended 31 December 2021, as required by IFRS 9’s expected credit loss model (2020: $46.7 million).
2021
$’000
2020
$’000
Due within one year
Amounts due from subsidiaries
–
7,290
Prepayments
9
50
9
7,340
Due after one year
Amounts due from subsidiaries
1,178,379
1,046,013
Included within the amounts due from Group undertakings are balances of $1,138.1 million (2020: $1,031.3 million) on which interest
was charged at between 7.0-7.12% (2020: 7.0-7.7%). All other balances are interest free.
All amounts owed by Group undertakings are unsecured and repayable on demand. However, the Company does not expect such
amounts to be repaid within one year from the balance sheet date.
5. Deferred tax
The Company has unused UK mainstream corporation tax losses of $57.1 million (2020: $63.3 million) for which no deferred tax asset
has been recognised at the balance sheet date due to the uncertainty of recovery of these losses.
6. Trade and other payables: 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 payables and other creditors are measured initially at fair value net of directly attributable transaction
costs and subsequently recorded at amortised cost, using the effective interest rate method. Loans and borrowings are interest
bearing. Gains and losses are recognised in profit or loss when the liability is derecognised and EIR amortisation is included within
finance costs.
2021
$’000
2020
$’000
Bond interest
18,658
18,105
Other interest
9,959
16,569
Amounts due to subsidiaries
6,699
7,345
Accruals
156
185
35,472
42,204
All amounts owed to Group undertakings are unsecured and repayable on demand. No interest was paid on short-term amounts
due to subsidiaries (2020: nil)
169
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
7. Trade and other payables: amounts falling due after one year
2021
$’000
2020
$’000
Bonds
1,081,596
1,045,041
At 31 December 2021, bonds comprise a high yield bond with principal of $825.4 million (2020: $799.1 million) and a retail bond with
principal of $256.2 million (2020: $249.2 million). The bonds mature in October 2023 and pay a coupon of 7.0% bi-annually. See note 18
of the Group financial statements. The maturity profile of the bonds is disclosed in note 27 of the Group financial statements.
8. Share capital and share premium
The movement in the share capital and share premium of the Company was as follows:
Authorised, issued and fully paid
Ordinary
shares of
£0.05 each
Number
Share
capital
$’000
Share
premium
$’000
Total
$’000
At 1 January 2021
1,695,801,955
118,271 227,149
345,420
Issuance of equity shares
190,122,384
13,379
37,346
50,725
Expenses of issuance of equity shares
– –
(3,949) (3,949)
At 31 December 2021
1,885,924,339
131,650
260,546
392,196The share capital comprises only one class of Ordinary share. Each Ordinary share carries an equal voting right and right to
adividend.
At 31 December 2021, there were 39,718,323 shares held by the Employee Benefit Trust (2020: 46,492,546). On 26 July 2021, 2,159,903
shares were acquired by the Employee Benefit Trust pursuant to the firm placing, placing and open offer. The remaining movement
in the year was due to shares used to satisfy awards made under the Company’s share-based incentive schemes.
On 26 July 2021, the Company completed firm placing, placing and open offer pursuant to which 190,122,384 new Ordinary shares
were issued at a price of £0.19 per share, generating gross aggregate proceeds of $50.7 million. Following the admission to the
market of an additional 190,122,384 Ordinary shares on 26 July 2021, there were 1,885,924,339 Ordinary shares in issue at the end of
the year.
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
ofregistered 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
ofthe 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 76 and 93.
170
The Group uses Alternative Performance Measures (‘APMs’) when assessing and discussing the Group’s financial performance,
balance sheet and cash flows that are not defined or specified under IFRS. The Group uses these APMs, which are not considered
tobe 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 122.
Business performance net profit attributable to EnQuest PLC shareholders
2021
$’000
2020 restated
$’000
Reported net profit/(loss) (A)
376,988
(469,945)
Adjustments – remeasurements and exceptional items (note 4):
Unrealised (losses)/gains on derivative contracts (note 19)
(53,979)
6,846
Net impairment (charge)/reversal to oil and gas assets (note 10, note 11 and note 12)
39,715
(422,495)
Finance costs on Magnus contingent consideration (note 6)
(58,395)
(77,259)
Change in Magnus contingent consideration (note 5(d))
140,079
138,249
Movement in other provisions
(7,673)
(11,694)
Loss on derecognition of assets related to the Seligi riser detachment (note 5(e))
–
(956)
Other exceptional income (note 5(d))
22,568
–
Other exceptional expenses (note 5(e))
(3,832)
–
Pre-tax remeasurements and exceptional items (B)
78,483
(367,309)
Tax on remeasurements and exceptional items (C)
78,221
(76,449)
Post-tax remeasurements and exceptional items (D = B + C)
156,704
(443,758)
Business performance net profit attributable to EnQuest PLC shareholders (A – D)
220,284
(26,187)
Adjusted EBITDA is a measure of profitability. It provides a metric to show earnings before the influence of accounting (i.e. depletion
and depreciation) and financial deductions (i.e. borrowing interest). For the Group, this is a useful metric as a measure to evaluate
the Group’s underlying operating performance and is a component of a covenant measure under the Group’s RBL facility. It is
commonly used by stakeholders as a comparable metric of core profitability and can be used as an indicator of cash flows
available to pay down debt. Due to the adjustment made to reach adjusted EBITDA, the Group notes the metric should not be used
in isolation. The nearest equivalent measure on an IFRS basis is profit or loss before interest and tax.
Adjusted EBITDA
2021
$’000
2020
$’000
Reported profit/(loss) from operations before tax and finance income/(costs)
580,059
(310,069)
Adjustments:
Remeasurements and exceptional items (note 4)
(136,878)
290,050
Depletion and depreciation (note 5(b) and note 5(c))
313,070
445,863
Inventory revaluation
151
24,940
Change in provision (note 5(d) and note 5(e))
(13,143)
95,197
Net foreign exchange (gain)/loss (note 5(d) and note 5(e))
(391)
4,625
Adjusted EBITDA (E)
742,868
550,606
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 page 30 to 31.
Total cash and available facilities
2021
$’000
2020
$’000
Available cash
276,970
221,155
Restricted cash
9,691
1,675
Total cash and cash equivalents (F) (note 14)
286,661
222,830
Available credit facilities
500,000
450,000
Credit facility – drawn down
(415,000)
(360,000)
Letter of credit (note 18)
(53,000)
(28,778)
Available undrawn facility (G)
32,000
61,222
Total cash and available facilities (F + G)
318,661
284,052
Glossary – Non-GAAP measures
171
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Net debt is a liquidity measure that shows how much debt a company has on its balance sheet compared to its cash and cash
equivalents. With de-leveraging a strategic priority, the Group believes this is a useful metric to demonstrate progress in this regard.
It is also an important reference point for the Group’s going concern and viability assessments, see page 30 to 31.
Net debt
2021
$’000
2020
$’000
Borrowings (note 18):
RBL
391,750
–
Credit facility
–
377,270
Sculptor Capital facility
–
65,776
SVT working capital facility
9,864
9,238
Borrowings (H)
401,614
452,284
Bonds (note 18):
High yield bond
825,441
796,528
Retail bond
256,155
248,513
Bonds (I)
1,081,596
1,045,041
Non-cash accounting adjustments (note 18):
Unamortised fees on loans and borrowings
23,250
1,925
Unamortised fees on bonds
2,144
3,314
Non-cash accounting adjustments (J)
25,394
5,239
Debt (H + I + J) (K)
1,508,604
1,502,564
Less: Cash and cash equivalents (note 14) (E)
286,661
222,830
Net debt/(cash) (K – F) (L)
1,221,943
1,279,734
The Net debt/Adjusted EBITDA metric is a ratio that provides management and users of the Group’s consolidated financial
statements with an indication of how many years it would take to service the Group’s debt. This is a helpful metric to monitor the
Group’s progress against its strategic objective of de-leveraging.
Net debt/Adjusted EBITDA
2021
$’000
2020
$’000
Net debt (L)
1,221,943
1,279,734
Adjusted EBITDA (E)
742,868
550,606
Net debt/Adjusted EBITDA (L/E)
1.6
2.3
Cash capex monitors investing activities on a cash basis, while cash abandonment monitors the Group’s cash spend on investing
and decommissioning activities. The Group provides guidance to the financial markets for both these metrics given the focus on
the Group’s liquidity position and ability to reduce its debt.
Cash capex and Cash capital and abandonment expense
2021
$’000
2020
$’000
Reported net cash flows (used in)/from investing activities
(321,230)
(120,597)
Adjustments:
Purchase of other intangible assets
10,052
–
Repayment of Magnus contingent consideration – profit share
968
41,071
Net cash received on termination of Tanjong Baram risk service contract
–
(51,054)
Acquisition costs
258,627
–
Interest received
(256)
(796)
Cash capex
(51,839)
(131,376)
Decommissioning spend
(65,791)
(41,605)
Cash capital and abandonment expense
(117,630)
(172,981)
Free cash flow (‘FCF’) represents the cash a company generates, after accounting for cash outflows to support operations, to
maintain its capital assets. Currently this metric is useful to management and users to assess the Group’s ability to reduce its debt.
During 2021, the Group updated the definition of FCF to adjust for the impact of share issues and acquisitions. The definition of free
cash flow is now net cash flow adjusted for net repayment/proceeds of loans and borrowings, net proceeds of share issues and
cost of acquisitions.
172
Glossary – Non-GAAP measures
continued
In 2021, the Group made an accelerated repayment of the Magnus vendor loan of $58.7 million. As the repayment was made out of
Group cash flows rather than as part of the Magnus-related waterfall mechanism, the Group has adjusted for this accelerated
repayment for the purpose of calculating FCF.
Free cash flow
2021
$’000
2020
restated
$’000
Net cash flows from/(used in) operating activities
674,138
521,420
Net cash flows from/(used in) investing activities
(321,230)
(120,597)
Net cash flows from/(used in) financing activities
(285,474)
(401,014)
Adjustments:
Proceeds of loans and borrowings
(125,000)
–
Repayment of loans and borrowings
184,276
210,671
Acquisitions
258,627
–
Repayment of Magnus contingent consideration – vendor loan
(i)
58,668
–
Net proceeds from share issue
(47,782)
–
Shares purchased by Employee Benefit Trust
576
–
Free cash flow
396,799
210,480
(i) Related to the accelerated vendor loan repayment
Revenue sales
2021
$’000
2020
$’000
Revenue from crude oil sales (note 5(a)) (M)
1,139,171
779,865
Revenue from gas and condensate sales (note 5(a)) (N)
244,073
60,486
Realised (losses)/gains on oil derivative contracts (note 5(a)) (P)
(67,679)
(6,059)
Barrels equivalent sales
2021
kboe
2020
kboe
Sales of crude oil (Q)
15,609
18,758
Sales of gas and condensate
(i)
2,829
3,471
Total sales (R)
18,438
22,229
(i) Includes volumes related to onward sale of third-party gas purchases not required for injection activities at Magnus
Average realised price is a measure of the revenue earned per barrel sold. The Group believes this is a useful metric for comparing
performance to the market and to give the user, both internally and externally, the ability to understand the drivers impacting the
Group’s revenue.
Average realised prices
2021
$/Boe
2020
$/Boe
Average realised oil price, excluding hedging (M/Q)
73.0
41.6
Average realised oil price, including hedging ((M + P)/Q)
68.6
41.3
Average realised blended price, excluding hedging ((M + N)/R)
75.0
37.8
Average realised blended price, including hedging ((M + N + P)/R)
71.4
37.5
Operating costs (‘opex’) is a measure of the Group’s cost management performance. Opex is a key measure to monitor the Group’s
alignment to its strategic pillars of financial discipline and value enhancement and is required in order to calculate opex per barrel
(see below).
Operating costs
2021
$’000
2020
$’000
Reported cost of sales (note 5(b))
907,634
799,081
Adjustments:
Remeasurements and exceptional items (note 5(b))
(7,201)
(13,626)
Depletion of oil and gas assets (note 5(b))
(305,578)
(438,247)
(Credit)/charge relating to the Group’s lifting position and inventory (note 5(b))
(62,307)
34,801
Other cost of operations (note 5(b))
(211,575)
(53,367)
Operating costs
320,973
328,642
Less realised (gain)/loss on derivative contracts (S) (note 5(b))
10,693
572
Operating costs directly attributable to production
331,666
329,214
Comprising of:
Production costs (T) (note 5(b))
292,252
265,529
Tariff and transportation expenses (U) (note 5(b))
39,414
63,685
Operating costs directly attributable to production
331,666
329,214
173
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Barrels equivalent produced
2021
kboe
2020
kboe
Total produced (working interest) (V)
16,211
21,636
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
2021
$/Boe
2020
$/Boe
Production costs (T/V)
18.1
12.3
Tariff and transportation expenses (U/V)
2.4
2.9
Total unit opex ((T + U)/V)
20.5
15.2
Realised (gain)/loss on derivative contracts (S/V)
(0.7)
–
Total unit opex including hedging ((S + T+ U)/V)
19.8
15.2
174
Registered office
5th Floor, Cunard House
15 Regent Street
London
SW1Y 4LR
Corporate brokers
J.P. Morgan Cazenove
25 Bank Street
London
E14 5JP
BofA Securities
2 King Edward Street
London
EC1A 1HQ
Auditor
Deloitte LLP
Hill House
1 Little New Street
London
EC4A 3TR
Legal adviser
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London
E1 6PW
Corporate and financial public relations
Tulchan Communications LLP
85 Fleet Street
London
EC4Y 1AE
EnQuest PLC shares are traded on the London Stock Exchange
and on the NASDAQ OMX Stockholm, in both cases using the
code ‘ENQ’.
Registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Swedish registrar
Euroclear Sweden AB
Box 191
SE-101 23 Stockholm
Sweden
Financial calendar
19 May 2022: Annual General Meeting
06 September 2022: Half year results (subject to change)
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.
Company information
175
EnQuest PLC –
Annual Report and Accounts 2021
Financial Statements
Notes
176
Notes
ENQUEST PLC ANNUAL REPORT AND ACCOUNTS 2021
London, England
5th Floor, Cunard House
15 Regent Street
London, SW1Y 4LR
United Kingdom
T +44 (0)20 7925 4900
Aberdeen, Scotland
Annan House
Palmerston Road
Aberdeen, AB11 5QP
United Kingdom
T +44 (0)1224 975 000
Kuala Lumpur, Malaysia
Level 12, Menara Maxis
Kuala Lumpur City Centre
50088 Kuala Lumpur
Malaysia
T +60 3 2783 1888
Dubai, UAE
1st Floor, Office #102
Emaar Square Building #2
Downtown Dubai
Dubai, UAE
T +971 4 550 7100
www.enquest.com
More information at