Pharos Energy plc

("Pharos" or the "Company" or, together with its subsidiaries, the "Group")

Interim results for the six months ended 30 June 2024

Pharos Energy plc, an independent energy company with assets in Vietnam and Egypt, announces its interim results for the six months ended 30 June 2024. A conference call for analysts will take place at 09.00 BST today.

Katherine Roe, Chief Executive Officer, commented:

"Since joining as CEO in July, I have found a solid operational business with quality assets delivering stable production and robust cash flows, an impressive team, and a strong financial base. Alongside this, the improving macro environment in Egypt has seen our receivables position improve significantly with over $20m received year to date. This financial strength allows us to announce today the intention to pay an interim dividend of 0.363 pence per share for the current financial year, a continuation of the existing share buyback programme and, importantly, the repayment of all our outstanding debt. We are proud of our Company moving to a net cash position of $17.5m at 30 June and, subsequent to that, is now debt-free.

"We have a solid foundation from which to build on and move forward to grow value in both Vietnam and Egypt. We benefit from having assets with catalysts. In Vietnam, actively progressing the license extensions will unlock appraisal potential. In Egypt, our consolidation proposal will provide enhanced fiscal terms to encourage appropriate re-investment. This will all be considered within the framework of a strict and transparent capital allocation policy that is balanced appropriately and with the priority on evaluating opportunities that can deliver the highest return to shareholders.

"I want to thank shareholders for their continued support and look forward to updating the market on our upcoming activity."

1H Operational Highlights

·      Group working interest 1H production was 5,851 boepd net (1H 2023: 6,915 boepd net), in line with full year guidance:

o  Vietnam 1H production 4,456 boepd (1H 2023: 5,566 boepd)

o  Egypt 1H production 1,395 bopd (1H 2023: 1,349 bopd)

·      In Vietnam:

o  Surface and subsurface optimisation to ensure stable TGT and CNV 1H production

o  Approval of the TGT Revised Field Development Plan (RFDP) by the Ministry of Industry and Trade (MOIT)

o  Agreement between Partners and PetroVietnam (PVN) on the terms and work programme commitments for the extension period of the TGT and CNV five-year licence extension applications; which now await formal approval

o  Progressing the opportunity in Block 125 with long lead items ordered in August 2024

·      In Egypt:

o  Focus on workovers, recompletions, and water injection to bring low-cost barrels to production and build reservoir energy for future drilling

o  Preparation for exploration and development drilling programmes

o  Processing and interpretation of the recently acquired 3D Seismic in NBS

1H Financial and Corporate Highlights

·      Net cash as at 30 June 2024 of $17.5m^1,2 (30 June 2023: net debt of $16.4m)^1,2

·      Group revenue $65.0m³ (1H 2023: $86.2m)³

·      Net profit $15.3m (1H 2023: $14.3m net loss), including $12.6m of restructuring expenses, re-measurements and impairments    (1H 2023: $(15.2m))

·      Cash generated from operations $44.3m³ (1H 2023: $43.4m)³

·      Egypt receivables reduced with $14.8m received from EGPC in 1H 2024 and an additional $4m received on 1 July 2024

·      Operating cash flow $27.9m⁴ (1H 2023: $21.3m)⁴

·      Cash operating costs $17.09/bbl¹ (1H 2023: $14.14/bbl)¹ 

·      Cash balances as at 30 June 2024 of $30.7m (30 June 2023: $35.9m)

·      Forecast cash capex for the full year is $31m ($26m after Egyptian carry by IPR), of which $6.8m had been incurred by 30 June 2024

·      Katherine Roe appointed CEO and Mohamed Sayed promoted to COO effective 1 July 2024

·      Commitment to shareholder returns continues with an interim dividend of 0.363 pence per share in respect of the year ended 31 December 2024 and continuation of the current phase of the share buyback programme, with $1.1m of the $3m incurred by the end of June 2024

¹ See Non-IFRS measures on page 31

² Includes RBL and National Bank of Egypt working capital drawdown

³ Stated after realised hedge losses of $0.1m in the period (1H 2023: no realised hedge gains or losses)

⁴ Operating cash flow = Net cash from operating activities, as set out in the Cash Flow Statement

Outlook

·      2024 production guidance of 5,200 - 6,500 boepd net remains unchanged:

o  Vietnam 2024 production guidance 3,900 - 5,000 boepd net; Egypt 2024 production guidance 1,300 - 1,500 bopd net

·      Vietnam

o  Two-well TGT infill drilling programme commenced on 26 August 2024

o  Awaiting CNV RFDP approval, expected in Q4 2024, enabling further development drilling on CNV to commence in 2025

o  TGT and CNV five-year licence extensions well advanced; once signed, this will enable commitment to further investment in both fields

o  Discussions ongoing with potential farm-in partners and rig contractors required to progress Block 125

·      Egypt

o  Expected completion of the exploration commitment well on El Fayum in 4Q 

o  Processing of c.130km² of 3D seismic data on NBS underway and expected to complete in 4Q

o  Discussions ongoing on the consolidation proposal following the initial feedback from EGPC

Enquiries

Pharos Energy plc                                                                                                                                   Tel: 020 7747 2000

Katherine Roe, Chief Executive Officer 

Sue Rivett, Chief Financial Officer

Mohamed Sayed, Chief Operating Officer 

Camarco                                                                                                                                                 Tel: 020 3757 4980

Billy Clegg | Georgia Edmonds | Violet Wilson | Kirsty Duff

Notes to editors

Pharos Energy plc is an independent energy company with a focus on sustainable growth and returns to stakeholders, which is listed on the London Stock Exchange. Pharos has production, development and/or exploration interests in Egypt and Vietnam. In Egypt, Pharos holds a 45% working interest share in the El Fayum Concession in the Western Desert, with IPR Lake Qarun, part of the international integrated energy business IPR Energy Group, holding the remaining 55% working interest. The El Fayum Concession produces oil from 10 fields and is located 80 km southwest of Cairo. It is operated by Petrosilah, a 50/50 joint stock company between the contractor parties (being IPR Lake Qarun and Pharos) and the Egyptian General Petroleum Corporation (EGPC). Pharos also holds a 45% working interest share in the North Beni Suef (NBS) Concession in Egypt, which is located immediately south of the El Fayum Concession. The first development lease on the NBS Concession was awarded in September 2023 and production started in December 2023. IPR Lake Qarun operates and holds the remaining 55% working interest in the NBS Concession. In Vietnam, Pharos has a 30.5% working interest in Block 16-1 which contains 97% of the Te Giac Trang (TGT) field and is operated by the Hoang Long Joint Operating Company. Pharos' unitised interest in the TGT field is 29.7%. Pharos also has a 25% working interest in the Ca Ngu Vang (CNV) field located in Block 9-2, which is operated by the Hoan Vu Joint Operating Company. Blocks 16-1 and 9-2 are located in the shallow water Cuu Long Basin, offshore southern Vietnam. Pharos also holds a 70% interest in, and is designated operator of, Blocks 125 & 126, located in the moderate to deep water Phu Khanh Basin, north east of the Cuu Long Basin, offshore central Vietnam.

Operational Review

Health and Safety

We are pleased to report that in Egypt and Vietnam, we have worked with our partners to maintain our record of zero Lost Time Injury

(LTI) frequency rate and zero spillage incidents through the first half of 2024. Safety continues to be the top priority for our business, and we are committed to operating safely and responsibly at all times to provide a safe and healthy working environment for staff and contractors working closely with our JV/JOC.

Vietnam

Vietnam Production

Production for the first half of 2024 from the TGT and CNV fields net to the Group's working interest averaged 4,456 boepd (1H 2023: 5,566 boepd), in line with our previously published guidance.

TGT 1H 2024 production averaged 11,086 boepd gross and 3,289 boepd net to Pharos (1H 2023: 13,423 boepd gross and 3,983 boepd net). CNV 1H 2024 production averaged 4,667 boepd gross and 1,167 boepd net to Pharos (1H 2023: 6,333 boepd gross and 1,583 boepd net).

Working interest production guidance in Vietnam for 2024 remains unchanged at 3,900 - 5,000 boepd.

Vietnam Development and Operations 

TGT & CNV Fields

There were no new wells drilled on either field in 1H 2024. Overall production remained stable due to well interventions, including adding zonal perforations and the shut-off of high-water producing zones.

On Block 16-1 - TGT Field, operational activities in the first half of 2024 focused on adding low-cost production through well interventions and production optimisation opportunities. The TGT RFDP was approved by MOIT on 9 January 2024, enabling the two-well drilling programme to commence on 26 August 2024.

On Block 9-2 - CNV Field, the CNV RFDP, which includes two infill wells, was agreed by all partners in 1H 2024. Approval from MOIT is expected in Q4 2024.

Final discussions with PVN to agree terms and work programmes for the five-year licence extensions at TGT and CNV are well advanced. The extension, when granted, will allow the HLHVJOC to commit to further investment in both fields.

Vietnam Exploration

Blocks 125 & 126

On Blocks 125 & 126, discussions with potential farm-in parties and drilling contractors are ongoing. In 1H 2024, the Company continued to optimise its prospects and leads portfolio, and progress options to secure a drilling slot in Block 125. Detailed drilling engineering studies for the well on Prospect A commenced in 3Q 2024. Purchase orders placed for long lead items in August 2024.

Egypt

Egypt Production

Production for the first half of 2024 from the El Fayum and NBS fields net to the Group's working interest averaged 1,395 bopd (1H 2023: 1,349 bopd), in line with guidance.

El Fayum 1H 2024 production averaged 2,867 bopd gross and 1,290 bopd net to Pharos (1H 2023: 2,997 bopd gross and 1,349 bopd net). NBS 1H 2024 production averaged 232 bopd gross and 105 bopd net to Pharos.

Egypt production in the first half has been stable due to a strong focus on workovers, recompletions, and water injection to bring low-cost barrels to production and build reservoir energy for future drilling.

Working interest production guidance in Egypt for 2024 remains unchanged at 1,300 - 1,500 bopd net.

Egypt Development and Operations 

El Fayum

One workover rig is in the field to contribute to El Fayum production in 1H 2024 through low-cost well repairs, recompletions, and deployment of water injection.

North Beni Suef

The NBS-SW1X well, which was declared a commercial discovery and put on production in December 2023, continued to contribute to total production in 2024.

Egypt Commercial

A proposal to combine both the El Fayum and NBS into one concession provided to EGPC in May 2024. Discussions on the proposal, which are aimed to achieve improved fiscal terms and longer licence duration for the new concession, were held between Pharos and our partner IPR following the initial feedback from EGPC.

Egypt Exploration

El Fayum

A high-impact exploration commitment well on El Fayum commenced drilling in August. The East Saad 1X well is located between the Saad and Ain Assillien producing fields and is targeting the Abu Roash "G" reservoir.

North Beni Suef

The processing of c.130 km² of 3D seismic data on NBS is ongoing and expected to complete by the end of 2024.

Financial Review

Finance strategy

Our finance strategy of building shareholder value through capital growth and sustainable dividends is supported by the Group's business model.

The first half of 2024 has seen strong financial performance from our operations and continued strengthening of our liquidity position, where we have moved into a positive net cash position of $17.5m compared to net debt of $6.6m previously reported at the end of December 2023. We have achieved solid USD cash flow from our Vietnam and Egypt portfolios and this has enabled us to accelerate the repayment of our borrowings. Following the farm down of Egypt concessions in 2022, the Company continued to benefit from a full carry of all contractor costs for G&A, opex and the capital programme through to April 2024. Whilst revenues are down when compared to 1H 2023, reductions in costs have resulted in a profit for the period of $6.8m versus a loss of $(4.2)m (prior to impairment). Returns to shareholders have been delivered through the commencement of an additional $3m share buyback programme and the payment of an interim dividend for 2023 of 0.33 pence per share in January 2024. A final dividend for 2023 of 0.77 pence per share was paid to shareholders in July 2024 and the Board is pleased to also announce a 2024 interim dividend of 0.363 pence per share in respect of the year ended 31 December 2024.

Highlights

¹ Realised hedge losses of $0.1m in the period (1H 2023: no realised hedge gains or losses)

² See Non-IFRS measures on page 31

³ For 2024, includes continuation of $3m share buyback programme (the Second Programme Extension), $1.1m of which had been incurred by 30 June 2024. Also, Interim Group dividends of $1.9m in respect of the year ended 31 December 2024, announced in September 2024, will be paid to shareholders in January 2025. 

Operating Performance - Income Statement

Revenue

Oil & gas revenues for the period were down 24% to $65.1m (1H 2023: $86.2m). Production volumes were within guidance, though Group sales volumes were down which has led to an inventory build of $11.7m for the Vietnam producing fields. Additionally, the 2023 revenues were considerably enhanced by the new lateral CNV-2PST1 well drilled in February 2023. This peaked at c. 3,000 bopd (gross) and has now stabilised at c. 1,300 bopd (gross) which was the expected outcome.  The well continues to contribute strongly to CNV revenues.

In Vietnam, revenues decreased 28% to $55.8m (1H 2023: $77.6m), which was predominantly due to 28% reduction in TGT sales volumes as a result of maintenance work to the receiving facilities at the BSR refinery. The average realised crude oil price, including the premium received over Brent, was $89.07/bbl (1H 2023: $86.14/bbl), a 3% increase. The premium to Brent fell to just over $5/bbl (1H 2023: just under $8/bbl).

In Egypt, revenues increased 8% to $9.3m (1H 2023: $8.6m). The average realised crude oil price, after discounts, was $78.30/bbl (1H 2023: $75.21/bbl), an increase of 4%. There are two discounts applied to Egypt crude production - a general Western Desert Discount and one related specifically to El Fayum. Both are set by EGPC (the in-country regulator) and together increased to just under $6/bbl (1H 2023: $5/bbl).

Hedging

For 2024, Pharos entered into zero cost collar hedges to protect the Brent component of forecast oil sales and to ensure future compliance with its obligations under the RBL over the producing assets in Vietnam and to provide downside protection to cash flows in the event of commodity prices falling. The commodity hedges run until June 2025 and are settled monthly. Our hedging positions for the period resulted in $0.1m realised loss (1H 2023: no realised hedge gains or losses). Additionally, the fair value as at 30 June 2024 was an unrealised loss of $0.8m for the remaining hedges in place (1H 2023: unrealised gain of $0.2m).

For 2024, 30% of the Group's total oil entitlement production has been hedged, securing average floor and ceiling prices for the hedged volumes at $63.4/bbl and $89.2/bbl, respectively. The Group's RBL requires the Company to hedge at least 35% of Vietnam RBL production volumes and the current hedging programme meets this requirement through to June 2025, leaving 71% of Group production unhedged as at 30 June 2024.

Please see below a summary of hedges outstanding as at 30 June 2024, which are all zero cost collar.

Group operating costs, DD&A and expenses

Cost of Sales were 43% lower at $33.0m (1H 2023: $58.2m), inclusive of impairment reversal/(charge) of financial asset in relation to EGPC receivables, and this was primarily driven by the $13.0m higher inventory build from Vietnam. Operating costs in Egypt fell 70% to $2.0m (1H 2023: $6.6m) and this was principally due to $5.1m reduction in the EGPC trade receivable risk factor provision, in light of improved liquidity and economic outlook in-country.    

DD&A charges on production and development assets decreased to $23.8m (1H 2023: $29.9m), driven by a lower depreciating cost base following 2023 impairment charges taken on both TGT in Vietnam and the Egypt producing assets, combined with 15% reduction in group production volumes. DD&A per bbl is currently $22.35/boe (1H 2023: $23.89/boe).

Administrative expenses of $4.7m (1H 2023: $4.6m) are comparable period on period and include non-cash items such as depreciation and IFRS 2 Share Based Payments of $0.3m (1H 2023: $0.4m). Other operating expenses of $0.6m (1H 2023: $nil) relate to the posthumous vesting of share scheme awards to the former CEO of the Company, settled in cash and paid to his estate with the agreement of the executor.

Cash Operating Costs

Cash operating costs at Group level, defined in the Non-IFRS measures section on page 31, amounted to $18.2m (1H 2023: $17.7m), a 3% increase over the same period last year. On a barrel of oil equivalent basis, this was $17.09/boe (1H 2023: $14.14/boe).

Cash operating costs in Vietnam increased marginally to $13.6m (1H 2023: $13.4m) in the period which equates to $16.77/bbl (1H 2023: $13.30/bbl). The increase is primarily driven by lower production in 1H 2024 and higher costs relating to the FPSO as a result of lower production from TLJOC, which shares the facilities and the costs of the FPSO based on production rates. TLJOC had a 23.0% cost share in 1H 2024 compared to 26.0% in 1H 2023. 

Cash operating costs in Egypt were $4.6m (1H 2023: $4.3m) in the period, which equates to $18.12/bbl (1H 2023: $17.61/bbl). The 3% increase in cost per bbl was mainly related to higher Petrosilah cost allocations as a result of minimal drilling and capital expenditure during 1H 2024, higher crude oil processing fees and chemical costs, offset by a decrease in fixed costs due to further EGP devaluation following full flotation of the currency by the Egyptian Government in March 2024.

¹ Includes impairment reversal/(charge) of financial asset

Financing costs

Finance costs for the period were significantly lower at $2.6m (1H 2023: $6.9m) due to accelerated, voluntary repayments on the Group's reserve based lending facility (RBL). Finance costs included a non-cash credit of $(0.1)m (1H 2023: $2.3m charge) following the June 2024 redetermination of the RBL, which led to a change in estimated future cash flows. There was also interest expense and similar fees of $1.2m (1H 2023: $3.1m), unwinding of discount of provisions $1.0m (1H 2023: $1.0m) and foreign exchange losses of $0.5m (1H 2023: $0.5m) primarily driven by the devaluation of EGP against USD.

Taxation

The overall net tax charge of $18.3m (1H 2023: $19.6m) relates to tax charges in Vietnam of $18.3m (1H 2023: Vietnam tax charges of $19.9m less the deferred tax credit on net impairment charge of $(0.3)m).

The Group's effective tax rate approximates the statutory tax rate in Vietnam of 50%, after adjusting for non-deductible expenditure and tax losses not recognised. The Egypt concessions are subject to corporate income tax at the standard rate of 40.55%, however responsibility for payment of corporate income taxes falls upon EGPC on behalf of PEF. The Group records a tax charge, with a corresponding increase in revenue, for the tax paid by EGPC on its behalf. However, this is only valid if PEF is in a tax paying position and no such tax has been recorded in the period.

One of the Group's companies entered into commodity zero cost collars designated as cash flow hedges. In accordance with IAS 12, a deferred tax asset has not been recognised in relation to the hedging losses of $0.1m (2023: $nil) recorded in the period as it is unlikely that the UK tax group will generate sufficient taxable profit in the future, against which the deductible temporary differences can be utilised.

Net profit/(loss)

The post-tax profit for the period of $15.3m (1H 2023: $(14.3)m post-tax loss) included $12.6m of restructuring expenses, re-measurements and impairments (1H 2023: $(15.2)m) which are shown in the table below. Business performance post-tax profit for the period was $2.7m (1H 2023: $0.9m).

* A non-GAAP measure of underlying net profit from operations, which takes out the impact of unusual, non-recurring transactions and the impact of non-cash re-measurements and impairments.

Balance Sheet

Impairments and Impairment Reversals

As a result of previously recognised impairment losses, review of oil prices, considerations on economic uncertainty leading to high inflation globally, changes in discount rates, and review of movements in 2P reserves, we have considered each of our oil and gas producing properties for impairment or impairment reversal triggers. For each producing property with such triggers, the recoverable amount has been determined using the value in use method. The recoverable amount is calculated using a discounted cash flow valuation of the 2P production profile.

The reserves and cost profiles for TGT and CNV fields remained consistent with 2023 year end. The average Brent price forecast for H1 2024 rose marginally by 1%, the discount rate fell to 11.6% (Dec 2023: 12.6%) and there was no change in the Vietnam economic or legal environment. As a result, for both TGT and CNV, management concluded that there were no impairment triggers and an impairment test was not considered necessary.

In Egypt, the weighted average cost of capital (WACC) fell to 15.1% as at June 2024 (Dec 2023: 18.0%) following a reduction in country risk premium and this led to an impairment reversal for El Fayum as follows:

¹ Changes in decommissioning asset for TGT and CNV is due to a change in discount rate only (1H 2023: change in discount rate and field abandonment plan for CNV and change in discount rate only for TGT)

Net cash/debt

Strong financial performance from our operations contributed to significantly improved liquidity and the Group moved into a net cash position (31 Dec 2023: $6.6m net debt). As at the balance sheet date, $13.2m (RBL $10.0m and NBE $3.2m) was drawn under the Group's borrowing facilities and there was cash of $30.7m, giving a net cash figure of $17.5m (1H 2023: RBL $42.6m and NBE $9.7m; cash $35.9m and net debt of $16.4m).  Gearing has been calculated as total debt to equity of 0.05x (1H 2023: 0.17x).

As at 30 June 2024, the trade receivables with EGPC stood at $31.3m (31 Dec 2023: $37.4m), of which $30.0m was overdue. $14.8m was received from EGPC in 1H 2024 and an additional $4m was received on 1 July 2024.

PEF is entitled under contract to be paid for hydrocarbon sales in US dollars. Until March 2024, the Group had opted to reject payment of any part of PEF's receivables balance in Egyptian Pounds (EGP) and continue to hold USD denominated receivables for two reasons: the continued devaluation of the currency to the USD and we had no need for EGP funds since our share of operational expenditures was covered by the carry with IPR. Following a decision by the Egyptian Government in early March 2024 to let the EGP fully float, the currency has devalued against the USD. Considering this devaluation, and in view of our carry being fully utilised, starting from April 2024 the Group opted to accept the payment of part receivables balance in EGP in order to cover operational expenditure and other expenses in local currencies.

Following the landmark agreement with ADQ (an Abu Dhabi sovereign wealth fund), whereby the latter invested $35 billion for the development of the new coastal city of Ras El Hekma, the significantly expanded new loan from the IMF ($8 billion, including the original $3 billion originally secured in December 2022, with an additional $1.2 billion from the IMF's Resilience and Sustainability Facility) and other concessional loans granted by the World Bank ($8 billion), the EU ($6 billion) and other institutions, the Egyptian Government's FX reserves have significantly improved ($46.5 billion at the end of July 2024 versus $35.2 billion at year end) and are expected to improve further by the end of 2024 (c. $53 billion according to Fitch). This has allowed EGPC to make industry wide payments of c. 20-25% of each Company's receivables balance (PEF received $10 million in March 2024 and $4 million on 1 July 2024) and the new Minister of Petroleum (Karim Badawi, who replaced Tarek El Molla in early July 2024) has committed to table a payment plan to progressively reduce arrears in the short term. In light of these considerations, the Group remains optimistic that its receivable position will continue to improve during 2024, through a combination of payments in USD, payments in EGP (to the extent needed to cover operational expenditures in local currency) and offsets.

Borrowings 

Reserve Based Lending

The RBL is secured over the Vietnam producing assets only and, as at 30 June 2024, has a one-year term maturing in June 2025. The maximum borrowing base available under the RBL is revised every six months via a redetermination process by the relevant banks, based on an estimate of the value of the Group's reserves from its producing assets in Vietnam. For 1H 2024, the Group made voluntary early principal repayments of $20.0m to reduce finance costs (1H 2023: $22.4m) and the borrowing base as at 30 June 2024 was $11.6m (30 June 2023: $42.6m). After voluntary cancellation of $21.8m to date, the facility amount stood at $11.6m.

The loan bears a per annum interest rate of Compound SOFR plus CAS (Credit Adjustment Spread) plus 5.25%.

Uncommitted Revolving Credit Facility (National Bank of Egypt - NBE)

The amount repayable under the agreement at 30 June 2024 was $3.2m (30 June 2023: $9.7m) and it is presented as borrowings under current liabilities.

The facility was put in place to mitigate the risk of late payment of our debtors. Under this arrangement, Pharos is able to access cash from the facility, of up to 60% of the value of each El Fayum oil sales invoice, presenting the invoices as evidence to support its ability to repay the facility. The oil sales invoices remain due to Pharos and it retains the credit risk. The Group therefore continues to recognise the receivables in their entirety in its balance sheet.

In January 2024, the Group renegotiated the uncommitted revolving credit facility of up to $10m until 30 May 2025.

The loan bears a per annum interest rate of Term SOFR plus 3.50% for initial advances and 4.00% for any extensions beyond 180 days from the date of the utilisation.

Cash flow

Cash generated from operations was $44.3m (1H 2023: $43.4m) and prior to working capital movements was $50.9m (1H 2023: $53.7m).  This highlights the strong operating performance from the producing fields in Vietnam and Egypt, combined with higher commodity prices, despite the 26% fall in Group sales volumes. 

The decrease in receivables was $6.8m for the period (1H 2023: increase of $11.7m). The 2024 movement is mainly driven by $3.4m reduction in Egypt trade receivables, following increased recovery from EGPC during the period as a result of improved liquidity in-country. Vietnam trade receivables decreased by $3.3m, primarily linked to the timing of liftings (2 cargoes in June 2024 compared to 3 cargoes in December 2023). Inventory increased significantly by $11.9m (1H 2023: decrease of $1.1m) and this was driven by Vietnam operations and the timing of liftings from TGT. Vietnam revenue volumes overall were down 30% compared to 1H 2023, and the impact of the inventory build is expected to lead to a higher number of liftings in 2H 2024.

Share Buyback and Dividends

Following a period of relatively stable commodity prices and a strengthening of the Group's liquidity position, the Company committed to shareholder returns in the form of share buybacks and dividends. On 6 December 2023, the Company announced the continuation of a further $3m share buyback programme in 2024 (the Second Programme Extension), of which $1.1m had been incurred by the end of June 2024.

Pharos has a clear sustainable policy for regular dividend payments and this has been set at returning no less than 10% of Operating Cash Flow (OCF) each year in two tranches

-       An interim dividend of 33% of the prior period's full year dividend, payable in January of the following year; and

-       A final dividend payable in July of the following year.

On 6 December 2023, an interim dividend of 0.33 pence per share, $1.8m equivalent, was declared by the Board in respect of the year ended 31 December 2023 and paid on 24 January 2024 to shareholders on the register at the close of business on 22 December 2023. A final dividend of 0.77 pence per share in respect of the year ended 31 December 2023, $4.1m equivalent, was approved by the shareholders at the Company's AGM in May 2024 and subsequently paid on 19 July 2024 to shareholders on the register at the close of business on 14 June 2024. This took the 2023 full year dividend to 1.10 pence per share, an increase of 10% on the prior year.

The Board has resolved to pay an interim dividend of 0.363 pence per share, $1.9m equivalent, in respect of the year ended 31 December 2024 and this will be paid on 22 January 2025 to shareholders on the Company's register as at 20 December 2024.

Liquidity risk management and going concern

The Group continuously monitors its business activities, financial position, cash flow and liquidity. Cash forecasts are regularly produced, and stress tested for a number of scenarios including a downturn in the oil price, changes in production rates and capital expenditure. Given the current rapidly changing global political and economic landscape, and fluctuations in oil price, inflation and interest rates, the scope of our scenario planning remains extensive. Accordingly, stress tests have been run for oil prices down to $55/bbl in October 2024, rising gradually over a year until in line with our base oil price curve, concurrent with reductions in Vietnam and Egypt production compared to our base case of 5%. As at 30 June 2024, the Group had a cash balance of $30.7m and improved liquidity with a net cash position of $17.5m. Forecasts show that the Group will have sufficient financial headroom for the period of 15 months from the date of approval of these half-year results. The Directors therefore have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing these half-year results.

Sue Rivett

Chief Financial Officer

Corporate Review

ESG

Climate remains a principal risk and uncertainty for Pharos. That is why we published a detailed Net Zero Roadmap in December 2023, which models emissions pathways - including interim targets - to achieve net zero in Scope 1 and 2 GHG emissions from all existing and future assets by no later than 2050.

In 1H 2024, the Group measured an approximate decline in Scope 1 and 2 emissions by 11% compared to the same time last year, partly driven by measures to reduce the consumption of carbon-intensive fuel in its field operations, and partly by a lower production volume. Pharos will continue to work closely with our operating partners to identify opportunities to reduce emissions to ensure we achieve our climate targets.

We are proud of our social initiatives which have been an important part of Pharos since inception. For 1H 2024, the HLHVJOC Donation Programme invested in 7 long-term social projects, ranging from providing educational support for children with disabilities to supporting low-income communities. In the first quarter, donations were focused on providing medical checks and essential medications for patients in need in rural areas, while support in 2Q was dedicated towards building adequate sanitation systems in public medical centres. Pharos will continue to work closely with our local partners and joint ventures to ensure our social initiatives bring positive, sustainable impacts to host countries and the local communities.

Principal and emerging risks and uncertainties for the second half of 2024

The Board continues to fulfil its role in risk oversight by developing policies and procedures around risks that are consistent with the organisation's strategy and risk appetite.

Pharos carried out an assessment of its principal and emerging risks at half year 2024. The key principal and emerging risks are:

·      HSE & Social

·      Political and regional instability, including conflicts and ensuing sanctions

·      Risk of rising inflation and stagflation

·      Climate change

·      Commodity price volatility

·      Partners' alignment

·      Sub-optimal capital allocation

·      Cyber security

·      Reserves downgrades

·      Insufficient funds to meet commitments

Responsibility Statement

The Directors confirm that to the best of their knowledge:

1.     The interim condensed consolidated set of financial statements immediately following this report has been prepared in accordance with United Kingdom adopted International Accounting Standard IAS 34 'Interim Financial Reporting' and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

2.     The interim report includes a fair review of the information required by:

·      DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

·      DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.