Annual Report & Accounts and Notice of Meeting

Causes

Risk mitigation

·      Reduced capital in oil and gas sector as

investors review their policy on investment

·      Lack of opportunities (sector downturns)

·      Fluctuating oil prices/economic conditions

·      Target governance

·      Industry competition (higher for "good" assets)

·      Issues exposed by due diligence including technical risks/uncertainties, disputes

·      Resourcing limitations

·      Geopolitical risks

·      Inability to access suitable funding

·      Focused M&A (scale & materiality)

·      Regular review of funding options

·      Proactive dialogue with banks and other providers of capital

·      Quality and number of advisers

·      Intense opportunity screening

·      Strong relationships/industry intelligence

·      Effective project management and resourcing

Causes

Risk mitigation

·      Inadequate waterflood responses

·      Incorrect well placements

·      Development wells uncommercial

·      Poor reservoir models

·      Lack of financing for drilling programme

·      Develop a clear wells strategy, focusing on performance improvement, regulatory compliance and increased activity

·      Increase drilling activity/plan-drill additional injection wells/frac injection zone

·      Reduce cost of well construction

·      Increase surveillance and intervention rates

·      Perform target workovers on producer/injection wells

·      De-risk best prospects/drill best prospects

·      Improve reservoir models

Causes

Risk mitigation

·      Health, safety and environmental risks of major explosions, leaks or spills

·      Facing oil and gas high-risk operating

conditions and HSES risks

·      Climate change impacts on the sector - production faces increasing risks from the impacts of climate change from extreme weather, sea level rise and water availability and the sector will need to build resilience to adapt to changing conditions

·      Security of workforce supply and human rights violations of workers and communities - child labour, terrorism and sabotage, social conflict and unrest

·      Coastal and marine ecology - impact on

corals and marine biodiversity from offshore and coastal operations and tankers (spills)

·      Gas venting and flaring natural hazards and risks - well blow outs, localised land subsidence, land/water contamination

·      Non-alignment of new acquisitions' HSES practices with Pharos' corporate standards

·      Spread of COVID-19 virus

·      Better understanding of our risks, implementing a bottom-up approach at managing risk registers and proactive mitigation plan

·      Improve structural and asset integrity through strong operational and

maintenance processes which are critical to preserving a safer

environment

·      Comply with all legislative/regulatory frameworks and transitioning to

a goal based approach focused on improving safety

·      Promote a positive health and safety culture where workers are given

proper training and incentives to work safe with a zero tolerance for non-compliance

·      Environmental and Social Impact Assessment forward-looking

assessment of:

o  climate impacts and need to adapt to changing climate conditions over the life of the asset

o  regulatory developments

·      Emergency preparedness and spill prevention plan

o  Controlled venting

o  Control and management of pressurised oil and gas from boreholes

o  Use of low impact extraction chemicals where alternatives exist

o  Water management - securing of a sustainable water supply, recycling and reuse wastewater

o  Marine management plan - especially for offshore drilling

·      Implement early precautionary measures based on WHO guidance,

restrict business travel and facilitate working from home where appropriate

Causes

Risk mitigation

·      Pressure on investors to divest/avoid fossil fuel companies/projects

·      Inability to find economically viable CO2e reduction solutions

·      Potential litigation and additional compliance obligations

·      Global transition to a lower carbon intensity economy which reduces oil prices and increases the risk of impairment

·      Increased climate regulation and disclosure

·      Increase in carbon taxes/decarbonisation charges

·      Eco-consumers are increasing, potentially causing radical/transformational shifts in consumption of fossil fuels

·      Climate activists pressing prominent institutions and investors to abandon fossil investments - "greening" the financial system

·      Transparent reporting and participation in Carbon Disclosure Project (CDP)

·      Embracing the TCFD recommendations, prepare and align Pharos' growth strategy to tackle climate concerns

·      Embedded climate change scenarios and evaluate "strategic fit" of climate change decisions on key business operations/directions

·      Continuous improvement of GHG emissions management and trigger

initiatives to help CO2e emissions reduction

·      "Making climate change risk visible" - factoring in climate hazards when investing in exploration/development projects so that corporate models embed resilience into projects

Causes

Risk mitigation

·      On-going oil market volatility

·      Geopolitical factors, including pressure on investors to divest/avoid fossil fuel companies/projects

·      Lower long-term prices tighten the margin of error for investments and increase the risk of impairment

·      Forecasting volatility swings are more complex as it is challenging to gauge what that means for the industry, affected communities and end users but is necessary for the future understanding of oil market dynamics

·      Negative cash flows & earnings degradation

·      Market speculation and trading in oil futures

·      Spread of COVID-19 virus impacting on oil prices

·      Oil commodity hedging

o  Comply with RBL requirements

o  Maintain robust processes around treasury, governance, forecasting, credit and risk

·      Close monitoring of business activities, financial position cash flows

·      Control over procurement costs/effective management of supply

chains derived from third parties - suppliers, joint venture partners, investors, and contractors

·      Stress test scenarios and sensitivities via principal compound risks analysis to ensure a level of robustness to downside price scenarios

·      Capital discipline with focus on controlling and managing costs

·      Discretionary spend actively managed

Causes

Risk mitigation

·      RBL redetermination

·      Restrictions imposed in RBL facility limit

flexibility

·      Equity and/or debt markets reducing

investment in oil and gas activities

·      Financial fraud

·      Strong financial discipline

·      Maintain robust systems, processes and application of Group's Delegation of Authority

·      Discretionary spend actively managed

·      Continued engagement with lenders

·      Forecasting

·      Extension of licence terms in Vietnam

Causes

Risk mitigation

·      Inaccurate reserves estimates

·      Pharos bears the responsibility of developing these reserve estimates, but subcontracts some of this work out to independent reserve engineers

·      Earlier impairment triggers due to low

commodity price and/or capital constraints jeopardise planned exploration/development initiatives

·      Inherent uncertainties in the evaluation

techniques to estimate the 2P reserves

·      Improve reserves reporting by adhering to three key considerations:

consistency, transparency and utility

·      Disclose movements in reserves on a country-by-country basis

·      Subjective judgements are moderated

·      Material projects disclosed

·      Ongoing evaluation of projects in existing and potential new areas of interest and pursue development opportunities

·      Ensuring continuing adherence to industry best practice regarding technical estimates and judgements

·      Ensuring peer and independent verification of future production profiles and reserve recovery

·      RBL compliance - Vietnam reserves are audited independently by reserves consultants approved by lenders

Causes

Risk mitigation

·      Co-venturers having divergent views on drilling and upgrade programme 2020/21

·      Floating production, storage, and offloading vessel (FPSO) Tie-in Agreement ("TIA") from other party

·      Delay in the Full Field Development Plan

·      Active participation in JOC management

·      Direct secondment

·      Agree on more equitable alignment of interest with Thang Long JOC regarding FPSO TIA

·      Application of internal control best practice under a procedural framework

·      2020 TGT work programme agreed in principle and preliminary preparation of bid packages

Causes

Risk mitigation

·      Sophistication and frequency of cyber attacks increasing

·      Heavy reliance on and disruption to critical business systems

·      Infiltration of spam emails corrupting our systems

·      Offsite installation of back-up system and Business Recovery Plan in place

·      Cloud back-up solutions

·      Prevention and detection of cyber threats via a programme of effective continuous monitoring

·      Plan for staged integration (new acquisition) and upgrade of IT systems

Causes

Risk mitigation

·      Failure to recruit and retain high calibre

·      personnel to deliver on and implement growth strategy

·      Challenges in the recruitment & integration of additional technical expertise for the new acquisition

·      High costs for recruiting experienced workforce

·      Remuneration Committee retains independent advisers to test the competitiveness of compensation packages for key employees

·      Ongoing succession planning

·      Maintain a competitive remuneration mix regarding incorporating bonus, long-term incentive and share option plans

·      Build and use people networks in each country and advertise vacancies in these networks

Causes

Risk mitigation

·      Scarcity of capital for investment projects

·      Investment decisions are guided by economic analyses based on key assumptions which may differ significantly in a volatile macroeconomic environment

·      Pressure to invest and produce growth and returns in the short term to maintain dividend payments

·      Relentless focus on better returns

·      Inability to "switch-off" drilling / investment commitments if economic assumptions change rapidly

·      Carry out robust economic analyses based on opportunities high-grading to support capital allocation

·      Key KPIs such as NPV, IRR and payback used to compare across many project scenarios

·      Rig count investment scenarios are stress-tested against a range of Brent oil price

·      Non-operated ventures - Pharos always seeks to maximise its influence to promote best practice

·      Obtaining the views of its stakeholders through direct and indirect engagement

·      Maintain a balanced investment portfolio which allows a degree of resilience in adjusting short-term investment commitments

Causes

Risk mitigation

·      Operations in challenging regulatory and

political environments

·      Fiscal regimes can be subject to sudden

change

·      Approval processes can be protracted causing delays

·      Government reform, political instability, civil unrest

·      Canvass support in risk management by using both international and

in-country professional advisers

·      Engage directly with the relevant authorities on a regular basis

·      Assess country risk profiles, trend analyses and on-the-ground reports by journalists/academics

·      Thoroughly evaluate the risks of operating in specific areas and assess commercial acceptability

·      Buy political risk insurance

·      All operations are located outside of the EU and USD is the main currency of our business

Causes

Risk mitigation

·      Present in countries with below average score on the Transparency International Corruption Index

·      Lack of transparent procurement and

investment policies

·      Compliance with Criminal Crime Offences (CCO) and UK Bribery Act

·      Corruption, human rights issues

·      Ensure adequate due diligence prior to on-boarding with a risk based approach, including independent "Red Flags" checks

·      Annual training and compliance certifications by all associated persons

·      Increase awareness of Pharos' Anti-Bribery and Corruption ("ABC")

policies for all employees and associated persons

·      Gifts and Hospitality declaration

·      Whistleblowing facility in place

·      CCO risk assessment and ongoing implementation of adequate

procedures to prevent facilitation of tax evasion across all operations

·      Adhere to the principles of the Extractive Industries Transparency

Initiative