Annual Report and Accounts 31 DECEMBER 2020 Contents

CEO Foreword 4 Corporate Information Group Strategic Report Directors Linda Cook Non-Executive Chairman 1. 2020 Review 7 Phil Kirk Chief Executive Officer 2. Business Model 9 Andrew Osborne Chief Financial Officer 3. Strategy 10 Mark Brown Non-Executive Director 4. Key Performance Indicators 12 Bob Edwards Non-Executive Director 5. Operations Review 14 Steven Farris Non-Executive Director 6. Financial Review 17 Andrew Jamieson Non-Executive Director R Blair Thomas Non-Executive Director 7. Risk Management 22 Terence Jupp Non-Executive Director 8. Sustainability 25 Benjamin Vinocour Non-Executive Director) Corporate Governance (appointed 3 November 2020) 9. Governance and Compliance 31 Secretary Howard Landes 10. Our Board 32 11. Regulatory Compliance 36 Independent Auditors PricewaterhouseCoopers LLP Directors’ Report and Financial Statements The Capitol 431 Union Street 12. Directors’ Report 38 Aberdeen Independent Auditors’ Report 40 AB11 6DA Consolidated Income Statement and Consolidated Registered Office Statement of Comprehensive Income 46 Conyers Trust Company (Cayman) Limited Consolidated Balance Sheet 47 Cricket Square Hutchins Drive Consolidated Statement of Changes in Equity 48 P.O. Box 2681 Consolidated Statement of Cash Flows 49 Grand Cayman Cayman Notes to the Financial Statements 50 KY1-1111 Glossary 93 Cayman Islands Registered Company No. FC027988 UK Establishment No. BR009700

Chrysaor Holdings Limited 3 CEO Foreword Report and Financial Statements 2020 Report and Financial Statements 2020 CEO Foreword

CEO Foreword

2020 was a year of extraordinary challenges and enormous change. Our first priority, through the coronavirus pandemic, has been the safety of our people and I would like to thank our staff, their families, partners, suppliers and contractors for the commitment they have shown through this period. Their hard work, and the swift decisive action we took to minimise our offshore work scopes, suspend drilling projects and cease all non-essential activities helped ensure the continued safe and reliable operation of our assets and the safety and wellbeing of our people.

As a result of these measures and others our operational In October 2020, we agreed the all-share merger with performance in 2020 was robust with production averaging Premier Oil plc, beginning an exciting new chapter in 173 mboepd over the course of the year. Financially our our history. Forming the largest independent oil and gas revenues were supported by a strong commodity hedge company listed on the London Stock Exchange, the programme leading to robust cashflow. In addition, the transaction adds to our scale in the UK, and for the first integration of the acquired ConocoPhillips UK business time, brings international production and operations progressed successfully. beyond the North Sea. The enlarged Group will have a As we continue to grow, we know that taking action to portfolio with combined production of greater than reduce emissions, and align to the UK’s target of net-zero 230 mboepd in the calendar year 2020 and 2P reserves carbon, grows ever more important. Over the last few years of over 600 mmboe at 31 December 2020. we have identified and started asset led, near-term, material We expect to complete the deal around 31 March 2021, carbon-reduction and efficiency initiatives. As a result, we with the admission of the new group to the London Stock see the pace and level of investment accelerating. I am Exchange. The new company, Harbour Energy plc, will proud that over the last year our staff bonuses and our cost offer investors an independent oil and gas company of of borrowing has been pegged to the success of this work. For the future we have also continued to invest in the Acorn significant scale with a diversified UK asset base and and V Net Zero projects, two early-stage carbon capture and an international footprint - together providing the basis storage (CCS) projects together with potential associated for growth and returns. I look forward to our, and our hydrogen production. CCS and hydrogen production are a industry’s, next chapter and look back proudly at what key part of the UK Government's net zero plans. They are we have achieved so far on our journey. also critical new activities for Chrysaor and the UK that may help accelerate decarbonisation, while creating new and Phil Kirk protecting existing jobs. Chief Executive Officer

4 Chrysaor Holdings Limited Chrysaor Holdings Limited 5 Report and Financial Statements 2020 Group Strategic Report

1. 2020 Review

Since 2017, the Group has grown significantly, both organically and through acquisitions. Today, Chrysaor is the UK’s leading independent North Sea oil and gas group (the Group).

Privately owned Harbour Energy is currently 2020 highlights the majority shareholder with approximately a 90 percent equity interest. Measure 2020 2019

Our UK asset portfolio consists primarily of Production (mboepd) 173 137 high-quality, mid-life oil and gas production Costs per barrel ($/boe) 11.5 11.5 assets on the UK Continental Shelf (UKCS). We have a maturing exploration and EBITDAX ($ million) 1,784 1,692 development portfolio with 14 new licences (Loss)/profit after tax ($ million) (778) 218 awarded during the year. Our reserves and production portfolio is balanced between Capital investment ($ million) 556 552 crude oil and natural gas. We also have a Operating cash flow after capital expenditure ($ million) 775 988 Group highly diverse asset base, with a material interest in 11 UKCS producing hubs. Net Debt ($ million) 1,400 1,890

We operate the Greater Britannia Area Note: 2020 contains the first full year’s performance of the ConocoPhillips business acquired on 30 September 2019. Strategic (GBA), the J-Area and the Armada, Everest, Lomond and Erskine (AELE) hub, which Operational performance Coronavirus together account for around two-thirds of Chrysaor’s production in 2020 averaged Coronavirus had a significant impact our total production. We have non-operated 173 mboepd (2019: 137 mboepd). This increase on our operations in 2020, but our early Report interests in some of the UK’s largest reflected the impact of the acquisition of actions to address and mitigate its effect producing fields, including the Beryl Area, ConocoPhillips UK assets in September meant that we continued to perform well Elgin/Franklin, Buzzard, Schiehallion and 2019 and the deferral of the planned Forties during the period. Clair as well as interests in the East Irish Pipeline System (FPS) shutdown to 2021. The Sea (EIS). majority of Chrysaor’s own 2020 summer In February 2020 we mobilised dedicated turnarounds were also moved to 2021 to crisis and business continuity teams to In Norway, our portfolio is currently within align with the FPS shutdown. The associated oversee our response to the impact of the the exploration and appraisal (E&A) phase. positive effect on 2020 production was offset virus on business operations. These remain We currently have working interests in by the deferral from new wells as a result of in place and we continue to prioritise the 17 licences on the Norwegian Continental our decision to suspend operated drilling for safety and wellbeing of our workforce Shelf (NCS). Of these, six were awarded in six months due to the coronavirus. and ensuring adherence to Government the Norwegian Awards in Predefined Areas legislation and guidance. (APA) 2020 licensing round in January Operating costs continue to reflect good cost 2021. Our operated drilling programme on control with costs per barrel for the year at Our onshore personnel predominantly worked from home during the year our Norwegian Jerv and Ilder exploration $11.5/boe (2019: $11.5/boe). prospects in PL973 has commenced with the with only minimal safety and business spudding of the Jerv well in February 2021. For the year ended 31 December 2020, critical activities in the office. We earnings before interest, taxes, depreciation, reduced offshore activities to managing The main unexpected challenge to business impairment, amortisation and exploration base operations and safety-critical in 2020 was the coronavirus pandemic. expenses (EBITDAX) was $1,783.8 million maintenance. This, in turn, reduced We responded to the implementation of (2019: $1,691.8 million). our platform manpower levels. We national lockdowns by asking staff to work implemented a ‘barrier’ approach, from home for all office-based positions with At 30 June 2020, Chrysaor had 2P reserves with numerous, systematic measures limited office access. We took steps across of 491 mmboe per the Competent Persons to prevent the virus reaching our our business to reduce offshore activities Report in the Prospectus relating to the offshore installations. This included and implemented barriers across our Premier Oil transaction (2019: 551 mmboe) pre-mobilisation screening and testing operations to keep our people safe. and in H2 2020 produced 29 mmboe. for our offshore workforce, deploying

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isolation tracking, adjusting rota patterns impairment charge on property, plant Sustainability and contracting a dedicated medical and equipment of $644.0 million We continue to develop and integrate 2. Business Model evacuation helicopter to minimise potential ($386.4 million post-tax) (2019: nil) as coronavirus contact time on the platforms. a result of changes to our long-term our environmental, social and corporate We temporarily suspended operated drilling commodity price assumptions for governance (ESG) strategy. As a reflection of the importance of climate change, activities for six months up to September. impairment purposes to crude oil of Chrysaor is a full-cycle exploration and production (E&P) group with Chrysaor is committed to achieving a $60 per barrel and gas 40p per therm. 30 percent reduction in carbon emissions a business model that aims to create and safely deliver value, growth HSEQ In addition, we recorded a goodwill from our operated assets by 2025, with a impairment charge of $411.4 million in and returns for investors. We will achieve this through a balanced We managed operations safely and further 20 percent by 2028. the period (2019: $nil), also attributable responsibly thanks to the efforts of our approach to production and development, combined with exposure to changes in the Group’s assessment We will continue to participate in CO offshore and onshore workforce and 2 to exploration and appraisal activity, and acquisitions. of long-term commodity prices. While contractors. Our health, safety and capture and storage initiatives as key the strong hedge programme protected environmental performance was good, enablers to achieving the Scottish and the balance sheet position and revenue with half the number of incidents compared UK Governments’ long-term goals of performance, it cannot be taken into to 2019. We demonstrated a good safety being a net-zero economy by 2045 and account for impairment purposes. 2050 respectively. culture of near-miss reporting. In addition, We deliver our business model by employing We will decommission our fields after Our business model is ultimately to create at year-end, the level of maintenance In relation to the Premier deal, In 2020, we incorporated carbon emission a robust approach to risk management to their economic life has been exhausted. and maintain a high-quality and diverse backlog hours was in line with expectations amendments to the RBL facility have incentives into our senior debt facility as well help deliver our strategic goals. We have We regard the execution of the legal and portfolio, which is self-funded and in turn with safety critical work maintained despite been agreed to support the funding of the as our annual performance scorecard. This significant in-house operational expertise regulatory requirements in the removal of safely creates shareholder returns in the having to defer various planned activities. merger with Premier Oil plc at completion. is tied to the progress we make in reducing managing our operated assets and we work unneeded infrastructure and environmental form of capital growth and cash dividend The amendments will become effective emissions from our operated assets. actively with non-operated asset partners restoration as one of our core competencies. returns to investors. Financial performance during the completion process and include: to safely deliver value. Outlook Acquisitions and disposals through prudent Early lifecycle and development phase Financial performance was supported • term extended to 23 November 2027 We have created and will maintain portfolio management continue to be activity drives changes in reserves and by a strong commodity hedge programme. Our focus will continue to be on achieving a self-sustaining, self-funding Group. essential to the growth of our group. We resources. We track capital investment This reduced the financial impact of the • facility size of $4.5 billion (with a $750 million accordion option) safe, reliable operations that protect our This allows us to continuously evaluate actively screen all potential acquisitions that and decommissioning expenditure across commodity price fall and the impact people, assets and the environment, and opportunities and use innovation to could provide value enhancing opportunities all later lifecycle phases. Production and • debt availability at completion of of coronavirus enabling robust cash generate value from within our portfolio. deliver our strategic goals and add long- within the current strategy and operational operating costs per barrel indicators generation. On the other hand, earnings $3.3 billion term sustainable value. Such innovations and financial goals. The key consideration is measure the production phase performance. were impacted by asset and goodwill • a syndication group of 19 banks In response to the coronavirus, we will and opportunities encompass today’s always “value before growth”, which is how All operational financial performance is impairments of $798 million after tax, ensure the safety of our workforce and climate change challenges, where we are we deliver returns to our shareholders. aggregated within the operating cashflow Signpost: for more information, driven mainly by weaker commodity prices assets following relevant UK, Scottish and engaged in various technical development measure. Finally operating cashflow with tax, see Financial Review section 6 and movements in foreign exchange Norwegian Government guidelines. We and application initiatives. These include Chrysaor is primarily funded via a long-term financing and portfolio management are rates compared to the outlook before will continue to manage our response in carbon capture, hydrogen power and debt facility provided by a syndicate of reflected within net debt. the pandemic and at the time of Acquisitions and integration parallel with normal business operations. other potential power technologies to help leading international banks. The balance previous acquisitions. The integration project to combine the Our aim is to ensure that our barrier model achieve net zero carbon emissions. These sheet is managed to provide robust support Our business model is fully reflected in our pre-existing Chrysaor and ConocoPhillips and response initiatives adhere to best will likely be essential to our long-term through commodity cycles, even those as Key Performance Indicators section 4 and The Group delivered post-hedge UK businesses acquired in 2019 continued practice and remain effective. When we sustainability and viability. extreme as the present. our corporate performance scorecard. realised crude oil prices of $63.1 /bbl throughout the year. This work is due are permitted to do so, we will manage the (2019: $67.8 /bbl) and NBP gas return to our onshore offices in a controlled We actively pursue acreage and interests to complete in 2022. Its completion will 33 p/therm (2019: 36 p/therm). This and safe manner. in pre-licence and exploration phases provide a common operating model compares to average Brent crude prices to enable discoveries that can achieve and systems platform that will further of $42 /bbl (2019: $63 /bbl) and NBP gas We are working to complete the prevailing potential new reserves. The appraisal phase facilitate for future acquisitions, scalability 25 p/therm (2019: 35 p/therm). business integration project. After reduces technical and commercial risks from and increased efficiency. Planning the completion of the deal with Premier which our exploration successes, which allows transition of the merged Premier business Early decisions were taken to suspend is expected by the end of March 2021, we us to prove-up reserves and optimise into the Chrysaor group is ongoing operated drilling activity and shorten or will work to merge Chrysaor and Premier’s resources ahead of development planning Pre-licence Appraisal Development Production Decommissioning and the related integration effort will defer summer shutdown activities. assets and organisation safely and and approval. & Exploration This reduced capital investment and commence after completion of the deal. efficiently as Harbour Energy. operating costs and benefitted operating Development involves significant financial cashflow significantly generating Board changes investment. It converts discoveries into $775 million (2019: $988 million). This in profitable producing assets to realise value turn allowed a continued reduction in Non-Executive Director David through safe and efficient production. net debt of $490 million to $1,400 million Powell resigned from the Board on from $1,890 million. There were also loan 3 November 2020. Benjamin Vinocour, Our production portfolio and our focus on Chief Corporate Development Officer a competitive cost base, delivers robust note repayments of $77 million. Acquisitions & Post Tax Surplus Cash Shareholder and General Counsel for Harbour Energy, cash flows for self-sustaining reinvestment, Portfolio management & Funding returns Following an impairment review of our was appointed as a Non-Executive further acquisitions, repayment of debt assets, we have recognised a pre-tax Director on 3 November 2020. funding or dividends to shareholders.

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UK and Norway, together with a review For Chrysaor and the industry to be to support the delivery of financial 3. Strategy of purchased regional seismic data. sustainable for the long term, we must performance in line with the Board- Exploration and appraisal activities adapt and contribute to the reduction approved budget and plans. are focused on adding resources for of all emissions, particularly greenhouse The capital funding structure consists of future development in regions, hubs and gases (GHGs) and invest in the potential shareholder equity and loan notes plus Our strategy is to deliver safe and sustainable growth geologies where the Group has competitive of carbon capture initiatives. Society a senior Reserves Based Lending (RBL) advantage and expertise. demands that our industry embrace the and generate superior shareholder returns. We will do this facility and junior debt facility from Shell. carbon transition and pursue the public by exploring, appraising, developing and commercialising Our development and production activities, policy objective of net zero carbon. Chrysaor continues to enjoy strong most prominently our portfolio drilling oil and gas resources through organic initiatives and support from the international banking programme, focus on incremental near, Financial strength community, which is testament both to acquisitions across the business life cycle. This strategy and in-field drilling. Our aim is to increase the quality and diversity of our current Chrysaor has strong operating cashflow consists of five pillars: and extend economic field life and reduce portfolio and strength of the management from its producing assets. As a result, the production decline across our asset base. team. We actively engage and work with Group is financially self-sustaining with all our financing partners to realise our HS(G)65. These allow open engagement Round. The blocks that we were awarded We have a strong focus on value growth Safe and reliable operations sufficient free cashflow to cover capital strategic objectives. on performance and identify areas strategically target areas with the potential and capital discipline, and we apply reinvestment and manage its borrowings We strive to deliver safe and reliable for improvement between operational for organic growth at the pre-licence phase. rigorous, consistent evaluation across even in periods of commodity price operations through embedding our Values leadership and functional HSEQ staff. organic and acquisition opportunities. We downturns. and Business Principles in the workplace. Maximise economic recovery screen our capital investment opportunities We demonstrate INTEGRITY and care We continue to invest in improving to achieve attractive risk-adjusted returns The Group is financially robust: our PASSIONATELY about our people. SAFETY with a net zero target production efficiency, targeting top quartile at conservative commodity prices. We portfolio is capable of generating positive is fundamental to everything that we do, performance. The near-term plan is to build We continually seek opportunities to employ innovative commercial deals and cashflow at low commodity prices. and we all have a critical role to play in on integrity and reliability gains and to maximise value from our portfolio at all financing structures to align the interests Financial management is specifically ensuring that we maintain a safe working drive further improvements in production stages of the business lifecycle but in a way of stakeholders and to achieve strategic exercised through revenue hedging environment for ourselves and our efficiency, while managing known problem we and our stakeholders can always be proud objectives. activities, and robust cost control, colleagues both on and offshore. areas through continuous monitoring of. As a long-term participant in the UK North and preventative maintenance across the Achieving our goals is only possible when Sea, we have played our part in helping combined asset portfolio. This will allow we work together in an INNOVATIVE, shape the UK Oil & Gas Authority’s (OGA) longer-term views on production efficiency focused and collaborative way to deliver Strategy & Central Obligation; to maximise and reliability to be formulated that are a level of success we can all be proud of. economic recovery whilst meeting the UK integral to our carbon strategy. We all have the authority and responsibility Government's net zero target. We endeavour to ensure our activities are planned, viewed to stop any activity if we believe it to be Across our non-operated portfolio, we and delivered from those twin obligations of unsafe or may compromise our values. maintained close links with the operators maximising economic recovery and net zero. Our overriding and most critical objective and equity partners. These have allowed us is always to prevent a Major Accident Event to learn and pass on lessons across a wide At a corporate level, the Group had a on our offshore installations. We all have operator base, which has led to shared disciplined hedging programme in place to a role in achieving this. efficiency and reliability improvements. optimise revenue generation and to manage commodity price volatility. We pursue a rigorous annual Group health, We recruit people who are appropriately safety, environment and quality (HSEQ) experienced and are of a high calibre plan, endorsed by our leadership team. within their function using strategies and Build a sustainable and profitable The Plan sets out high-level objectives initiatives to ensure a low staff turnover full-cycle E&P Group and specific HSEQ initiatives addressing rate. We ensure our people continue Chrysaor, as the UK’s largest North leadership, communication, competency, to develop through management and Sea net producer, is a leading provider compliance and assurance, and other technical training and people engagement of hydrocarbons to help meet the UK’s forward-looking priorities. It also supports initiatives, which are aligned with our goals. the delivery of the broader objectives set energy supply needs. This includes its out in the annual scorecard. The 2020 Plan Hub-led growth strategy use of chemicals, manufactured goods was successfully completed. and technology that rely on hydrocarbon Chrysaor employs a hub-led growth feedstock and products. We invest for the Our Leadership Team monitor and strategy to target new, near-field acreage long term, targeting growth and development review the Plan regularly with offshore and to attract third parties wishing across all asset lifecycle phases, to maximise leadership and safety representatives. We to access processing and production economic recovery. We are early engagers in hold two independently facilitated HSEQ capacity across our platform and pipeline transformational technologies that will deliver Management Reviews annually, which infrastructure. the carbon transition. meet the requirements of International Standards ISO9001 and ISO14001 and the In the UK and Norway, we entered the Chrysaor has been active in the pre-licence UK Health & Safety Executive document 32nd Licensing Round and 2020 APA phase through award rounds in both the

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Reserves to reduce the Scope 1 emissions on our (i.e. Scope 1 emissions). operated assets by making changes and 4. Key Performance Indicators This measure quantifies the reserves of In 2020, Chrysaor established its first upgrades to existing plant. We have also hydrocarbons that will provide for our future adjusted operating models and adopted annual target of 950,000 tonnes of gross production. We aim to increase reserves new technologies to lower emissions. Our operated CO2 emissions, against which continually through enhanced recovery strategy seeks to align with the Scottish and the 30 percent and 50 percent reduction operations, successful drilling results and UK Governments' long-term goals of being targets will be measured. This measure value-enhancing acquisitions. a net-carbon-zero economy by 2045 and was included in the company performance 2050 respectively. scorecard, a component of the staff At 30 June 2020, Chrysaor had 2P reserves annual bonus scheme. of 491 mmboe per the Competent Persons Our strategy is based on: Report in the Prospectus relating to the 1. setting goals and planning for success 2020 has been a challenging year for continuing, with improvements made lifecycle phases. Chrysaor’s portfolio is Premier Oil transaction (2019 year end: reducing operational emissions due to the Safety and environmental 2. acquiring and analysing data over the second half of 2020 and into weighted towards producing assets, 551 mmboe) and in H2 2020 produced impact of coronavirus, which delayed some We use an annual performance scorecard 2021. and so the bulk of our expenditure is 29 mmboe. 3. upgrades, modifications and optimisation of the planned upgrades. However, we to measure the performance of our business on development and producing wells, 4. stakeholders, decarbonising, and were able to continue projects throughout across specific financial and statistical • Based on industry best-practice, we targeted a total of 1,500 hours plus associated infrastructure. Total Energy and carbon emissions carbon sinks the year that supported annual reductions benchmarks. capital expenditure was $556 million in CO emissions of 77,700 tonnes. These of deferred safety-critical time reduction strategy This systematic approach will help meet 2 (2019: $552 million), of which property, included changes in compression train and 28,500 hours of maintenance the dual challenge today, and as it HSEQ plant and equipment expenditure In 2019, Chrysaor adopted a Carbon operating modes, air filter upgrades, backlog hours across our operated evolves, we will review its effectiveness was $416 million (2019: $469 million). and Energy Reduction Strategy (CERS) reducing the number of oil line pumps, We aim to provide a suite of indicators platforms. We achieved 1,538 hours bi-annually. It also allows us to benchmark Exploration and evaluation expenditure describing how we will contribute to the reducing separator pressures and reduction to ensure we run our operations safely and and 28,370 hours respectively, our preparedness for the energy transition and expenditure on non-oil and gas reduction in atmospheric greenhouse-gas of generator purge timers. Maintaining reliably. Underlying these are several other despite the impact of coronavirus and with sector peers and other industries in an intangible assets was $140 million emissions. The strategy describes our actions indicators which the business uses to assess shutdown deferrals. internationally recognised manner. focus on emissions-reduction projects and overall HSEQ performance. (2019: $83 million). on the dual challenge the world energy plant optimisation, we achieved total gross Production markets face, whereby an increase in energy The strategy presents key performance operated CO emissions of 899,152 tonnes, • We recorded one Tier-2 hydrocarbon 2 Costs per barrel supply is required to meet future demand, metrics aimed at supporting the 30 percent against the target of 950,000 tonnes. release in 2020 (2019: 0). We completed Our objective is to maximise safe but with a lower greenhouse-gas intensity. reduction target in annual absolute a comprehensive investigation on this production from our existing portfolio, In 2020, we achieved a unit cost per operated-asset CO emissions by 2025, and We also maintain a hopper of emission high-ranked event and have widely in-fill or development well drilling, well barrel of $11.5 (2019: $11.5/boe) which 2 Our CERS is part of our environmental, a 50 percent reduction by 2028. Long term, reductions opportunities for future screening shared the lessons learned within the optimising initiatives and acquisitions. mainly includes direct operating costs social and governance assurance system. our aim is to be net-zero across our business. and assessment, to reduce our operational organisation and with contracting and tariff expenses. This was underpinned It consists of a framework and goals, emissions and carbon intensity. The energy Production was good in 2020 and the More detailed KPIs to support these high- companies. In 2020, we progressed by good cost control and planning within supported by data analytics, to improve our transition team continues to work closely portfolio delivered average annualised the business. level targets are the carbon intensity of the HSEQ integration introducing consistent understanding of the current emissions and with our hub management to schedule daily production of 173 mboepd operated production activities and annual investigation of events and approaches power usage. We have identified initiatives absolute operated-asset CO emissions projects for implementation. for sharing what we learned. (2019: 137 mboepd) including a full Cash flow before interest 2 year of production from the acquired • We measure total recordable incident and tax ConocoPhillips business. In 2020 frequency (TRIF) separately for production was split 59 percent operated This measure recognises the importance operated and non-operated assets. and 41 percent non-operated, with of maintaining and improving our financial The rolling 12-month operated TRIF 48 percent liquids and 52 percent gas. position with respect to balance sheet increased to 1.17 (2019: 0.93) and the strength, debt repayment and financing annual non-operated TRIF rose to 3.9 This increase in production reflects costs, and providing shareholders with (2019: 0.9). Although we had fewer the impact of the acquisition of long-term returns. Cash flow before interest recordable injuries in 2020, the operated ConocoPhillips UK assets in September and tax, which is equivalent to operating workhours were significantly lower 2019 and the deferral of the planned cash flow less capital expenditure, was due to the coronavirus. In 2021 we will Forties Pipeline System (FPS) shutdown $775 million (2019: $988 million for the focus on reducing the operated TRIF to 2021. The majority of Chrysaor’s own year). We expected this reduction due by increasing near-miss reporting. We 2020 summer turnarounds were also to commodity price falls but mitigated it have observed that this has a marked moved to 2021 to align with the FPS with a strong hedge programme and by impact on the resulting number of shutdown. The associated positive effect significantly reducing capital and operating unplanned events and injuries. Non- on 2020 production was offset by the expenditure from that expected. operated performance was hampered deferral of new wells as a result of our by several events within the first half of decision to suspend operated drilling for Net debt the year. We recognised key areas for six months due to the coronavirus. improvement and worked with our joint- Net debt which consists of total debt venture partners on these. We put a joint Capital expenditure less cash and cash-equivalent balances team in place to identify appropriate decreased to $1,400 million from HSEQ improvements and what we need Capital expenditure is a measure of the $1,890 million. In addition, there were to do to prevent recurrence. This work is Group’s organic investment through all loan note repayments of $77 million.

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UK Operated production campaigns successfully returned several 0 long-term shut-in wells back to production 5. Operations Review Chrysaor operates five production Assets acquired from ConocoPhillips and increased the output from others. complexes in the central North Sea (CNS), contributed three months of performance run out of three hubs: the AELE hub, the in 4Q 2019, however corresponding The AELE hub production averaged Overview of Chrysaor’s portfolio of assets J-Area and GBA. We also have producing 2019 production figures are shown as an 31 mboepd (net) (2019: 39 mboepd). The assets in the EIS. annualised equivalent. Hawkins and Seymour Horst wells, which in the UK and Norway. were brought on stream in October 2020, In total, we have interests in 35 producing J-Area had a strong production delivery of are performing below pre-drill expectations fields in the UK, mostly in the CNS area, 31 mboepd (2019: 21 mboepd annualised 00 with remedial action under consideration. alongside 14 undeveloped discoveries close equivalent) and a high production In December 2020, we sanctioned the LAD to our existing infrastructure. We also have efficiency. Production efficiency was infill development well at Everest East, with affected by unplanned shutdowns R 0 interests in an ongoing decommissioning drilling scheduled for 3Q 2021. project in the southern North Sea (SNS). associated with the CATS gas terminal in April and October. We carried out a Production from EIS averaged 6 mboepd S In 2020, the coronavirus pandemic and proactive shutdown ahead of schedule (net) (2019: 2 mboepd annualised R the commodity price collapse created a in December 2020 to allow repairs to equivalent). This was below expectation, S difficult business environment, but one be carried out on the low-pressure flare with the fields experiencing two significant in which we demonstrated our resilience. system. We successfully completed outages in the year – a control system Our diverse and flexible portfolio, strong the Joanne Chalk S16 well and started issue on the Calder platform in the first balance sheet and thorough hedging production ahead of schedule in January half, followed by a compressor issue at the R 2021. Initial performance is in line with 0 programme have allowed us to maintain North Morecombe terminal. Combined, expectations. good operational performance and these issues led to a low production efficiency. We are evaluating a variety of achieve strong cash generation. We took GBA achieved good operational results the early decision to suspend operated potential developments in the EIS, along across health, safety, environment and with asset-integrity projects to improve drilling activity for six months from March production. Production averaged 40 SRR reliability. which resumed in September. mboepd (net) (2019: 10 mboepd annualised equivalent) with excellent production Non-operated production Looking ahead, we expect 2021 efficiency and good well performance from production will continue to be impacted the Brodgar field. We made good progress Beryl Area fields averaged 17 mboepd 02 by the deferral of drilling activity and on the Finlaggan development tie-in project (net) (2019: 17 mboepd), supported by an RR R 0 shutdowns from 2020 to 2021 due to and on the re-scheduling of the Callanish ongoing well-intervention programme R coronavirus. F5 well. In addition, two well-intervention and continued infill drilling. Exploration R 0 activity in the Beryl area Tertiary play has been positive, with two successful wells 0 drilled on Solar and Corona. The Gamma/ S FRS Losgann well results are also encouraging. Each discovery in this area improves the potential for a possible development, with R several scenarios under consideration, including co-development with adjacent FR Norwegian discoveries. 0 R 0 Production from Buzzard averaged 19 mboepd (net) (2019: 23 mboepd). Phase 0 1 infill drilling has performed on or above target, while Buzzard Phase 2 drilling 02 R results have been towards the lower end of expectations. Drilling has now paused, and further wells and side-track activity will not commence until after the Phase 2 wells have come onto production, expected in December 2021.

Production from EIS averaged 6 mboepd (net) (2019: 2 mboepd annualised equivalent). This was below expectation, SS OPERATED N with the fields experiencing two significant NON-OPERATED outages in the year – a control system

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issue on the Calder platform in the first February 2020. By year-end the project In response to the coronavirus outbreak, our half, followed by a compressor issue at the was 50 percent complete, with over PL.973 partners postponed the start of the 6. Financial Review North Morecombe terminal. Combined, 11,000 tonnes of steel removed from the planned drilling campaign from 4Q 2020 to these issues led to a low production site for recycling. We completed the 1Q 2021. efficiency. We are evaluating a variety of first phase of the MacCulloch well P&A potential developments in the EIS, along campaign in March, with five wells In June, the Norwegian parliament made Our 2020 consolidated results reflect the first full year of operations with asset-integrity projects to improve abandoned. Phase two started in October. a temporary change to the fiscal regime on following the acquisition of the ConocoPhillips UK business, which reliability. the NCS to mitigate the combined effect Energy transition on the offshore industry of coronavirus completed on 30 September 2019. Comparative figures for 2019 Production from the Clair Phase 1 and Clair and low commodity prices. This allows therefore represent three months of operations following the Ridge fields averaged 5 mboepd (net) (2019: We progressed energy transition activities companies to offset 100 percent of all 1 mboepd annualised equivalent). A high in several areas. We significantly reduced investments against the special tax base acquisition, and the legacy Chrysaor business. CO emissions from our operated assets Phase 1 production efficiency was offset by 2 of 56 percent in the year of investment delayed drilling and poorer performance through changes in operating practices and and use the uplift of 24 percent against on Clair Ridge. The Ridge development by carrying out modifications to facilities. We the special tax base. These measures apply Background Some of our hydrocarbon production is of movements in overlift/underlift and in has executed eight of their sanctioned also established a project, which although to all investments made in 2020 and 2021 sold pursuant to fixed-price contracts, as hydrocarbon inventories. in its early stages, looks at importing The macroeconomic environment for the oil 36-wells to date. A ninth well has been as well as investments where a plan for described below under ‘derivative financial low carbon power to enable partial and gas industry deteriorated significantly We have maintained our operating costs per drilled and completed. These are producing development and operation and a plan for instruments’. The rest is sold at market electrification of our CNS platforms. This during 2020. This was caused by persistent barrel, demonstrating good cost control and lower than their pre-drill expectations installation and operation is sanctioned values, subject to standard quality and basis in turn would reduce gas turbine emissions global oversupply and a reducing demand efficiency. Group depreciation, depletion and and three have seen water breakthrough. and submitted by the end of 2022. These adjustments. from power generation. Carbon capture due to the worldwide economic impact of amortisation (DD&A) charges on oil and gas This is not unexpected given the nature of must be approved by the end of 2023 and and storage (CCS) activities progressed coronavirus. This in turn led to a sharp decline Total revenue, before lease accounting assets (including capacity rights) amounted the reservoir. Near-term production from until first production. during the year, with the Acorn project in commodity prices. Despite an agreement recoveries from partners, earned from to $1,193.0 million (2019: $899.6 million), Clair Ridge is lower than predicted. We are moving through preliminary engineering. In August 2020, we awarded a drilling in April between the Organisation of the production activities amounted to equivalent to $18.9/boe (2019: $18.0/boe). now considering optional infill campaigns, The project will combine CCS and hydrogen contract comprising two firm wells and one $2,413.9 million (2019: $2,357.8 million) beyond the sanctioned wells. Petroleum Exporting Countries (OPEC) and generation at the St Fergus gas terminal, optional well. The rig will be used in the material non-OPEC producers to remove after realised hedging gains on crude oil During the year, the Group recognised a net pre-tax impairment charge of Schiehallion produced 6 mboepd with transportation and storage offshore PL.973 drilling campaign with a scheduled almost 10 million barrels of oil equivalent and gas sales of $789.0 million (2019: gains start date in 1Q 2021. $644.0 million (post-tax $386.4 million) (net) (2019: 7 mboepd). The Glen Lyon at the Goldeneye field reservoir. In the SNS, per day from production in May and June of $162.2 million). Crude oil sales from within the income statement. This represents floating production storage offtake we established a project team to pursue the (the equivalent of around 10 percent of customers amounted to $1,430.1 million a write-down of property, plant and vessel has improved its production reuse of existing infrastructure by storing Outlook the world’s oil supply), oil prices have only (2019: $1,568.2 million), with a post-hedge CO in depleted gas reservoirs. As part of realised price of$63.1/bbl (2019: $67.89/bbl). equipment of $712.1 million. This is offset by efficiency compared to 2019. However, 2 We expect 2021 production to average in partially recovered. this, we submitted two CO storage licence Gas revenue was $805.2 million a pre-tax impairment credit of $68.1 million the production performance was 2 the range of 140-155 mboepd (excluding applications to the UK Regulator. The Brent crude price at the end of 2019 (2019: $625.5 million), with a realised in respect of reductions to decommissioning recently impaired by problems with sand the impact of the Premier deal). This price of 33 p/therm (2019: 36 p/therm). estimates on the Group’s non-producing management challenges. Pausing the infill reflects 2020 second-half production was approximately $67 per barrel and Condensate sales and tariff and other assets with no remaining net book value. drilling programme is expected to affect Exploration and appraisal of approximately 160 mboepd and an closed lower at around $50 per barrel at 31 December 2020. For the year, Brent revenue amounted to $138.4 million production rates until infill drilling restarts In 2020, we continued to mature our unusually high level of asset shutdowns This arises primarily based on the change of crude averaged $42 per barrel, compared (2019: $145.5 million) and $40.2 million scheduled for 2023. prospective resource inventory and focus on during 2021, caused by coronavirus-related commodity price assumptions for impairment to $64 per barrel in 2019. NBP gas prices (2019: $18.6 million) respectively. well planning. We were successfully awarded maintenance deferrals. These include purposes to $60 per barrel for crude oil and Elgin/Franklin averaged 19 mboepd (net) were 30 p/therm at the end of 2019, but 14 new licences on the UKCS. Our planned a deferred shutdown of the FPS, which 40p per therm for natural gas rather than (2019: 16 mboepd). This was ahead of closed at 57 p/therm at 31 December 2020, Operating profit 2020 operated drilling campaign was affects several of our key production hubs. a fundamental change in the nature of the expectations, with the fields benefitting averaging 25 p/therm for the year. This delayed until 2021 due to the coronavirus For the year ended 31 December 2020, producing assets. These assumptions reflect from very high production efficiency, Chrysaor expects total 2021 capital compared to 35 p/therm for the year ended pandemic. Exploration opportunities such EBITDAX was $1,783.8 million a reduction compared to the $65 per barrel ongoing infill drilling and well-intervention expenditure to be in the range of 31 December 2019. as Dunnottar, Jade South and the appraisal (2019: $1,691.8 million). Operating loss for crude oil and 50p per therm used for the programme. The operator is currently $750-850 million, principally relating Talbot well are now due to spud in 2021. We was $687.4 million, significantly impacted purchase price accounting for the acquisition planning facilities and integrity work to drilling and development activities Despite this, we are in a very healthy financial completed the non-operated, Greater Beryl by impairment to property, plant and of the ConocoPhillips business. Impairments towards a potential extension of field life. at J-Area, AELE, Beryl and Buzzard position in part due to our hedging position exploration campaign, including Solar, Gair, equipment of $644.0 million and goodwill on property, plant and equipment are field, and including c. $170 million for in 2020. We have strong cash balances and Gamma and Losgann. of $411.4 million, compared to an operating potentially reversible in the future. access to undrawn liquidity provided by our Decommissioning decommissioning (pre-tax relief). profit of $762.5 million for the year ended senior debt facility. We maintained a full-year decommissioning Norway 31 December 2019. Cost of sales, including In addition, we recorded a goodwill field operating costs, transportation impairment charge of $411.4 million in the programme while implementing strong In January 2020, we were awarded eight Production and revenue tariffs and depreciation, depletion and period (2019: $nil). This was also attributable coronavirus protection measures. We production licences on the NCS by the amortisation (DD&A) amounted to to changes in the Group’s assessment of plugged and abandoned (P&A) eight Ministry of Petroleum and Energy in relation Production for 2020 averaged 173 mboepd $1,827.5 million (2019: $1,516.5 million). long-term commodity prices and is not wells on Murdoch then moved to Vulcan to the APA 2019 Offshore Licensing Round. compared to 137 mboepd in 2019. This Field-operating costs, including insurance, reversible in the future. for a 12-well programme. We continued These new awards, of which three are year-on-year increase came wholly from our less tariff income, totalled $730.0 million with platform removals and lifted out operated, are across a variety of work operated assets, with increased equity in the (2019: $572.3 million), equivalent to Despite the strong hedge programme which nine during the year, including Viking programmes including one ‘firm well’ and J-Area and equity in the GBA. Everest also $11.5/boe (2019: $11.5/boe). has protected the balance sheet position Bravo. We took all structures to Great additional ‘drill or drop’ commitments. had excellent production, and Elgin/Franklin and revenue performance, the programme Yarmouth for dismantling. Demolition on At 31 December 2020, we held 11 licences produced high volumes due to their strong Cost of sales also included a $119.9 million cannot be taken into account for impairment the Theddlethorpe Gas Terminal started in in Norway. uptime levels and good well performance. credit (2019: $26.2 million charge) in respect purposes.

16 Chrysaor Holdings Limited Chrysaor Holdings Limited 17 Group Strategic Report Report and Financial Statements 2020 Report and Financial Statements 2020 Group Strategic Report

Taxation Loss after tax and dividends In 2020, we incurred capital expenditure 31 December 2020 31 December 2019 of $556.3 million (2019: $551.6 million) $million $million Taxation credits amounted to The loss after tax was $778.4 million consisting primarily of expenditure on $199.3 million (2019: $236.7 million expense), (2019: profit of $218.8 million). No dividends Operating costs oil and gas assets of $414.9 million. This split between a current tax expense of were paid or proposed in the current or expenditure was on a range of activities $335.6 million (2019: $94.8 million), and a Field operating costs less tariff income 730.0 572.3 prior year. including drilling of exploration and deferred tax credit of $534.9 million development wells and FEED activity Field operating costs per barrel (US$ per barrel) $11.5 $11.5 (2019: $141.9 million expense). The total tax Capital expenditure as well as well intervention activity on credit for the year represents an effective tax producing wells. rate of 20 percent (2019: 52 percent). The low Capital expenditure is defined as additions effective tax rate is predominantly driven by to property, plant and equipment (excluding Capital expenditure of $50.2 million DD&A (before impairment charges) a non-tax deductible goodwill impairment, right-of-use lease assets), fixtures and (2019: $12.7 million) on non-oil and gas Depreciation of oil and gas properties 1,191.3 897.5 losses relievable at lower tax rates, and fittings and intangible exploration and assets mainly relates to IT software unrecognised tax losses, partly offset by the evaluation assets, less decommissioning incurred as part of the Enterprise Amortisation of intangible assets 1.7 2.1 benefit of investment allowance. asset additions. Management System (EMS) project.

Total 1,193.0 899.6

DD&A (before impairment charges) per barrel $18.9 $18.0 31 December 2020 31 December 2019 $million $million Additions to oil and gas assets (414.9) (452.0) Impairments Additions to fixtures & fittings, office equipment (1.1) (5.1) Property, plant and equipment 644.0 - Additions to exploration and evaluation assets (90.1) (81.8) Goodwill 411.4 - Additions to non-oil and gas assets (50.2) (12.7) Total 1,055.4 - Total capital investment (556.3) (551.6) Movement in working capital (58.4) 17.5 Capitalised lease payments 16.6 3.9 Chrysaor has recorded an $18.5 million Exploration and evaluation shareholder loan notes, which have been (2019: nil) onerous-contract provision expenditure accumulated within borrowings for future Cash capital expenditure per the cash flow statement (598.1) (530.2) for long-term standby costs on the rig settlement in accordance with the terms of which had been operating within the In 2020, Chrysaor expensed $174.0 million the loan-note agreements. The comparative Schiehallion field. Given there were no (2019: $15.3 million) of E&A activities. Of reduction in loan-notes interest is mainly due future approved activities, which would this $160.8 million (2019: $0.2 million) was to the conversion of E loan notes into equity, have resulted in the rig remaining on exploration write-off primarily associated with which took place in August 2019. In addition, Cash flow mainly in relation to arrangement and standby until April 2022, the rig contract acquired acreage which is now considered a full redemption of C loan notes and a underwriting fees in respect of the RBL was terminated by the Operator. less prospective. partial redemption of D loan notes took place Operating cash inflow amounted to facility. During the year, a full redemption throughout 2020 of $35.1 million and $1,373.4 million (2019: $1,518.7 million) after of the C loan notes took place of General and administration expenses for In addition there was pre-licence expenditure $35.1 million and a partial redemption of $42.0 million respectively. working capital movements. This operating the year amounted to $48.6 million of $13.2 million (2019: $15.1 million). This cashflow was used in investing activities on the D loan notes of $42.0 million. Financing (2019: $75.5 million). The underlying was mainly related to corporate licence Financing costs include foreign-exchange capital expenditure of $598.1 million cash flows also include further advances business incurred $31.5 million compared applications, Norwegian regional seismic and losses of $36.1 million (2019: $82.2 million (2019: $530.3 million). Investing cashflows of $12.9 million (2019: $9.3 million) less to $26.4 million in 2019. In 2020, time-writing costs. loss). These primarily arise on intercompany in 2019 also included expenditure on repayments of $8.7 million (2019: nil) one-off business development expenses balances between entities with different business combinations and acquisitions of on the exploration finance facility, loan were $13.5 million which were primarily repayments of $1.6 million (2019 advances Net financing costs functional currencies. $2,255.2 million. professional fees incurred in relation to received of $29.6 million) in respect of a Financing expenses totalled $297.8 million the proposed merger with Premier Oil Financing activities cash flow includes financing arrangement with Baker Hughes, (2019: $338.6 million), including debt facilities The financing costs also include a plc; this compares to $38.2 million in further advances of the senior debt under and lease payments of $60.5 million and shareholder loan-note interest expenses lease interest charge of $7.2 million 2019 which consists mainly of one-off the Reserves Based Loan ( ) facility (2019: $20.6 million). of $123.8 million (2019: $153.7 million). Also (2019: $2.5 million) associated with lease RBL costs related to the acquisition of the included are facility fees of $36.1 million creditors recognised under International of $157.5 million (2019 $1,834.0 million), ConocoPhillips business. Also included Cash balances decreased by $127.8 million (2019: $39.3 million) and the unwinding of FinancialReporting Standards (IFRS) less repayments of $774.0 million in 2020 were share-based payments (2019: $256.9 million increase) to discount on provisions, primarily associated 16 Leases, and other interest of (2019: $200.0 million) of the senior debt. expenses of $3.6 million compared to $445.4 million (2019: $573.2 million) at with future decommissioning obligations, of $6.6 million (2019: $3.1 million). In addition, interest paid of $147.8 million $10.9 million in 2019. the end of the year. $87.8 million (2019: $57.6 million). (2019: $143.9 million) including $107.4 million Finance income of $7.5 million on the senior and junior debt facilities Of the interest expense, $25.4 million (2019:$31.6 million) relates to bank (2019: $72.6 million) and $40.4 million (2019: $69.7 million) relates specifically to and other interest. on charges and fees (2019: $71.3 million)

18 Chrysaor Holdings Limited Chrysaor Holdings Limited 19 Group Strategic Report Report and Financial Statements 2020 Report and Financial Statements 2020 Group Strategic Report

Derivative financial instruments Hedge position 2021 2022 2023 2024 2025 Insurance Non-IFRS measures Chrysaor carries out hedging activity to Chrysaor carries out significant and Chrysaor uses certain measures of Oil manage commodity price risk to ensure it appropriate insurance programmes to performance that are not specifically complies with the requirements of the RBL Volume hedged (mmboe) 20.01 1.1 - - - minimise the risk to its operational and defined under IFRS or other generally facility, and to ensure there is sufficient investment programmes. This includes accepted accounting principles. These Average price hedged ($/bbl) 57.51 60.07 - - - funding for future investments. business interruption insurance. non-IFRS measures include capital Gas expenditure, cost per barrel, DD&A per In prior years, we entered into a series Principal financial risks and barrel equivalent, EBITDAX and net debt. of fixed-price sales agreements and a Volume hedged (million therms) 1,235 1,392 1,136 433 90 uncertainties Signpost: See Glossary for further financial hedging programme for oil and gas Average priced hedged (p/therm) 43.9p 43.8p 40.9p 42.9p 44.6p details consisting of swap and collar instruments. The management consider that Chrysaor This continued throughout the year ended is exposed to the following principal At 31 December 2020, Chrysaor’s financial hedging programme on commodity derivative financial risks: 31 December 2020. Future production instruments showed a net positive fair value of $141.8 million (2019: $352.4 million positive fair volumes hedged under the physical value) with no ineffectiveness charge to the income statement (2019: $nil). • Commodity prices, interest rates and and financial arrangements in place at foreign exchange market volatility 31 December are set out below. Hedges During the year, Chrysaor entered into interest rate and financial carbon swaps, and foreign • Asset operational performance and realised in the year are in respect of both exchange forward contracts. You can find further details on these within notes 23 and 24 to drilling results crude oil and gas. the financial statements. • Maintaining cash flow, liquidity and access to funding Capital structure • Coronavirus pandemic For a further discussion of these risks and 31 December 2020 31 December 2019 uncertainties refer to the principal risks in the Analysis of Net borrowings $million $million Risk Management section 7. Cash and cash equivalents (445) (573)

Senior debt under RBL facility 1,449 2,067

Junior debt 396 396

Net debt 1,400 1,890

Shareholder loan notes 265 317

Exploration financing facility 14 9

Financing arrangement with BHGE 37 34

Total net borrowings 1,716 2,250

Net debt The RBL facility at 31 December 2020 has a with Premier Oil plc at completion. The straight-line amortisation period commencing amendments will become effective during the Net debt, consisting of senior debt and junior on 1 January 2022 up to the maturity date completion process and include: debt less cash balances, decreased by of 31 December 2025. The amount available • term extended to 23 November 2027 $490.2 million in the year to $1,399.6 million under the facility is determined annually based (2019: $1,889.8 million). This was mainly due on a valuation of the Group’s borrowing • facility size of $4.5 billion with a $750 million accordion option to net repayments on the RBL senior debt of base assets under certain forward-looking $616.5 million offset by the reduction in cash assumptions. The facility has been amended • debt availability at completion of balances of $127.8 million. on various occasions and now carries interest $3.3 billion at USD LIBOR plus a margin of 3.25 percent, • a syndication group of 19 banks The asset base consists mainly of producing rising to a margin of 3.5 percent from June The junior facility of $400 million carries assets and is currently highly cash generative. 2023. It also now incorporates the ability for the margin to be adjusted based on meeting interest at six-month USD LIBOR plus a Therefore, our strong liquidity position, certain carbon-emission reduction targets. margin of 5.25 percent, rising to a margin of together with the RBL facility, continues to 5.5 percent from June 2023. It is repayable in provide a strong base for future funding and Amendments to the RBL facility have been semi-annual instalments between June 2022 growth opportunities. agreed in relation to funding the merger and June 2026.

20 Chrysaor Holdings Limited Chrysaor Holdings Limited 21 Group Strategic Report Report and Financial Statements 2020 Report and Financial Statements 2020 Group Strategic Report

we consider to be the minimum standard. A key risk is unplanned shutdowns due To protect against cyber-attacks, we have 7. Risk Management We also have our own rules that employees to the lack of key staff as a result of the invested in technologies, services and and contractors must comply with. Major coronavirus, leading to asset integrity people to mitigate the risk. Our processes accidents can be due to geological and issues or equipment failure on the Group’s and procedures adhere to industry best seismic uncertainties, uncontrollable platforms and pipelines. During the year, practices, and we provide mandatory Chrysaor’s Board is responsible for implementing an effective production events, infrastructure damage a major shutdown on the FPS was deferred information security training for all risk management and internal control environment that and spills of hydrocarbons and pollutants. to 2021. This caused the rescheduling of personnel. We also use industry-leading Events could result in injuries or fatalities, significant activity on our operated platforms cyber-security vendors to carry out regular allows us to identify our principle risks. We record risks and damage to assets or the environment, into 2021, increasing the risk of unplanned training, penetration tests, threat hunting, opportunities along with their mitigations. reputational damage, loss of operating outages. While safety critical and essential physical security awareness sessions and cashflow and punishments or fines. work was still carried out this change of plan security testing of our business-critical increased the risk of unplanned outages. In systems. There is always a risk that people make addition, if the commodity price remains low, There is a potential increased security poor decisions that may compromise over-supply may lead to a lack of storage risk due to the integration of an acquired safety. However, we expect our procedures and ultimately force the shut-in of fields. Principle risks We mitigate these by ensuring a full consultants. They are overseen by the Board and regular engagement on safety business and working from home due to the understanding of the assets in the market. and reviewed daily by senior management. and safe ways of working will lead to (iii) Asset performance and drilling coronavirus pandemic. To reduce this risk, The principle risks that Chrysaor is exposed We support this by using competent continuing improvements. We emphasise results we continued to work to ensure our cyber to are those that the Board consider as third-party advisors for all aspects of pre- (iii) Compliance the importance of safety in our induction capabilities continued to be fit for the future. Chrysaor operates across all asset life-cycle the most significant due to their likelihood acquisition due diligence, negotiations and Chrysaor must follow a variety of programmes, through our daily field phases and is subject to the inherent risks (v) UK departure from the European and magnitude of potential consequence commercial activities. written laws, regulations, policies and verification across our operations and and results of drilling, production operations Union (EU) and nature. These are directly overseen procedures. The risks of non-compliance are by promotion of our Life Saving Rules. Key risks are the potential exposure to poor initiatives and commodity prices making by senior management. Accountability for inappropriate behaviour, breach of legal Our leadership team foster a culture of While Chrysaor could have been affected results from our operated and non-operated discoveries economic. Programmes can be managing the lower level risks is delegated requirements, punitive fines and penalties, safety, compliance and event reporting to by the political, economic and business drilling programme, low returns from other capital intensive and inherently uncertain to operational and functional leadership. and significant damage to Chrysaor’s enable continuous learning. Our Business conditions that result from the UK departure capital projects, poor exploration results, in their outcome. The impact of poor drilling These activities are subject to regular reputation and ability to operate. Management System (BMS) contains from the EU (Brexit), we carefully evaluated audit and assurance through the risk and or the lack of performance of any material operational policies, standards, guidelines results can lead to little or no commercial the outcome and expect minimal impact. opportunity management process. acquisition. During the year, in response to We mitigate these risks with a Compliance and procedures which promote workplace success, leading to exploration write-offs the commodity price fall and coronavirus, Programme, awareness programmes, safety, and specialist standards and or impairment of the producing assets and c. Financial a. Strategic the operated drilling rig programme was leadership reviews and initiatives, self- procedures. We also have incident and the corresponding adverse cashflow effects. temporarily suspended for six months. Also, certification via annual reviews, gift and emergency response plans and appropriate Likewise, within the production phase, (i) Commodity prices and foreign (i) Strategy delivery the hedge programme continued to take hospitality and conflict of interest registers, insurance policies. asset and turnaround plans may not be exchange advantage of any market strength to meet as successful as anticipated and reservoir plus contractual provisions and reviews with Signpost: for more information on We can achieve organic growth by internal commodity price targets. performance may naturally decline or vary The prevailing price of crude oil and gas vendors. people, safety and wellbeing, see prudently managing our existing portfolio from estimates. significantly affects our operations as Sustainability section 8 and adding new acreage. The risk is that (ii) Acquisition integration (iv) Stakeholder relations well as the potential profitability of our our assets do not perform optimally, or we We mitigate for this by ensuring high-quality oil and gas reserves estimates. This can Any acquisition or sale of interests in (ii) Disruption to production acquire poor acreage and do not maximise Our stakeholders include equity well design for our drilling programmes and lead to an impairment of property, plant producing assets will affect our production shareholders, debt providers, joint venture value from our portfolio. Our oil and gas reserves and production with good planning for our turnaround work and equipment, including exploration and volumes and revenues. The extent of the operators and partners, regulatory volumes, and therefore revenue, may be programmes. This is supported by high- evaluation assets. Crude oil and gas prices This is mitigated by strategic guidance, impact largely depends on the mix of assets authorities, employees, vendors and lower than estimated or expected because quality technical and geoscience analysis have historically been volatile, dependent planning and technical analysis. Combined acquired or sold. non-governmental organisations. Without many of the estimating assumptions made and evaluation of the opportunities and upon the balance between supply and with a strict capital allocation programme, continued good stakeholder relations, are beyond our control. value. demand, and particularly sensitive to global In 2020, we worked to efficiently integrate this ensures we apply funds to the most our safety, technical and financial status, production levels. the business acquired from ConocoPhillips Most of our production to onshore terminals technically and economically attractive asset performance and reputation may be The key risks are exposure to the potential UK. This involved designing and deploying flows through two main third-party pipelines Insufficient surplus operating cashflow opportunities. It is complemented by compromised or damaged. We therefore for poor performance from either operated a single 'end-state' organisation, operating take an open approach to our stakeholder and we have some fields that load sales or lack of debt capacity caused by this analysis of capital projects and asset or non-operated drilling activity. During the model processes and reporting, IT relationships and maintain a respectful and cargoes offshore. Any damage could result will constrain our ability to invest in new reporting, reflected in the performance year, Chrysaor had planned to have five rigs architecture and office solutions. We expect positive approach throughout. in production curtailments, as could adverse activities that sustain the life cycle of assets scorecard. operating in the UK and Norway, but this this to complete in 2H 2022. unplanned events. These could significantly was reduced due to the commodity price and future production. Signpost: for more on stakeholder affect operating cashflow. We focus on targets where there is value- reductions and coronavirus risk. The key risks are lack of proper expertise, relations see the Governance and Our subsidiaries work in pounds sterling, accretion potential, but these have inherent Compliance report section 9 planning, poor decision-making and not In mitigation, our production portfolio is well (iv) Cyber security US dollars and Norwegian krone. To mitigate risks. They include competitors, nature of diversified. It is split between operated and staying on schedule, which could result in b. Operational exposure to movements in exchange rates, the portfolio and commercial leverage – all material deficiencies in cost, timing and non-operated assets, oil and gas production, Advances in technology can pose both wherever possible we hold financial assets of which may prevent us from achieving our a range of operators on the non-operated competition and cyber risks. Cyber security and liabilities in currencies that match the quality of the integration programme. (i) Safety strategic growth objectives if we cannot side of the business, and offtakes via threats can cause business interruption and functional currency of the relevant entity. complete deals. Even with successful This is mitigated by providing a correctly Operational safety management in the oil pipelines and offshore loading systems. We result in reputational damage, financial loss Our results are therefore affected primarily acquisitions, there are risks which may resourced integration team supported and gas industry is subject to comprehensive also have business interruption insurance and the potential exposure of commercially by changes in the US dollar/pounds sterling result in impairments and adverse cash flow. by functional expertise and external regulation and legal requirements, which policies. sensitive or privacy related information. exchange rate.

22 Chrysaor Holdings Limited Chrysaor Holdings Limited 23 Group Strategic Report Report and Financial Statements 2020 Report and Financial Statements 2020 Group Strategic Report

Our financial risks are mitigated through we expect lenders to reflect in the cost power onshore and converting our gas- our diversified portfolio of assets, across and level of funding, companies that have driven equipment to electric drive, and 8. Sustainability operators, infrastructure and hydrocarbon appropriate energy and carbon strategies. • seeking opportunities for carbon capture streams. Hedging programmes are and storage. required under minimum RBL facility The key risks were that commodity prices hedging requirements. There are also might fall, costs would increase, or poor We are investing in leading industry projects, Sustainability starts with responsibly running a safe, physical delivery contracts and additional operational performance would restrict plant re-specification and replacement efficient and profitable business. Chrysaor carries out discretionary hedging programmes available. capital investment and acquisition capability. and access to low carbon energy sources. We manage foreign exchange by cash Current efficiency optimisation and its activities responsibly, for the long-term benefit of management processes limiting exposure to (d) Climate change policies, emissions reduction projects include gas investors and society. surplus currencies. legislation and regulation turbine filter upgrades, compressor anti surge optimisation and re-staging of a For 2020, we hedged a significant proportion We expect climate change policies, legislation condensate pump and compressor to match of our production. This helped protect us and regulation to increase and accelerate, load demand. against the adverse economic effects of which will increase associated costs, as well Recognising that responsible conduct is risks that could pose a threat to achieving clearly and quickly. Communication within commodity price falls and coronavirus as potentially limit the investment capital We recognise the electrification of our linked to business success, we have made our business objectives, and to develop the organisation is seen as a two-way impacts. We look to maintain or increase available. Companies need to demonstrate operated assets as having considerable hedged production volumes when energy transition and carbon reduction our commitment to the environment and appropriate responses. process; actively seeking out and listening potential to achieving our CO reduction commodity price conditions allow. Given strategies to support their social licence 2 community an integral part of our strategy. to feedback and taking actions where targets and established a project team to the commodity price falls, we decided to to operate. International agreements or From ensuring people’s safety, security and Vision, values and culture required, is integral to the business. review the potential for our operated assets reduce a significant proportion of our 2020 domestic regulations to reduce or limit wellbeing, to acting against the challenges to receive low-carbon off-platform power in Our vision is to create a market leading capital expenditure programme and reduced emissions will require additional expenditure, of climate change and strengthening North European E&P company that we and Safety and wellbeing the future. integration into local communities. operating expenses to cover existing and the magnitude and timescale which is our stakeholders can be proud of. Our Core The safety and wellbeing of those who work safety critical operations. At the same time, uncertain. Further implications may be that Values and Business Principles reinforce a Chrysaor continues to collaborate with Our aim is to create value for all for and with us is of paramount importance. we deferred discretionary spending. funding to meet climate change targets will positive and supportive company culture stakeholders, industry bodies and partners stakeholders in accordance with key We promote and adhere to a safety culture reduce the capacity to seek and develop new centred around employee engagement, to identify and implement solutions global standards and strong corporate where nothing is so urgent or important (ii) Cash flow, liquidity and funding hydrocarbons or invest in acquisitions, or an learning and development, performance to produce hydrocarbons in the most governance. that it cannot be done safely and in an accelerated cessation of production resulting management and reward. Chrysaor has access to liquidity and environmentally sustainable and environmentally responsible manner. We funding from three main sources: (i) debt in asset impairments. We are also committed to the United compromise neither the health and safety efficient way. We are proud of the way we do business and equity from shareholders; (ii) debt Nations Sustainable Development of people, nor the environment, in pursuit of Our energy and carbon strategy intends to and the way we treat our business partners funding in the banking and capital markets Goals, which provide a comprehensive, commercial activity. ensure we meet our obligations for emissions (e) Coronavirus and stakeholders. We have developed a and (iii) operating cashflow from our internationally agreed framework to pursue and power consumption. The strategy vision and a set of core values and business production assets which is dependent on Coronavirus had the potential to significantly and support meaningful development. Working together, we maintain and presents key performance metrics aimed at principles which reinforce our positive and commodity prices. We continually work affect our business if personnel became ill progressively improve a safe system and supporting the 30 percent reduction target supportive company culture. We believe to optimise our capital structure and and unavailable to work, or if the supply Our strategies and guiding principles of place of work, both onshore and offshore. in annual absolute operated-asset CO that through working with competent, corresponding cost supported by proceeds 2 chain was restricted to any significant sustainability aim to: The top priority, which is fundamental emissions by 2025 and a 50 percent reduction innovative and dedicated colleagues, who to everything we do is to protect all our from disposals. degree. This could potentially have led to • maintain high standards of ethical by 2028. Long term, our aim is to be net-zero adhere to our core values and business colleagues by preventing a major accident. the shutdown of platforms and the loss of conduct principles, we will safely deliver our goals The potential funding risk is that if certain across our business. We manage the risk of this by adhering production to ensure workforce safety. and vision. At the heart of everything conditions arise, funding may become • uphold people’s safety and wellbeing to management systems and processes Group annual emissions targets are adopted Chrysaor does are four values – integrity, restricted, and reduce investment We took early action to mitigate the effect • minimise environmental impact designed to assure process safety and asset considering the production forecasts and innovation, passion and safety. opportunities in discretionary projects, of the pandemic and continued to perform • focus on carbon efficiency integrity. or create debt servicing issues. Further, if the delivery of projects sanctioned from the well in 2020. In March, we suspended Our culture is based on a community of investment returns are less than expected hopper of emissions reductions opportunities. • promote sustainable development goals Our Lifesaving Rules provide Around 90 percent of the carbon dioxide operated drilling activity for six months empowered and passionate people who there may be the need for further funding • partake in industry-wide collaborative straightforward guidance to individuals emitted from Chrysaor’s operated assets is before resuming in September. We prioritised deliver our Business Principles through our requirements, or curtailment of operations. efforts on how to protect themselves and their from gas turbines used to power our assets the safety and wellbeing of our workforce, shared Core Values. We work hard to set our We also expect climate change to have an colleagues while engaged in activities with and compression of export production, with a ensuring adherence to relevant Government Building upon the positive aspects of our people up for success, through on-boarding impact on access to funding as investors the highest potential risk. legislation and guidance. We are continuing existing values and ways of working, we and diverse employee engagement and lenders increasingly look at our strategy further 10 percent attributed to the flare. continue to integrate ESG into our overall processes. and credentials for energy transition. to prioritise and manage the recovery We develop and implement progressive Our energy transition initiatives have seen a phase to ensure all our facilities are ready to strategy. Our aim is to have an open and direct HSEQ and learning approaches that result To mitigate these risks, we ensure balanced progressive reduction in emissions over the support our increase in offshore activity. culture of employee engagement where in continuously improved performance. access to all funding sources, supported last three years. We aim to achieve our targets (i) People our people are involved, committed and We use HSEQ data analytics to identify by hedging programmes to safeguard a by: We continue to follow UK, Scottish and Our company culture is based on our empowered to make a strong contribution trends at enterprise and asset level, so all proportion of future cash flows. We have a Norwegian Government guidance and to • reducing power demand values, good working relationships and to our success. levels of the organisation can take focused strict planning cycle and capital-allocation provide support to our employees to mitigate • optimising gas turbine efficiency open engagement with our workforce. We preventative action. The leadership team programme to ensure investment to the the impact. Our BCT and CMT monitor systematically identify our stakeholders All teams, whether offshore or onshore, routinely review leading and lagging process • minimising methane emissions and reducing appropriate levels. Our performance developments, provide guidance and have and engage with them regularly. This helps have direct access to our leadership team, safety, occupational and environmental flaring reporting and forecasts help with asset and contingency plans in place to manage us to better understand any potential who aim to listen and respond honestly, performance indicators. We focus on portfolio management. For climate change, • exploring links to renewable energy and continued operations and our business.

24 Chrysaor Holdings Limited Chrysaor Holdings Limited 25 Group Strategic Report Report and Financial Statements 2020 Report and Financial Statements 2020 Group Strategic Report

the value of our near-miss reporting, Employee engagement reduction in the direct emissions from our Energy and Emissions Reporting identification of weaknesses and operated assets by 2025, with a further We aim to have an open culture of generating appropriate organisational 20 percent reduction by 2028. Long term, our employee engagement where our people 2020 2019 responses, along with effective learning. aim is to be net-zero across our business. are involved and encouraged to make a Scope 1 Direct Emissions: We have two independently run HSEQ strong contribution to our success. We Taking steps to lower emissions Gross operated static combustion activity management reviews each year to work hard to set our people up for success, through inductions and diverse employee- • Efficiency – we are moving towards assess performance and meet the tCO e 950,602 480,240 engagement processes. We encourage producing our hydrocarbons in the most 2 requirements of International Standards Offshore Combustion open and ongoing communication between environmentally sustainable and efficient kWh 4,275,483,333 - ISO9001 and ISO14001, and of the UK employees and managers. We keep way we can. Health and Safety Executive (HSE) tCO e 22 479 employees informed about wider company • Low-carbon sources – we are exploring 2 document HS(G)65. Our CEO chairs issues using several formal and informal the potential for low or zero-carbon Onshore Combustion (Diesel only) kWh 88,350 - these reviews, which provide an communication mechanisms, including energy supplies to power our assets. opportunity for open discussion between m3 8 176 ‘town hall’ meetings, safety representative • Innovation – we are investing in early operational leadership, offshore meetings, an employee forum and personnel and functional HSEQ staff stage projects to enable hydrogen performance reviews. tCO2e 438 216 on performance, areas for improvement production, together with removing and Grid-sourced Onshore Gas Consumption offsetting emissions through CCS. and future approaches. The board of Ethics and integrity kWh 2,381,777 804,082 directors review organisational HSEQ Our early investment in the development The highest standards of integrity are performance and progress. In addition, of the Acorn carbon capture and hydrogen Scope 2 Indirect Emissions: fundamental to behaviour in the workplace, Grid sourced electricity consumed by the organisation's onshore office facilities we support HSEQ performance with project is also an example of our carbon where we tolerate no form of bribery, a broad-ranging HSEQ audit and reduction and transformative energy strategy. tCO e 1,060 416 corruption, misconduct or wrongdoing in our 2 assurance programme. Grid-sourced Electricity Consumption business dealings, and ensure compliance In 2020, Chrysaor submitted licence kWh 4,547,560 1,628,531 with all relevant laws. Through our workplace wellbeing applications for storing CO2 in the depleted Emissions Summary programme, we also provide resources Viking and Victor gas reservoirs in the SNS Cumulative summary (Scope 1 and Scope 2 Emissions and Scope 1 intensity) that focus on physical, financial, social (ii) Planet area. These applications are in support of the and mental wellbeing. We continue to V Net Zero Project, which aims to transport tCO e 952,122 481,352 Climate response Total Emissions (Scope 1 & Scope 2) 2 strengthen our resilience by training and store CO2 from the Immingham cluster kWh 4,282,501,020 - mental-health first aiders. Our world faces the challenge of meeting on Humberside. The capture, compression the increasing demand for affordable, Operated Emissions Intensity Ratio (Scope 1) and conditioning of CO2 will be performed tCO e/mboe 19.1 21.3 Diversity and inclusion reliable and safe energy, while at the same by the Humber Zero project, a coalition of excludes grid sourced gas) 2 time reducing levels of carbon dioxide and industry partners. V Net Zero is aligned to Chrysaor ensures diversity and equality greenhouse-gas emissions. Chrysaor sees our energy transition strategy and may play Scope 1 represents gross operated static combustion activity excluding mobile emissions sources (vessels, helicopters, drilling and decommissioning) are established as part of all our policies the energy demands of the world as an an important role in bringing low-carbon Scope 2 represents national grid sourced power consumed by the organisation’s onshore office facilities and processes. We aim to recruit, retain opportunity to do things differently. infrastructure to Humberside, the UK’s most and promote staff based on competence carbon-intensive industrial region. and regardless of age, disability, gender, We are taking steps across our business Chrysaor’s energy and carbon reporting on operational control and reflects all available technologies for our operations to reduce emissions and align to UK marriage and civil partnership, pregnancy We recognise the electrification of our CNS has been provided as Scope 1 and Scope 2 production that passes through our to ensure we protect our people and Government targets of net-zero carbon. and maternity, race, religion and belief, assets as having considerable potential to emissions as required under environmental operated offshore installations. the environment. We have implemented We have identified initiatives to reduce and sexual orientation. achieving our CO2 reduction targets. In 2020, reporting guidelines for large unquoted proactive monitoring systems and our carbon footprint by making changes we established a project team to develop companies. The emissions from onshore Environmental management processes across our assets, and we carry and upgrades to existing plant, and on Pay equality the scope required for each of our operated and offshore activities associated with the out extensive environmental baseline and new technologies to lower emissions We aim to manage our operations so as assets to receive low-carbon off-platform acquired business have been included. The impact assessments before and during We conduct analysis across our business further on our operated assets towards not to cause harm to the environment, power by 2025. additional installations acquired in 2019 any exploration or production activities, to ensure men and women are being paid a net-zero target. explain the increase in Scope 1 emissions as enacted in our Health, Safety to ensure we protect the environment. equally for the same, or similar work. We We also recognise that the oil and gas between 2019 and 2020, in addition to and Environmental Policy. We have The lifecycle of an operation, from licence review decisions on bonus, recognition Just under half of our production today is industry must collaborate to tackle the improved asset uptime in comparison to Environmental Management Systems in application to restoration of the site, follows and salary increments regularly to ensure natural gas. Not only is this the cleanest global energy challenge. We have therefore 2019. The reduction in onshore diesel is due place certified to ISO standard 14001:2015. six stages where we carefully analyse all equality across gender groups. form of hydrocarbon to supply energy to partnered with several UK operators and to the demolition of Theddlethorpe Gas potential physical, ecosystem and socio- the UK, but it also has a much lower carbon We apply these systems to manage the service companies to support a new Net Zero Terminal was the responsibility of a third- economic impacts. Training intensity than LNG gas imports. This is impact of our activities, products and Solutions Centre in Aberdeen. The centre’s party contractor from February 2020. crucial for the UK’s energy transition to services on the environment. They provide • Licence application The complex nature of our assets, their objective is to accelerate the development net-zero. A key measure for Chrysaor in baselining a structured approach for continuous • Seismic acquisition offshore location and the combustibility of and implementation of new technologies to its business is the carbon intensity of our planning, implementing, reviewing and hydrocarbons and other materials used, Our operated assets emit less than one decarbonise offshore operations. This is in • E&A drilling operated production. This is measured improving environmental protection, and means it is imperative all our people are million tonnes of carbon dioxide a year and support of the Industry’s Roadmap, which • Field development as the mass of CO released per thousand working towards increasing environmental fully trained, competent and equipped to we have been working hard to reduce our aims to develop the UKCS as the first net-zero 2 barrels of oil equivalent produced (tCO / • Production carry out their jobs safely and effectively. impact. Our aim is to achieve a 30 percent oil and gas basin globally by 2035. 2 sustainability. mboe). This was 19.1 tCO2/mboe in 2020 • Decommissioning

(2019: 21.3 tCO2/mboe). This is based We routinely select and employ the best

26 Chrysaor Holdings Limited Chrysaor Holdings Limited 27 Group Strategic Report Report and Financial Statements 2020 Report and Financial Statements 2020 Group Strategic Report

How our Board engages with the purposes of strategic and business ways of working, and we hold quarterly stakeholders decision-making. This includes in relation HSEQ forums with a view to ensuring to the budget and business plan, M&A continuous improvement. We also The Board considers and discusses opportunities, and other matters affecting regularly review contract performance information from across the organisation the broader, long-term strategic direction of alongside our corporate customers to help it understand the impact of our the Company. and consider any improvements. This operations, and the interests and views continuous engagement occurs at many of our stakeholders. It reviews strategy, Lenders - Chrysaor works with all financing levels and ensures the Board is well- financial and operational performance, as partners to realise our strategic objectives, positioned to make informed decisions well as information covering areas such as and we adhere to the reporting requirements that consider the viewpoint of all key risks, legal and regulatory compliance. of our debt facilities. We also deliver interested parties and have regard of the This information is provided to the Board an annual presentation to our lenders, need to foster our business relationships. through reports sent in advance of each encouraging interaction, input and feedback Board meeting, and through in-person from them to ensure we factor their concerns Government and environmental groups presentations. and interests into decisions that might affect - We carry out lobbying activities through our debt position. our membership of various trade groups The Board acknowledged the need to including Oil and Gas UK (OGUK). We balance the contrasting and, at times, Regulators - We inform regulators of major ensure we interact with Government conflicting interests of various stakeholder business changes. The requirements to departments and environmental groups groups, whilst focusing on the Company’s provide a safe onshore and offshore working honestly and openly and continue to purpose, values and strategic priorities in key environment are contained in the BMS. This work hard to understand and report the decision-making. houses our mandatory policies, standards, impacts of our operations. guidelines and procedures and allows us We set out below how the directors have to meet the requirements of International had regard to the matters set out in S172(1) Standards ISO9001 and ISO14001. We also (a)-(f) of the Companies Act 2006 when work with regulators to provide feedback on discharging their duties, and the effect of various issues and industry-wide topics. This that on certain decisions they have taken. ensures regulator guidance is appropriately informed, relevant and balanced, while Biodiversity In 2020, our community engagement test 1,000 samples a day with minimal staff Internal stakeholders also enabling the Board to reflect the latest was affected by coronavirus restrictions, time. The equipment will also be used in regulatory views in their decisions. We have a duty of care to comply Workforce - Our onshore and offshore but we continued to support staff in their ongoing cancer research. workforce have direct access to the responsibly with the biodiversity protection fundraising efforts, with match-funding as leadership, who listen and respond Joint venture partners, suppliers laws and regulations where we operate. part of our company Wellbeing programme. Transparency disclosure honestly, clearly and promptly. Regular and customers - Joint operating agreements We seek to reduce and mitigate our impact communication is provided through several require regular operational and technical on biodiversity and natural habitats by We also saw the impact coronavirus was Chrysaor aims for prompt disclosure and media platforms, to ensure employees meetings to manage and review asset- having on the fundraising abilities of transparency in all tax matters and has identifying key environmental sensitivities, can easily access company information performance plans. We also host meetings charities and, at year end, made donations met all statutory requirements for this. This conservation objectives and taking steps and any developments. In response to with vendors and contractors to discuss to mitigate any potential environmental to charities close to our operations, including includes the disclosures and submissions the coronavirus pandemic, the Company impacts of our proposed activities. Aberdeen Cyrenians, Maggie’s Aberdeen, made to comply with the requirements of the mobilised its CMT and BCT, whose priority Charlie House, Centrepoint London, Evelina Extractive Industry Transparency Initiative has been to ensure the ongoing safety of (iii) Prosperity London (children’s hospital) and the Red (EITI), Country-by-Country Reporting the workforce and continuing operations. Cross in Oslo. We also supported several (CBCR) and the 2014 Reports on Payments Regular virtual meetings have allowed We strive to avoid any potential negative local food banks and encouraged our staff to Government Regulations (PTG), which the CEO to talk directly to employees and impacts of our operations and to maximise to raise funds for charities of their choice implemented the requirements of the EU’s answer their questions. This has provided a our positive impacts on the prosperity of during lockdown. Accountancy and Transparency Directives valuable platform for communicating Board the communities where we operate. We are decisions to the workforce. Such workforce Chrysaor donated money to NHS Grampian into UK law. proud to support the communities where we engagement played a key role in the Board’s genetics laboratory to purchase a work and to contribute to charitable cause decision, during the early phases of the ThermoFisher Scientific Flex instrument for UK Companies Act 2006 – and social initiatives. coronavirus pandemic, to reduce the level use in coronavirus testing. RNA extraction Miscellaneous Reporting Regulations of work across all assets to maintain steady is the first part of the coronavirus test. This - Voluntary Section 172 (S172 Community engagement production and continuing safe operations. important process can be time-consuming, statement) We share the wider benefits of our work which limits the number of tests possible. External stakeholders by supporting the local communities, The instrument purchased provides a high We have chosen to include an S172 investing in education, developing skills throughput automated work solution for statement to illustrate our ongoing Shareholders - Shareholders are and encouraging enterprise. Community the extraction of viral RNA for detecting commitment to our stakeholders. This also represented by their nominated Board relationships play a vital daily role in coronavirus. This equipment has increased lays the foundations for a number of Group members. There is regular and effective connecting our organisation with something the efficiency of coronavirus testing in the companies, which meet the qualifying communication and provision of relevant, that is greater than itself. area allowing NHS Grampian to potentially conditions for reporting. timely information to shareholders for

28 Chrysaor Holdings Limited Chrysaor Holdings Limited 29 Report and Financial Statements 2020 Group Strategic Report

9. Governance and Compliance

Chrysaor has applied the Wates Corporate Governance Principles for Large Private Companies as an appropriate framework for disclosure of our corporate governance arrangements. We set out below how we applied these principles during 2020.

1. Purpose and leadership Signpost: for stakeholder internal audit function, and oversees risk engagement, see the S172 management generally. This includes The Board has developed an effective Statement section 8 creating a rigorous control framework, governance framework, which is containing several key internal and supported by the Company’s core values The Board receives comprehensive, high- external governance policies that mitigate and business principles. These come quality and timely information monthly and our risk exposure. together to ensure successful delivery in advance of Board meetings, covering of our strategy and performance for the all aspects of the Group’s business. At Signpost: for more on the internal long-term benefit of all stakeholders. meetings, the Board reviews performance, control framework, see Risk Corporate approves strategy, and determines key Management section 7 Signpost: for more information, policies for the effective operation of the see Sustainability section 8 business in an ethical and legally compliant 5. Remuneration manner. Many strategically important 2. Board composition matters are reserved for the Board, as set The Board is responsible for setting Governance remuneration for the Executive Directors out in the Subscription and Shareholders’ The experience of our Board is diverse, Deed relating to the Company. We continue and leadership team. This is reviewed with a wide range of knowledge and to maintain and develop our internal annually and benchmarked bi-annually functional skills across the exploration, controls environment under the custody of using independent external reviews production and financial industries. Their appropriate function heads. This is subject to ensure employees are paid on an composition provides for a balanced, to review by the internal audit function appropriate, fair and market-rate basis. independent and accountable approach based on a Board agreed work programme. The Company’s remuneration structure to the strategy of the business. consists of rewards dependent on role 4. Opportunity and risk and experience and provides incentive Signpost: for a biography of each structures aligned with its long-term Board member, see Our Board The Board reviews opportunities to strategy, culture and values. The section 10 generate long-term value both through remuneration structures are transparent regular Board meetings and as part of the and balanced for all employees. The Chairman is responsible for the annual budget and three-year business Board effectiveness, and ensures plan. Executive Directors discuss the nearer- 6. Stakeholders members have the necessary and timely term opportunities at monthly operational information to facilitate meaningful performance meetings, covering cost Stakeholders are a key focus in Chrysaor’s and constructive discussion. The Board control, optimising capital investment and core values and business principles. considers the number of Board members revenue cashflow management. We believe doing the right thing in a to be appropriate for the current size professional but caring, respectful and and nature of our business. The Board-approved plans demonstrate honest way promotes and creates an that the Company has a highly diversified open organisation that stakeholders can 3. Director responsibilities and cash-generative portfolio that can trust. Therefore, regular engagement with sustain it in value-generating capital all stakeholders to create and preserve The Board has a collective responsibility investment plans and the ability to repay value, and manage risk, is a key priority. for governance and achieving long-term debts as they fall due. success for the Company on behalf of its Signpost: for stakeholder shareholders, while having regard to the The Board reviews the key risks affecting engagement, see the S172 interests of other stakeholders. the Group regularly, with the help of the Statement section 8

Chrysaor Holdings Limited 31 Corporate Governance Report and Financial Statements 2020 Report and Financial Statements 2020 Group Strategic Report

10. The Board

Linda Cook Phil Kirk Andrew Osborne Mark Brown Bob Edwards Steve Farris Non-Executive Chairman Chief Executive Officer Chief Financial Officer Non-Executive Director Non-Executive Director Non-Executive Director Linda Cook is Non-Executive Chairman. Phil Kirk is Chief Executive Officer of the Andrew Osborne joined Chrysaor as Chief Mark Brown is a Non-Executive Director. Bob Edwards is a Non-Executive Director. G. Steven Farris is a Non-Executive She is also Managing Director and a Chrysaor Group. After qualifying as a Financial Officer in 2012. Previously he had He led the management buyout of Barclays He currently serves as a Partner of NGP Director. He served as Chairman and member of the Executive Committee of chartered accountant with Ernst & Young over 20 years Capital Markets experience Natural Resource Investments private Energy Capital and is a former Partner Chief Executive Officer of the Apache EIG Global Energy Partners, and Chief in 1991, he joined Hess in 1996 where he in Investment Banking, latterly as a equity business, renamed Global Natural of the Energy Practice at McKinsey & Corporation with operations in the Executive Officer of Harbour Energy. served a variety of roles including Head Managing Director responsible for Merrill Resources Investments. He currently serves Company and was an executive at BP, United States, Canada, the UK sector She retired from Royal Dutch Shell of Finance, North West Europe. In 2002, Lynch’s Natural Resources Equity Capital as Managing Partner. Marathon, and Brown & Root International. of the North Sea, Egypt, and Australia. plc in 2010, at which time she was a he set up CH4 Energy with two ex- Markets and Broking business. He has He was named Chairman of Apache in member of the Board of Directors and colleagues where he was joint Managing worked on a significant number of oil and January 2009, upon the retirement of the Executive Committee. During her Director. CH4 acquired and operated the gas transactions for both public and private company founder Raymond Plank. He was 29 years with the company, she held Markham field and associated satellites companies. He has acted as an advisor to promoted to President in 1994 and Chief positions including Chief Executive Officer on the UK/Dutch median line. After most members of the UK E&P Independent Executive Officer in May 2002. He joined of Shell Gas & Power (London and The selling CH4 to Venture Production in sector and has a depth of experience Apache in June 1988 as Vice President of Hague); Chief Executive Officer of Shell 2006, he founded Chrysaor in 2007 and in advising early stage E&P companies, Domestic Exploration and Production and Canada Limited (Calgary); Executive has led the Group since then. He has going on to create significant returns for was promoted to Senior Vice President Vice President Strategy & Finance for been a member of the Board of Oil and shareholders. He has extensive knowledge in May 1991. Prior to joining Apache, he Global Exploration & Production (The Gas UK since 2013 and a past Co-chair. and experience of energy debt and equity was vice President, Finance and Business Hague); and various U.S. Exploration & Phil is a Fellow of the Energy Institute. capital markets. He led the financing for Development, of Terra Resources, a Production management, operational and both Chrysaor’s $3.8 billion acquisition subsidiary of Sempra Energy. engineering roles. She received a B.S. in of a material portfolio of UK assets from Petroleum Engineering from the University Shell and the $2.675 billion acquisition of of Kansas and is currently a Trustee for ConocoPhillips UK upstream business. His the University's Endowment Association, knowledge in this area is key, as the Group a member of the Society of Petroleum looks to finance future growth activities. Engineers and a Director on the Board of Bank of New York Mellon.

32 Chrysaor Holdings Limited Chrysaor Holdings Limited 33 Corporate Governance Report and Financial Statements 2020 Report and Financial Statements 2020 Group Strategic Report

Harbour Energy proposed directors The merger with Premier is expected to complete at the end of March 2021. At this point, the Group will be renamed Harbour Energy plc and the following will become the directors for the new Board.

Linda Cook Chief Executive Officer Andrew Jamieson R. Blair Thomas Terence Jupp Benjamin Vinocour Phil Kirk President; Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer, Europe Andrew Jamieson is Non-Executive R. Blair Thomas is a Non-Executive Terence Jupp is a Non-Executive Director. (appointed 3 November 2020) Director. He has served as a Director of Director. He is also Chief Executive He is also Chief Operating Officer for Benjamin Vinocour is a Managing R. Blair Thomas Chairman Hoegh LNG since 2009 and previously Officer of EIG, as well as Chairman of the Harbour Energy. He has more than 30 Director of EIG and the Chief Corporate Alexander Krane Chief Financial served on the Board of Woodside Energy. Investment Committee and the Executive years of international experience in the Development Officer and General Officer He retired from the Royal Dutch Shell plc Committee. EIG was formerly part of upstream oil and gas industry and has Counsel of Harbour Energy Limited. He in 2009 where he has served as Executive Trust Company of the West where he held numerous executive positions. Most has been with EIG in various roles since Simon Henry Senior Independent Vice President Gas & Projects and was a Group Managing Director and recently, he was Chief Operating Officer 2010. Previously, he was at Latham and Non-Executive Member of the Gas & Power Executive a member of the Board of Directors of for CASA Exploration. Prior to this, he was Watkins LLP in Washington, DC where Director Committee since 2005. At Shell he held TCW Asset Management Company. Prior Vice President, International Operations he was an energy and private equity Anne Marie Independent positions in The Netherlands, Denmark, to joining EIG in 1998, he was a senior for Anadarko Petroleum, served with finance lawyer. He received a B.A. in Australia and Nigeria. Andrew holds a investment officer with the Inter-American Kerr-McGee Oil & Gas as Vice President for Cannon Non-Executive Political Science and History from Cornell Director Ph.D. degree from Glasgow University. Development Bank and a project finance International Exploration and Production, University and a J.D. cum laude from the attorney at the law firm of Brown & Wood Vice President and Managing Director for University of Michigan Law School. G. Steven Farris Non-Executive in New York and worked in the White the UK North Sea, Vice President for US Director House of President George H. W. Bush as Onshore Exploration & Production and an advisor on energy and budget policy. Director of Deepwater Development for Alan Ferguson Independent the Gulf of Mexico. He is a graduate of Non-Executive Texas A&M University with a Bachelor of Director Science degree in Petroleum Engineering Andy Hopwood Independent and is a Registered Professional Engineer in Non-Executive the State of Texas. He serves on the Board Director of Directors of Dril-Quip Inc. (NYSE: DRQ). Margareth Øvrum Independent Non-Executive Director Anne L. Stevens Independent Non-Executive Director

34 Chrysaor Holdings Limited Chrysaor Holdings Limited 35 ReportCorporate and Governance Financial Statements 2020 Report and FinancialGroup StatementsStrategic Report 2020

11. Regulatory Compliance

All assets operated by Chrysaor are regulated by the Offshore Safety Directive Regulator (OSDR), a partnership between the HSE and the Offshore Petroleum Regulator for the Environment and Decommissioning (OPRED), relating to health, safety and environmental matters.

Regulatory issues relating to licensing, exploration, development and the maximisation of economic recovery from the UKCS are dealt with by the Oil & Gas Authority (OGA). Directors’ Report Chrysaor is responsible for providing a safe system and place of work at its onshore and offshore facilities, which we achieve by applying our BMS. Conforming to the BMS, and Financial as demonstrated through audit and other assurance activities, remains the principal means for us to ensure compliance with our statutory duties, business goals and Statement objectives.

Signpost: further details are available in Key Performance Indicators section 4

36 Chrysaor Holdings Limited Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Stakeholder engagement • make judgements that are reasonable. that Chrysaor will be able to meet its • provide additional disclosures cash flow and funding requirements, as 12. Directors Report Stakeholder engagement, including with when compliance with the specific well as adhere to financial and liquidity employees, is of paramount importance requirements in IFRS as adopted covenants. Chrysaor’s management since these relationships are key to our forecasts show that for the next 12 months success and sustainability. by the EU is insufficient to enable The directors present their report for the year ended users to understand the impact of and the foreseeable future, the Group will be able to operate and generate sufficient 31 December 2020. Signpost: for further details on particular transactions, other events operating cash flow to sustain investment stakeholder engagement see and conditions on the Group’s and in discretionary capital projects, as well as Governance and compliance Company’s financial position and repay debt as it falls due. section 9 under the adoption of the financial performance Board of directors Results and dividends Share capital Wates Principles • state whether the Group and Company Other information The directors who served the Company Chrysaor’s loss for the year after taxation Details of the Company’s issued share financial statements have been Signpost: for further details on prepared in accordance with IFRS as Chrysaor made no political contributions or during the year and up to the date of the amounted to $778.4 million (2019: profit capital, together with details of any stakeholder engagement see adopted by the EU any share buybacks in the year. financial statements were: $218.8 million). The directors do not movement in the issued share capital Sustainability section 8 recommend the payment of a dividend • prepare the financial statements on during the year, are shown in note 25 to the Disclosure of information to Linda Cook Non-Executive (2019: $nil). consolidated financial statements. Streamlined energy and carbon a going-concern basis, unless it is Chairman inappropriate to presume that the the auditors Financial instruments reporting (SECR) Group and Company will continue in Phil Kirk Chief Executive Disabled employees So far as each person who was a director at The requirements of the SECR are included business. The directors are responsible Officer We finance our activities with a the date of approving this report is aware, Chrysaor aims to provide an optimal in Sustainability section 8. These for keeping adequate accounting combination of loans, cash and short- there is no relevant audit information, Andrew Osborne Chief Financial working environment to suit the needs of disclosures describe the methodologies records that are sufficient to show and term deposits. Other financial assets and being information needed by the auditors Officer all employees, including those of employees applied and the emissions and energy explain the Group and Company’s liabilities, such as trade debtors and trade in connection with preparing its report, of with disabilities. Our policy is that people usage together with the selected intensity transactions and disclose with Mark Brown Non-Executive creditors, arise directly from our operating which the auditors are unaware. Having with disabilities should be given fair ratio for 2020 and prior year. reasonable accuracy at any time the Director made enquiries of fellow directors and activities. Financial instruments can give consideration for all vacancies against the financial position of the Group and the the Group’s auditors, each director has rise to foreign currency, interest rate, Company. They are also responsible for Bob Edwards Non-Executive requirements for the role. Where possible, Statement of directors’ taken all the steps they are obliged to take credit, commodity price and liquidity risk. safeguarding the assets of the Group Director we make reasonable adjustments in job responsibilities as a director to make themselves aware Information on these risks is set out above and Company and hence for taking design and provide appropriate training for of any relevant audit information, and to Steve Farris Non-Executive in the Strategic Report and note 24 to the The directors are responsible for preparing reasonable steps for the prevention employees who become disabled. establish that the auditors are aware of Director financial statements. the report and the financial statements and detection of fraud and other that information. in accordance with applicable law irregularities. Andrew Jamieson Non-Executive During the year, we continued to enter Employees and regulations. The Shareholders’ Director into a combination of fixed-price physical Chrysaor is committed to creating diversity Agreement entered into on 30 January Post-balance-sheet events Independent auditors sales contracts and cash-settled financial R. Blair Thomas Non-Executive and inclusion in the workplace. We provide 2017 requires the directors to prepare Provided completion of the merger with commodity derivatives, to manage the The merger with Premier continues per Director equal opportunities in employment, financial statements for each financial year. Premier then, following a tender process, a price risk associated with our future deal plans and is expected to complete safeguarding and promoting a working Under that agreement, the directors have resolution to appoint new group auditors Terence Jupp Non-Executive underlying oil and gas revenues. Back-to- around 31 March 2021, with the admission environment where all employees can elected to prepare Group and Company will be put to the members at the Annual Director back agreements were put in place for the of the new group to the London Stock make best use of their skills, and where financial statements in accordance with General Meeting. derivative contracts with subsidiaries of the Exchange. David Powell Non-Executive decisions are based on merit. Chrysaor IFRS as adopted by the EU. The financial Director Group, Chrysaor Limited, Chrysaor North also provides training for existing and statements are required to give a true and In February 2021, the Board approved a (resigned 3 November Sea Limited, Chrysaor Production (U.K.) future managers on unconscious bias, fair view of the state of affairs of the Group partial redemption of the D Loan Notes of 2020) Limited and Chrysaor Petroleum Company diversity and inclusion. This ensures they and Company and of the profit or loss of $135.7 million, for which the payment was U.K. Limited. the Group and Company for that period. Benjamin Vinocour Non-Executive are not influenced by factors such as made on 15 March 2021. On behalf of the Board In preparing the Group and Company Director disability, gender, race, ethnic origin, colour, Andrew Osborne (Director) Directors’ liabilities financial statements the directors are (appointed 3 marital status, nationality, religion, sexual Going concern 17 March 2021 required to: November 2020) At the date of signing these financial orientation or age. The directors have adopted a going- statements, the Group does not have any • present fairly the financial position, concern basis of accounting for preparing indemnity provisions to or in favour of one Signpost:for further details on financial performance and cash flows of the financial statements. The analysis The Board and directors reflect the or more of its directors against liability in people engagement including the Group and Company used by the directors in adopting the governance and shareholder structure respect of proceedings brought by third- how employees are consulted • select suitable accounting policies in going concern basis considers the various under the Shareholders’ Agreements dated parties, subject to the conditions set out with, systematically provided with accordance with IAS 8: Accounting plans and commitments of the Group 30 January 2017. in the Companies Act 2006. The Group information on matters of concern Policies, Changes in Accounting as well as various sensitivity analyses. Howard Landes, Secretary also maintains directors’ and officers’ to them and made aware of the Estimates and Errors, and then apply Cash-flow forecasts and sensitivities are liability insurance cover, the level of which is financial and economic factors them consistently prepared and reviewed by management reviewed annually. affecting Chrysaor’s performance • present information, including regularly, with sensitivities typically see Sustainability section 8 accounting policies, in a manner that run for changes in commodity prices provides relevant, reliable, comparable and asset performance. These models and understandable information and sensitivities provide assurance

38 Chrysaor Holdings Limited Chrysaor Holdings Limited 39 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Capability of the audit in • Identifying and testing journal entries Independent Auditors’ detecting irregularities, with specific focus on entries within unusual account combinations in including fraud response to the risk of management Report to the Directors of Irregularities, including fraud, are override. instances of non-compliance with laws There are inherent limitations in the audit and regulations. We design procedures in procedures described above and the Chrysaor Holdings Limited line with our responsibilities, outlined in further removed non-compliance with the Auditors’ responsibilities for the audit laws and regulations is from the events of the financial statements section, to and transactions reflected in the financial Report on the audit of the financial statements detect material misstatements in respect statements, the less likely we would become of irregularities, including fraud. The extent aware of it. Also, the risk of not detecting to which our procedures are capable of a material misstatement due to fraud is detecting irregularities, including fraud, is higher than the risk of not detecting one Opinion Basis for opinion Overview detailed below. resulting from error, as fraud may involve deliberate concealment by, for example, In our opinion, Chrysaor Holdings Limited’s We conducted our audit in accordance Audit scope Based on our understanding of the forgery or intentional misrepresentations, or with International Standards on Auditing group and industry, we identified that the group financial statements: • We conducted a full scope audit through collusion. (UK) (“ISAs (UK)”) and applicable law. Our principal risks of non-compliance with laws • give a true and fair view of the state of on two components and the audit responsibilities under ISAs (UK) are further and regulations related to International the group’s affairs as at 31 December of specified balances and classes Key audit matters described in the Auditors’ responsibilities Financial Reporting Standards (IFRSs) of transactions on a further four 2020 and of its loss and cash flows for for the audit of the financial statements and UK & Norway tax legislation, and Key audit matters are those matters that, components. the year then ended; and section of our report. We believe that we considered the extent to which non- in the auditors’ professional judgement, • have been properly prepared in the audit evidence we have obtained is • The scope of work at each component compliance might have a material effect were of most significance in the audit of the accordance with International Financial sufficient and appropriate to provide was determined by its proportion of on the financial statements. We also financial statements of the current period Reporting Standards (IFRSs) as issued a basis for our opinion. the Group’s total asset and risk profile. considered those laws and regulations that and include the most significant assessed risks of material misstatement (whether or by the International Accounting • The six in scope components have a direct impact on the preparation of the financial statements such as the not due to fraud) identified by the auditors, Standards Board (IASB) and as adopted Independence accounted for approximately International Financial Reporting Standards including those which had the greatest by the European Union. We remained independent of the group in 98 percent of total assets and (IFRSs) as issued by the International effect on: the overall audit strategy; the 94 percent of total revenue. We have audited the financial statements, accordance with the ethical requirements Accounting Standards Board (IASB) and allocation of resources in the audit; and that are relevant to our audit of the included within the Annual Report and Key audit matters as adopted by the European Union. We directing the efforts of the engagement Accounts (the “Annual Report”), which financial statements in the UK, which evaluated management’s incentives and team. These matters, and any comments • Implications of coronavirus outbreak comprise: the consolidated balance sheet includes the Financial Reporting Council opportunities for fraudulent manipulation we make on the results of our procedures and prevailing oil & gas market as at 31 December 2020; the consolidated (FRC)’s Ethical Standard, and we have of the financial statements (including the thereon, were addressed in the context of conditions. income statement and consolidated fulfilled our other ethical responsibilities in risk of override of controls) and determined our audit of the financial statements as a statement of comprehensive income, the accordance with these requirements. • Impairment to development and that the principal risks were related to whole, and in forming our opinion thereon, consolidated statement of cash flows, and producing assets and goodwill. potential management bias in accounting and we do not provide a separate opinion the consolidated statement of changes in Our audit approach estimates. Audit procedures performed by on these matters. Materiality equity for the year then ended; and the Context the engagement team included: • Overall materiality: US$102 million This is not a complete list of all risks notes to the financial statements, which • Enquiries made of the Board of identified by our audit. Chrysaor Holdings Limited is an (2019: US$113.5 million) based on include a description of the significant Directors, certain key management independent oil and gas company 1 percent of Total Assets. accounting policies. personnel, internal audit, the Health, Impairment to development and producing operating principally in the UK Continental • Performance materiality: Safety, Environment, & Quality team assets and goodwill is a new key audit Shelf (UKCS). The group has grown US$76.5 million. and in-house legal team of their matter this year. The purchase price significantly in recent years through awareness of any instances of actual or allocation of ConocoPhillips UK Business several acquisitions - the most recent of The scope of our audit potential litigation and claims. and Accounting for Decommissioning which was the purchase of ConocoPhillips' Liabilities, which were key audit matters in As part of designing our audit, we • Enquiries made of the tax team exploration & production business in the the previous year, are no longer included determined materiality and assessed to identify any instances of non- UK, which was completed in September because of the fact that the ConocoPhillips compliance with laws and regulations. 2019. For accounting purposes, the Group the risks of material misstatement in UK acquisition completed in September is structured into ten reporting units the financial statements. In particular, • Review of minutes of meetings of the 2019 and there have been no significant fair (components). Our audit was planned to we looked at where the directors made Board of Directors. value adjustments recognised during 2020. take into account the recent acquisition, subjective judgements, for example • Review of financial statement Accounting for Decommissioning liabilities the trading performance for the year, the in respect of significant accounting disclosures and testing to supporting was a key audit matter in 2019 due to the prevailing oil & gas commodity market estimates that involved making documentation where applicable, to increased audit effort required in auditing conditions and the impact of coronavirus assumptions and considering future assess compliance with applicable laws the decommissioning liability in relation to on the results and activities of the Group. events that are inherently uncertain. and regulations. the newly acquired interests.

40 Chrysaor Holdings Limited Chrysaor Holdings Limited 41 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Key audit matter How our audit addressed the key audit matter Key audit matter How our audit addressed the key audit matter

Implications of coronavirus outbreak and current oil & gas We have reviewed the cashflows that support management’s Risk of impairment to development and producing assets • The models used by management to determine the carrying market conditions going concern assumption and have assessed if they appropriately and goodwill (continued) value of development and production assets were tested, considered the impact of the current economic conditions related including testing the integrity of the model for mechanical The coronavirus outbreak has affected businesses and the global to coronavirus and pressures on commodity prices. We evaluated In determining the fair value of a cash-generating-unit, and mathematical accuracy; internal consistency and economy throughout the year. management’s severe but plausible downside scenario analysis management are required to make judgements in relation to challenging where inconsistencies were identified. Where through challenge of the underlying assumptions including the Management have considered the impact of the pandemic on applicable we agreed underlying data used within the following: assumptions such as: current and future operations by using the knowledge obtained model back to source documentation. • long term commodity prices; through trading since March 2020. In particular, management has • The level of reduction in the forward commodity price curves • Management’s assumptions including long-term commodity addressed the Group’s ability to continue as a going concern by used in the scenarios. • reserves estimates and forecast production volumes; prices, discount rate and foreign exchange rates used preparing detailed cash flow forecasts for 2021 and 2022, including • The period of such reduction and the timing and rate of any • cost assumptions; and were tested for reasonableness. We engaged our modelling severe but plausible downside scenarios. anticipated price recovery. valuations specialists to form an independent view on the • the appropriate discount rates appropriateness of these assumptions through determining • Consequences for the Group’s operation and production in light Management has concluded that the Group expects to have In 2020, management identified the significant reduction in acceptable ranges, with reference to third party source sufficient financial resources to meet their obligations as they fall of the change in market environment. commodity prices as a specific indicator of impairment to the data and comparing this to the assumption applied by due, for at least twelve months from the date of this report. The • The ability of the workforce to carry out duties, including management. We have ensured the rates are consistent development and production assets. Directors have therefore prepared the group financial statements potential restrictions on movements. with those applied in other accounting estimates. on a going concern basis, with no material uncertainty. • The availability of drawdown facilities and future production In accordance with IAS36, management performs an • Tax specialists were engaged to assess the reasonableness volumes hedged. of the tax assumptions and cash flows. Management also considered the impact of coronavirus on the assessment of the carrying value of goodwill at least at Group’s financial statements. The decrease in oil and gas prices, We examined supporting evidence for the reduction in non-essential each balance sheet date, regardless of whether there are • We assessed the objectivity and competence of particularly in Q2 2020, was, in part, as a result of the pandemic. capital expenditure including an assessment of the Directors’ ability indicators. The reduction in commodity prices elevates the risk management’s internal specialists who were involved in determining the recoverable amount of assets. A resulting impairment has been booked to goodwill and certain to take actions to implement these mitigations if necessary. of potential impairment charges. development and production assets. Management identified no • The forecast proved and probable reserves were compared We met with Operations, Human Resources and HSEQ to validate other material impact on the financial statements. We determined impairment of goodwill and the development to the Competent Person’s Report that was provided by an with external teams that the procedures described had been external third party and variances were challenged. Given the continued uncertainties and potential impact on the implemented. and production assets to be a key area of audit focus due to • Forecast operating expenditure and capital expenditure global economy, we consider this to be a key audit matter. the significant carrying values and the nature of judgements On the basis of the procedures above, we evaluated the level of required to be made by management in order to estimate the was assessed against historical expenditure. We challenged forecast liquidity and agreed with management’s assessment that fair value of the assets. management on unexpected or unusual trends included there would likely be a sufficient level of liquidity throughout the within the forecast. period to the end of December 2022. Impairment charges have been recognised in relation to • Reconciled the abandonment expenditure in relation goodwill and certain development and production assets to structures and wells already in place to our testing in We reviewed management’s disclosures in the financial statements relation to the decommissioning model. in relation to the impact of coronavirus and are satisfied that they • Challenged management on the inclusion of cashflows in are consistent with the assessment performed. relation to energy transition to assess whether they are in Our conclusions relating to going concern are set out in the line with their existing commitments. ‘Conclusions related to going concern’ section below. • Verified the cost estimates for non-operated assets to the information received from the operator. • Assessed the expected cessation of production dates to confirm they were consistent with the assumptions Risk of impairment to development and producing Our audit procedures included the following: applied by management within other areas such as the assets and goodwill • A walkthrough was performed of management’s process decommissioning provision. undertaken in order to determine the appropriate estimate. • Assessed the disclosures within the financial statements in During the year, impairment charges of $644 million This included understanding and evaluating the relevant accordance with the requirements of IAS36. was recognised in relation to certain development and control activities performed by management. Based on the work performed, we concluded that the carrying producing assets and impairment charges of $411 million • The appropriateness of the method used was assessed and we value of goodwill and the production and development assets was recognised in respect of the Group’s goodwill. Refer assessed whether management's test methods had changed has been appropriately calculated. to note 12 and note 10 respectively for further details. from the previous year. • We obtained management’s assessment of the cash generating units to determine if the level at which goodwill and the development and production assets are assessed for impairment is appropriate, in accordance with the criteria of IAS36.

42 Chrysaor Holdings Limited Chrysaor Holdings Limited 43 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

How we tailored the audit scope Based on our professional judgement, we determined materiality for the financial However, because not all future events or is necessary to enable the preparation agreed to describe our audit approach, statements as a whole as follows: conditions can be predicted, this conclusion of financial statements that are free from including communicating key audit matters. We tailored the scope of our audit to is not a guarantee as to the group's ability material misstatement, whether due to ensure that we performed enough work to to continue as a going concern. fraud or error. Use of this report be able to give an opinion on the financial Overall group materiality US$102 million (2019: US$113.5 million) statements as a whole, taking into account Our responsibilities and the responsibilities In preparing the financial statements, the This report, including the opinion, has the structure of the group, the accounting How we determined it 1 percent of Total Assets of the directors with respect to going directors are responsible for assessing been prepared for and only for the company’s directors as a body for fulfilling processes and controls, and the industry in Rationale for benchmark applied We believe that Total Assets is the primary concern are described in the relevant the group’s ability to continue as a going which it operates. measure used by the stakeholders in sections of this report. concern, disclosing, as applicable, matters your obligation in accordance with our assessing the performance of the group and related to going concern and using the engagement letter dated 18 June 2020 Chrysaor is a UK North Sea large is a generally accepted benchmark on which Reporting on other information going concern basis of accounting unless and for no other purpose. We do not, independent oil and gas group with to set materiality. the directors either intend to liquidate the in giving this opinion, accept or assume a diversified portfolio of interests in The other information comprises all of the group or to cease operations, or have no responsibility for any other purpose or to production hubs in the UK and Norwegian information in the Annual Report other realistic alternative but to do so. any other person to whom this report is than the financial statements and our North Sea. The group is structured, for shown or into whose hands it may come, auditors’ report thereon. The directors accounting purposes, into ten reporting For each component in the scope of our Conclusions relating to going Auditors’ responsibilities for the audit including without limitation under any are responsible for the other information. units (components). We performed group audit, we allocated a materiality of the financial statements contractual obligations of the company, concern Our opinion on the financial statements full scope audit procedures on two that is less than our overall group save where expressly agreed by our prior does not cover the other information and, Our objectives are to obtain reasonable components and the audit of specified materiality. The range of materiality Our evaluation of the directors’ consent in writing. accordingly, we do not express an audit assurance about whether the financial balances and classes of transactions on allocated to the in-scope components was assessment of the group's ability to opinion or any form of assurance thereon. statements as a whole are free from Partner responsible for the audit a further four components. between $75 million and $90 million. continue to adopt the going concern basis of accounting included: material misstatement, whether due to In connection with our audit of the financial fraud or error, and to issue an auditors’ The engagement partner on the audit The six components where we performed We use performance materiality to • Testing of the assumptions included statements, our responsibility is to read report that includes our opinion. resulting in this independent auditors’ audit work accounted for approximately reduce the probability that the aggregate within the cash-flow forecasts which the other information and, in doing so, Reasonable assurance is a high level of report is Kevin Reynard. 98 percent of total assets and 94 percent of uncorrected and undetected represent management’s view of the consider whether the other information is assurance but is not a guarantee that of total revenue. All audit procedures were misstatements exceeds overall materiality most likely scenario considering the materially inconsistent with the financial an audit conducted in accordance with performed by the UK group engagement to an appropriately low level. Specifically, various plans and commitments of statements or our knowledge obtained ISAs (UK) will always detect a material team. we use performance materiality in the Group and the levels of headroom in the audit, or otherwise appears to be misstatement when it exists. Misstatements determining the scope of our audit and required; materially misstated. If we identify an can arise from fraud or error and are PricewaterhouseCoopers LLP Materiality the nature and extent of our testing of • Assessment of management’s view apparent material inconsistency or material considered material if, individually or in Chartered Accountants The scope of our audit was influenced account balances, classes of transactions of a ‘severe but plausible’ downside misstatement, we are required to perform the aggregate, they could reasonably Aberdeen procedures to conclude whether there is be expected to influence the economic by our application of materiality. We and disclosures, for example in determining scenario, including consideration of 17 March 2021 a material misstatement of the financial decisions of users taken on the basis of set certain quantitative thresholds for sample sizes. Our performance materiality the forecast headroom, associated statements or a material misstatement of these financial statements. materiality. These, together with qualitative covenant position and access to was 75% of overall materiality, amounting the other information. If, based on the work considerations, helped us to determine the liquidity; to US$76.5 million for the group financial we have performed, we conclude that there Our audit testing might include testing scope of our audit and the nature, timing statements. • Assessing the alternative courses of is a material misstatement of this other complete populations of certain and extent of our audit procedures on the action and cost savings measures that information, we are required to report that transactions and balances, possibly individual financial statement line items In determining the performance materiality, could be implemented if required. fact. We have nothing to report based on using data auditing techniques. However, and disclosures and in evaluating the effect we considered a number of factors it typically involves selecting a limited Based on the work we have performed, these responsibilities. of misstatements, both individually and in including the history of misstatements, number of items for testing, rather than we have not identified any material aggregate on the financial statements as testing complete populations. We will often risk assessment, aggregation risk and the uncertainties relating to events or Responsibilities for the financial a whole. seek to target particular items for testing effectiveness of controls and concluded conditions that, individually or collectively, statements and the audit based on their size or risk characteristics. that an amount at the upper end of our may cast significant doubt on the group's In other cases, we will use audit sampling normal range was appropriate. ability to continue as a going concern for Responsibilities of the directors for to enable us to draw a conclusion about a period of at least twelve months the financial statements We agreed with those charged with the population from which the sample is from when the financial statements are As explained more fully in the Statement governance that we would report to them selected. authorised for issue. of Directors’ Responsibilities, the directors misstatements identified during our audit are responsible for the preparation of the A further description of our responsibilities In auditing the financial statements, we above $5.1 million (2019: $5.7 million) as financial statements in accordance with for the audit of the financial statements have concluded that the directors’ use of well as misstatements below that amount the applicable framework and for being is located on the FRC’s website at: the going concern basis of accounting in that, in our view, warranted reporting for satisfied that they give a true and fair www.frc.org.uk/auditorsresponsibilities. the preparation of the financial statements qualitative reasons. view. The directors are also responsible for This description forms part of our auditors’ is appropriate. such internal control as they determine report. In our engagement letter, we also

44 Chrysaor Holdings Limited Chrysaor Holdings Limited 45 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Consolidated Consolidated Income statement Balance sheet

2020 2019 2020 2019 For the year ended 31 December Note $000 $000 As at 31 December Note $000 $000 Assets Revenue 4 2,413,939 2,357,789 Non-current assets Other income 4 23,911 8,995 Goodwill 10 990,053 1,404,334 Revenue and other income 2,437,850 2,366,784 Other intangible assets 11 454,063 430,528 Cost of sales (1,827,503) (1,516,498) Property, plant and equipment 12 6,522,429 7,679,606 Right of use assets 13 132,206 221,223 Gross profit 610,347 850,286 Other receivables 17 3,577 2,604 Impairment of property, plant and equipment 12 (643,977) - Other financial assets 23 90,371 202,230 Impairment of goodwill 10 (411,435) - Total non-current assets 8,192,699 9,940,525 Current assets Provision for onerous service contracts 21 (18,475) - Inventories 16 160,528 146,881 Exploration and evaluation expenses 5 (13,173) (15,033) Trade and other receivables 17 461,352 474,118 Exploration costs written-off 5 (160,806) (222) Other financial assets 23 222,588 193,888 Remeasurements 5 (1,211) 2,974 Cash and cash equivalents 18 445,377 573,182 Total current assets 1,289,845 1,388,069 Loss on disposal of exploration and evaluation asset (55) - Total assets 9,482,544 11,328,594 General and administrative expenses (48,584) (75,488) Equity and liabilities Operating (loss)/profit 5 (687,369) 762,517 Equity Finance income 7 7,463 31,611 Share capital 25 71 71 Share premium 910,020 910,020 Finance expenses 7 (297,841) (338,570) Cash flow hedge reserve 80,264 176,123 (Loss)/profit before taxation (977,747) 455,558 Costs of hedging reserve 9,765 16,289 Income tax credit/(expense) 9 199,308 (236,711) Currency translation reserve 103,971 76,605 (Accumulated losses)/retained earnings (36,795) 729,844 (Loss)/profit for the financial year (778,439) 218,847 Equity 1,067,296 1,908,952 Total equity 1,067,296 1,908,952 Consolidated Non-current liabilities Borrowings 22 2,160,312 2,205,322 Statement of comprehensive income Provisions 21 4,020,768 3,766,739 Deferred tax 9 1,031,381 1,649,290 Trade and other payables 20 29,825 52,375 2020 2019 For the year ended 31 December $000 $000 Lease creditor 13 80,820 145,403 Other financial liabilities 23 52,490 3,663 (Loss)/profit for the financial year (778,439) 218,847 Total non-current liabilities 7,375,596 7,822,792 Items that may be classified to income statement in subsequent periods Current liabilities Fair value losses on cash flow hedges (173,685) (53,722) Trade and other payables 20 540,339 676,436 Tax credit on cash flow hedges 71,302 21,625 Borrowings 22 21,546 617,363 Lease creditor 13 60,120 79,525 Share based payments (1) 11,800 10,905 Provisions 21 190,167 183,081 Currency exchange differences 27,366 99,787 Current tax liabilities 153,314 - Total other comprehensive (loss)/income for the financial year, net of tax (63,217) 78,595 Other financial liabilities 23 74,166 40,445 1,039,652 1,596,850 Total comprehensive (loss)/income for the financial year (841,656) 297,442 Total current liabilities Total liabilities 8,415,248 9,419,642 Total comprehensive (loss)/income attributable to: Total equity and liabilities 9,482,544 11,328,594 Equity holders of the parent (841,656) 297,442 The notes on pages 51 to 92 form part of these financial statements. The financial statements on pages 46 to 92 were approved by the Board of Directors on 17 March 2021 and signed on its behalf by: (1) Only item above not expected to be reclassified subsequently to the income statement.

Andrew Osborne (Director) Company No. FC027988; UK Establishment No. BR009700

46 Chrysaor Holdings Limited Chrysaor Holdings Limited 47 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Consolidated Consolidated Statement of changes in equity Statement of cash flows for the year ended 31 December 2020

2020 2019 (Accumulated For the year ended 31 December Note $000 $000 Cash flow Costs of Currency losses) / Share Share hedge hedging translation Retained Total Net cash inflow from operating activities 26 1,373,362 1,518,661 capital premium reserve reserve reserve earnings equity $000 $000 $000 $000 $000 $000 $000 Cash flows from investing activities

As at 1 January 2019 22 234,801 219,678 4,831 (23,182) 500,092 936,242 Expenditure on exploration and evaluation assets (88,333) (82,634)

Profit for the financial year - - - - - 218,847 218,847 Expenditure on property, plant and equipment (457,648) (447,643)

Issue of new shares 49 675,219 - - - - 675,268 Expenditure on non-oil and gas intangible assets (52,124) -

Share based payments - - - - - 10,905 10,905 Proceeds from sale of exploration and evaluation asset 20 -

Other comprehensive income - - (43,555) 11,458 99,787 - 67,690 Expenditure on business combinations and acquisitions net of cash acquired (12,495) (2,255,236)

At 31 December 2019 71 910,020 176,123 16,289 76,605 729,844 1,908,952 Interest received 7,463 9,453

Loss for the financial year - - - - - (778,439) (778,439) Net cash outflow from investing activities (603,117) (2,776,060)

Share based payments - - - - - 11,800 11,800 Cash flows from financing activities

Other comprehensive loss - - (95,859) (6,524) 27,366 - (75,017) Repayment of borrowings 22 (784,338) (200,000)

At 31 December 2020 71 910,020 80,264 9,765 103,971 (36,795) 1,067,296 Proceeds from new financing arrangement 22 - 29,600

Proceeds from share issue - 4

Proceeds from new borrowings 22 170,358 1,843,275

Lease payments 13 (60,543) (20,598)

Redemption of loan notes 22 (77,140) -

Interest paid and bank charges (147,832) (143,914)

Net cash (outflow)/inflow from financing activities (899,495) 1,508,367

Net (decrease)/increase in cash and cash equivalents (129,250) 250,968

Effect of exchange rates on cash and cash equivalents 1,445 5,903

Cash and cash equivalents at 1 January 573,182 316,311

Cash and cash equivalents as at 31 December 18 445,377 573,182

48 Chrysaor Holdings Limited Chrysaor Holdings Limited 49 Report and Financial Statements 2020 Financial Statements

1. Corporate information Basis of consolidation Foreign currency translation The consolidated financial statements of The Group financial statements consolidate Each entity in the Group determines its own Chrysaor Holdings Limited for the year the financial statements of the Company functional currency, being the currency of ended 31 December 2020 which comprise and its subsidiary undertakings drawn up the primary economic environment in which the parent company, Chrysaor Holdings to 31 December 2020. Subsidiaries are those the entity operates, and items included in Limited (the “Company”) and all its entities over which the Group has control. the financial statements of each entity are subsidiaries (the “Group”), were authorised Control is achieved where the Company has measured using that functional currency. for issue in accordance with a resolution of the power over the subsidiary, is exposed, the directors on 17 March 2021. Chrysaor or has rights to variable returns from the The consolidated financial statements are Holdings Limited is a private company subsidiary and has the ability to use its presented in US Dollars. limited by share capital incorporated in the power to affect its returns. All subsidiaries Cayman Islands and domiciled in the United are 100 percent owned by the Company Transactions recorded in foreign currencies Kingdom. The Company’s registered office and therefore the Group does not have any are initially recorded in the entity’s is Cricket Square, Hutchins Drive, P.O. Box non-controlling interests. functional currency by applying an average 2681, Grand Cayman. rate of exchange. Monetary assets and All intercompany balances have been liabilities denominated in foreign currencies The Group’s principal activities are the eliminated on consolidation. are retranslated at the functional currency acquisition, exploration, development and rate of exchange ruling at the reporting production of oil and gas reserves on the Segment reporting date. All differences are taken to the UK and Norwegian Continental Shelves. The Group’s activities consist of one class income statement. Non-monetary assets and liabilities denominated in foreign 2. Accounting policies of business - the acquisition, exploration, development and production of oil and currencies are measured at historic cost Basis of preparation gas reserves and related activities in two based on exchange rates at the date of Notes to the the transaction and subsequently not geographical areas presently being the UK The consolidated financial statements North Sea and the Norwegian North Sea. retranslated. of the Group have been prepared on a going concern basis in accordance with Pensions On consolidation, the assets and liabilities Financial International Financial Reporting Standards of the Group’s operations are translated at (IFRSs) as issued by the International Contributions made to defined contribution exchange rates prevailing on the balance Accounting Standards Board (IASB) and pension schemes are recognised in the sheet date. Income and expense items as adopted by the European Union. The income statement in the period in which are translated at the average monthly Statements analysis used by the directors in adopting they become payable. exchange rates for the year. Equity is held the going concern basis considers the at historic costs and is not retranslated. various plans and commitments of the Joint arrangements The resulting exchange differences are Group as well as various sensitivity Exploration and production operations recognised as other comprehensive income analyses. Further details are within the are usually conducted through joint or expense and are transferred to the Directors' Report arrangements with other parties. The Group’s translation reserve. Group reviews all joint arrangements and The Group financial statements are Business combinations presented in US Dollars (USD) and all values classifies them as either joint operations are rounded to the nearest thousand dollars or joint ventures depending on the rights Business combinations are accounted for ($’000) except when otherwise stated. and obligations of each party to the using the acquisition method. The cost of an arrangement and whether the arrangement acquisition is measured as the fair value of The Financial Statements have been is structured through a separate vehicle. All the assets transferred, equity instruments prepared on the historical cost basis, except interests in joint arrangements held by the issued and liabilities incurred or assumed at for certain financial assets and liabilities Group are classified as joint operations. the date of completion of the acquisition. (including derivative financial instruments) Acquisition costs incurred are expensed In relation to its interests in joint operations, which have been measured at fair value. and included in administrative expenses. the Group recognises its: Where applicable, the consideration for the The accounting policies which follow set • Assets, including its share of any assets out those policies which apply in preparing acquisition includes any asset or liability held jointly the financial statements for the year ended resulting from a contingent consideration 31 December 2020. All accounting policies • Liabilities, including its share of any arrangement, measured at its fair value at have been applied consistently other than liabilities incurred jointly acquisition. where new policies have been adopted. • Revenue from the sale of its share of the output arising from the joint operation • Expenses, including its share of any expenses incurred jointly

Chrysaor Holdings Limited 51 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements arrangements but re-designates any costs was separately depreciated and is now • external sources of information: previously capitalised in relation to the written off is replaced and it is probable • significant changes in the economic, for the year ending 31 December 2020 (continued) whole interest as relating to the partial that future economic benefits associated technological, political or market interest retained. Any cash consideration with the item will flow to the Group, the environment in which the entity received directly from the farmee is credited expenditure is capitalised. All other day- operates or to which an asset is against costs previously capitalised in to-day repairs and maintenance costs are dedicated Business combinations (continued) Goodwill as exploration and evaluation costs within relation to the whole interest with any expensed as incurred. • fall in demand; and intangible assets. excess accounted for by the farmor as a • changes in energy prices and The identifiable assets, liabilities and In the event of a business combination or gain on disposal. Fixtures and fittings and office exchange rates contingent liabilities acquired that meet acquisition of an interest in a joint operation Licence and property acquisition costs equipment • internal sources of information: the conditions for recognition under IFRS in which the activity constitutes a business, are reviewed at each reporting date to Property, plant and equipment – oil 3 are recognised at their fair value at the as defined in IFRS 3 Business Combinations, confirm that there is no indication that the and gas development and production Fixtures and fittings and office equipment • evidence of obsolescence or physical acquisition date, except that: the acquisition method of accounting is carrying amount exceeds the recoverable assets (non-oil and gas property, plant and damage applied. Goodwill represents the difference amount. If no future activity is planned or the equipment) is stated at cost less • worse than expected production or • Deferred tax assets or liabilities and between the aggregate of the fair value related licence has been relinquished or has Expenditure on the construction, accumulated depreciation and impairment. cost performance liabilities or assets related to employee of purchase consideration transferred at expired, the carrying value of the property installation or completion of infrastructure Depreciation is provided for on a straight- • reduction in reserves and resources, benefit arrangements are recognised the acquisition date and the fair value acquisition costs is written off through the facilities such as platforms, pipelines and line basis at rates sufficient to write off the including as a result of unsuccessful and measured in accordance with IAS of the identifiable assets, liabilities and income statement. Upon recognition of the drilling of development wells including cost of the asset less any residual value results of drilling operations 12 Income Taxes and IAS 19 Employee unsuccessful development or delineation contingent liabilities acquired. Goodwill is proved reserves and internal approval for over their estimated useful economic lives. • pending expiry of licence or other wells, is capitalised as oil and gas properties Benefits respectively. initially measured at cost. Following initial development, the relevant expenditure is The depreciation periods for the principal rights; and within development and production assets. • Liabilities or equity instruments related recognition, goodwill is measured at cost transferred to oil and gas properties within categories of assets are as follows: • in respect of capitalised exploration to the replacement by the Group of an less any accumulated impairment. Goodwill development and production assets. The initial cost of an asset comprises its • Fixtures and fittings and evaluation costs, lack of planned is treated as an asset of the relevant entity acquirer's share-based payment awards purchase price or construction cost, any Up to 10 years future activity on the prospect to which it relates and accordingly non-US (c) Exploration and evaluation costs are measured in accordance with IFRS 2 costs directly attributable to bringing the or licence. Dollar goodwill is translated into US Dollars • Office furniture and equipment Share-based Payment, and Once the legal right to explore has been asset into operation, the initial estimate at the closing rate of exchange at each Up to 5 years Measurement of recoverable amount • Assets (or disposal groups) that are acquired, costs directly associated with the of the decommissioning obligation and, reporting date. classified as held for sale in accordance exploration are capitalised as exploration for qualifying assets (where relevant), Intangible assets In order to review the recoverable amount and evaluation intangible non-current assets in an impairment test, the assets are with IFRS 5 Non-current Assets Held Goodwill, as disclosed in note 10, is borrowing costs. The purchase price or Intangible assets, which principally until the exploration is complete and the grouped, where appropriate, into CGUs for Sale and discontinued operations reviewed for impairment at least annually construction cost is the aggregate amount comprise IT software, are carried at cost results have been evaluated. If no potential and the carrying amount of each unit is are measured in accordance with that by assessing the recoverable amount of paid and the fair value of any other less any accumulated amortisation. These commercial resources are discovered, the compared with its recoverable amount. Standard. the cash generating units (CGU’s) to which consideration given to acquire the asset. assets are amortised on a straight-line exploration asset is written off. The recoverable amount of an asset the goodwill relates. Where the carrying basis over their useful economic lives of up If the initial accounting for a business All costs relating to a development are corresponds to the higher of its fair value amount of the CGU and related goodwill to three years. combination is incomplete by the end All such capitalised costs are subject to accumulated and not depreciated until the less costs to sell and its value in use. The is higher than the recoverable amount of of the reporting period in which the technical, commercial and management commencement of production. Depreciation recoverable amount is primarily determined the CGU, an impairment loss is recognised Impairment of non-current assets combination occurs, the Group reports review, as well as review for indicators of is provided using the unit of production based on the fair value less cost of disposal in the income statement. Impairment losses (excluding goodwill) provisional amounts for the items for impairment at least annually. This is to confirm method based on proven and probable method. Standard valuation techniques are relating to goodwill cannot be reversed in which the accounting is incomplete. Those the continued intent to develop or otherwise reserves. When there is a change in the used based on the discount rates based on future periods. Consistent with the reporting In accordance with IAS 36, impairment provisional amounts are adjusted during extract value from the discovery. When this is estimated total recoverable proven and the specific characteristics of the operating segment, the CGU for the purposes of the tests are carried out on items of property, the measurement period, or additional no longer the case, the costs are written off probable reserves of a field, that change is entities concerned; discount rates are goodwill test is the UK Continental Shelf plant and equipment and intangible assets assets or liabilities are recognised to reflect through the income statement. accounted for in the depreciation charge determined on a post-tax basis and applied (UKCS). where there is an indication that the assets over the revised remaining proven and new information obtained about facts When proved reserves of oil or natural gas may be impaired. Such indications may be to post-tax cash flows. probable reserves. and circumstances that existed as of the are identified and development is sanctioned based on events or changes in the market Intangible assets - exploration and Any impairment loss is recorded in the acquisition date that, if known, would have by management, the relevant capitalised environment, or on internal sources of evaluation assets An item of development and production consolidated income statement under affected the amounts recognised as of that expenditure is first assessed for impairment information. expenditure and any significant part initially ‘Impairment of property, plant and date. The measurement period is the period Exploration and evaluation expenditure is and (if required) any impairment loss is recognised is derecognised upon disposal equipment’. Impairment losses recorded from the date of acquisition to the date the accounted for using the successful efforts recognised, then the remaining balance Impairment indicators or when no future economic benefits in relation to property, plant and Group obtains complete information about method of accounting. is transferred to oil and gas properties are expected. Any gain or loss arising on Property, plant and equipment and equipment may be subsequently reversed facts and circumstances that existed as of within development and production assets. (a) Pre-licence costs derecognition of the asset (calculated as intangible assets with finite useful lives are if the recoverable amount of the assets the acquisition date, subject to a maximum No amortisation is charged during the the difference between the net disposal only tested for impairment when there is subsequently increases above carrying of one year. Pre-licencing costs are expensed in the exploration and evaluation phase. proceeds and the carrying amount of the an indication that they may be impaired. value. The increased carrying amount of period in which they are incurred. This is generally the result of significant (d) Farm-outs – in the exploration and asset) is included in the income statement. an item of property, plant or equipment (b) Licencing and property evaluation phase changes to the environment in which attributable to a reversal of an impairment Expenditure on major maintenance refits, acquisition costs the assets are operated or when asset loss may not exceed the carrying amount The Group does not record any expenditure inspections or repairs comprises the cost performance is worse than expected. that would have been determined (net Licence and property acquisition costs paid made by the farmee on its account. It also of replacement assets or parts of assets, of depreciation/amortisation) had no in connection with a right to explore in an does not recognise any gain or loss on inspection costs and overhaul costs. The main impairment indicators used by impairment loss been recognised in prior existing exploration area are capitalised its exploration and evaluation farm-out Where an asset, or part of an asset that the Group are described below: periods.

52 Chrysaor Holdings Limited Chrysaor Holdings Limited 53 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements Cash flow hedges Currency translation reserve to determine the lease term for some lease contracts in which it is a lessee that The effective portion of gains and losses This reserve comprises exchange for the year ending 31 December 2020 (continued) include renewal options. The assessment arising from the remeasurement of differences arising on consolidation of of whether the Group is reasonably the Group’s operations with a functional derivative financial instruments designated certain to exercise such options impacts currency other than the USD. as cash flow hedges are deferred within the lease term, which significantly other comprehensive income and impacts the amount of lease liabilities Financial instruments • prospective default, when payment is b. Financial liabilities subsequently transferred to the income Share based payment not yet due, but it is clear that it will not and right-of-use assets recognised. Financial liabilities are classified, at initial statement in the period the hedged a. Financial assets be capable of being paid when it does The Group has applied the requirements of recognition, as financial liabilities at fair transaction is recognised in the income IFRS 2 Share-based Payment. The Group The lease payments are discounted using The Group uses two criteria to determine fall due value through profit or loss, loans and statement. When a hedging instrument has share-based awards that are equity the Group’s incremental borrowing rates the classification of financial assets: the • covenant default, when the borrower borrowings, payables, or as derivatives is sold or expires, any cumulative gain and cash settled as defined by IFRS 2. The of between 4.2 percent and 5.9 percent, Group’s business model and contractual fails to keep a promise (a covenant) that designated as hedging instruments in an or loss previously recognised in other fair value of the equity settled awards has being the rate that the Group would have cash flow characteristics of the financial it has made in the contract. comprehensive income remains deferred been determined at the date of grant of to pay to borrow the funds necessary assets. Where appropriate the Group effective hedge, as appropriate. All financial until the hedged item affects profit or loss the award allowing for the effect of any to obtain an asset of similar value in a identifies three categories of financial For those credit exposures for which there liabilities are recognised initially at fair value or is no longer expected to occur. Any similar economic environment with similar assets: amortised cost, fair value through has been a significant increase in credit risk and, in the case of loans and borrowings market-based conditions. For cash-settled gain or loss relating to the ineffective terms and conditions. profit or loss (FVTPL), and fair value through since initial recognition, a loss allowance is and payables, net of directly attributable awards, a liability is recognised for the transaction costs. portion of a cash flow hedge is immediately goods or service acquired. This is measured other comprehensive income (FVOCI). required for credit losses expected over the To determine the incremental borrowing recognised in the income statement. Hedge initially at the fair value of the liability. The remaining life of the exposure, irrespective rate, the Group where possible: Financial assets held at amortised cost of the timing of the default (a lifetime ECL). Borrowings and loans ineffectiveness could arise if volumes of fair value of the liability is subsequently the hedging instruments are greater than remeasured at each balance sheet date • uses recent third-party financing Financial assets held at amortised cost are Interest-bearing bank loans and overdrafts For trade receivables and contract assets, the hedged item of production, or where until the liability is settled, and at the date received by the individual lessee as initially measured at fair value except for are recorded at the proceeds received, the Group applies a simplified approach the credit worthiness of the counterparty of settlement, with any changes in fair a starting point, adjusted to reflect trade debtors which are initially measured net of direct issue costs. Finance charges, in calculating ECLs. Provision rates are is significant and may dominate the value recognised in the income statement. changes in financing conditions since at cost. Both are subsequently carried at including premiums payable on settlement calculated based on estimates including transaction and lead to losses. third party financing was received; amortised cost using the effective interest or redemption and direct issue costs, are the probability of default by assessing Inventories rate (EIR) method, less impairment. The EIR accounted for on an accrual basis in the • makes adjustments specific to the counterparty credit ratings, as adjusted d. Fair values amortisation is presented within finance income statement using the effective Hydrocarbon inventories are stated at lease, for example term, country, for forward-looking factors specific to the income in the income statement. interest method and are added to the The fair value of financial instruments that net realisable value with movements currency and security debtors and the economic environment and carrying amount of the instrument to the are traded in active markets at the reporting recognised in the income statement. All The Group is exposed to potential future Cash and cash equivalents the Group’s historical credit loss experience. extent that they are not settled in the year date is determined by reference to quoted other inventories are stated at the lower of increases in variable lease payments Cash at bank and in hand in the balance Credit impaired financial assets in which they arise. market prices or dealer price quotations, cost and net realisable value. The cost of based on an index or rate, which are not sheet comprise cash deposits with banks without any deduction for transaction costs. materials is the purchase cost, determined included in the lease liability until they At each reporting date, the Group assesses and in hand. Derecognition on first-in, first-out basis. take effect. When adjustments to lease whether financial assets carried at For financial instruments not traded in an A financial liability is derecognised when the payments based on an index or rate take Impairment of financial assets amortised cost and debt financial assets active market, the fair value is determined Leases effect, the lease liability is reassessed and carried at FVOCI are credit impaired. A obligation under the liability is discharged using appropriate valuation techniques. From 1 January 2019, leases are recognised adjusted against the right-of-use asset. The Group recognises an allowance financial asset is ‘credit-impaired’ when or cancelled or expires. When an existing for expected credit losses (ECLs) for all financial liability is replaced by another from as a right-of-use asset and a corresponding one or more events that have a detrimental Equity Lease payments are allocated between debt instruments not held at fair value liability at the date at which the leased impact on the estimated future cash flows of the same lender on substantially different principal and finance cost. The finance through profit or loss. ECLs are based on Share capital asset is available for use by the Group. the financial asset have occurred. Evidence terms, or the terms of an existing liability are cost is charged to profit or loss over the the difference between the contractual The finance cost is charged to the income that a financial asset is credit-impaired substantially modified, such an exchange or Share capital includes the total net lease period so as to produce a constant cash flows due in accordance with the statement over the lease period so as to includes the following observable data: modification is treated as the derecognition proceeds, both nominal and share premium, periodic rate of interest on the remaining contract and all the cash flows that the produce a constant periodic rate of interest of the original liability and the recognition on the issue of ordinary and preference balance of the liability for each period. Group expects to receive, discounted at • significant financial difficulty of the on the remaining balance of the liability of a new liability. The difference in the shares of the Company. an approximation of the original effective borrower or issuer respective carrying amounts is recognised in for each period. The right-of-use asset is Right-of-use assets are measured at cost interest rate. • a breach of contract such as default or the income statement. Cash flow hedge reserve depreciated over the shorter of lease term comprising the following: past due event and useful life. The Group recognises right- ECLs are recognised in two stages. For credit c. Derivative financial instruments The cash flow hedge and cost of hedging of-use assets and lease liabilities on a gross • the amount of the initial measurement exposures for which there has not been a • the restructuring of a loan or advance reserves represents gains and losses on basis and the recovery of lease costs from of lease liability by the Group on terms that the Group significant increase in credit risk since initial Derivative financial instruments are initially derivatives classified as effective cash flow joint operations’ partners is recorded as • any lease payments made at or would otherwise not consider recognition, ECLs are provided for credit recognised and subsequently re-measured hedges. Upon the designation of option other income. before the commencement date less losses that result from ‘default events’ that • it is becoming probable that the at fair value. Certain derivative financial instruments as hedging instruments, the any lease incentives received are possible within the next 12-months (a borrower will enter bankruptcy or other instruments are designated as cash Right-of-use assets and lease liabilities intrinsic and time value components are • any initial direct costs and restoration 12-month ECL). flow hedges in line with the Group’s risk arising from a lease are initially measured financial reorganisation, or separated, with only the intrinsic component costs on a present value basis reflecting the net • the disappearance of an active market management policies. When derivatives do being designated as the hedging instrument Default events could include: present value of the fixed lease payments for a security because of financial not qualify for hedge accounting or are not and the time value component is deferred Right-of-use assets are generally and amounts expected to be payable • payment default, i.e. the failure to pay difficulties designated as accounting hedges, changes in Other Comprehensive Income as a ‘cost depreciated over the shorter of the principal or interest when it falls due for in the fair value of the instrument are of hedging’. by the Group assuming leases run to full asset's useful life and the lease term on a payment recognised within the income statement. term. The Group has applied judgement straight-line basis.

54 Chrysaor Holdings Limited Chrysaor Holdings Limited 55 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements accounting periods beginning on or after The other pronouncements did not have IBOR reform and the effects on financial 1 January 2020, including: any impact on the Group’s accounting reporting for the year ending 31 December 2020 (continued) policies and did not require retrospective The International Accounting Standards Amendments to IFRS 3: Definition of adjustments. a business Board (Board) issued Interest Rate Benchmark Reform—Phase 2, which In October 2018, the IASB issued Accounting standards issued but not yet effective amends IFRS 9 Financial Instruments, IAS Payments associated with short-term enacted at the reporting date in the liquids (NGLs) is measured based on the amendments to the definition of a business 39 Financial Instruments: Recognition and leases and leases of low value assets are countries where the Group operates and consideration specified in contracts with in IFRS 3 Business Combinations to help The new and amended standards and Measurement, IFRS 7 Financial Instruments: recognised on a straight-line basis as an generates taxable income. customers with reference to quoted market entities determine whether an acquired set interpretations that are issued, but not Disclosures, IFRS 4 Insurance Contracts and expense in the income statement. Short- prices in active markets, adjusted according of activities and assets is a business or not. yet effective, up to the date of issuance IFRS 16 Leases. The Board identified two Current income tax related to items to specific terms and conditions as term leases are leases with a lease term of They clarified the minimum requirements of the Group’s financial statements are groups of accounting issues that could have recognised directly in other comprehensive applicable according to the sales contracts. 12 months or less. for a business, removed the assessment of disclosed below. The Group intends to financial reporting implications. In 2019, income or equity is recognised in other The transfer of control of oil, natural gas, whether market participants are capable adopt these new and amended standards the Board issued its initial amendments in Provisions for liabilities comprehensive income or directly in equity natural gas liquids and other items sold of replacing any missing elements, added and interpretations, if applicable, when Phase 1 of the project, applicable to 2020 not in the income statement. by the Group occurs when title passes A provision is recognised when the Group guidance to help entities assess whether they become effective. reporting, it covers reporting in the period at the point the customer takes physical has a legal or constructive obligation as a an acquired process is substantive, before the replacement of an existing ii. Deferred tax delivery. The Group principally satisfies its result of a past event; it is probable that an narrowed the definitions of a business and IFRS17 Insurance contracts interest rate benchmark with an alternative Deferred taxation is recognised in respect performance obligations at this point in of outputs, and introduced an optional fair outflow of resources embodying economic IFRS 17 is effective for annual reporting RFR (Risk Free Rate). This addressed of all timing differences arising between time. value concentration test. New illustrative benefits will be required to settle the periods beginning on or after 1 January hedge accounting requirements: the the tax bases of the assets and liabilities examples were provided along with the obligation and a reliable estimate can be 2023 with earlier application permitted highly probable requirement; prospective and their carrying amounts in the financial Over/underlift amendments. This amendment is effective made of the amount of the obligation. as long as IFRS 9 is also applied. The assessments; and separately identifiable statements with the following exceptions: Revenues from the production of oil and for business combinations for which the standard combines current measurement risk components. The Group has assessed The expense relating to any provision is natural gas properties in which the Group acquisition date is on or after the beginning • Deferred income tax assets are of the future cash flows with the the requirements of Phase 1 which apply presented in the income statement net of has an interest with partners are recognised of the first annual reporting period recognised only to the extent that it is recognition of profit over the period for the first time in 2020, none of which any reimbursement. If the effect of the time based on the Group’s working interest in beginning on or after 1 January 2020, and to probable that the taxable profit will be that services are provided under the impact the financial statements of the value of money is material, provisions are those properties (the entitlement method). asset acquisitions that occurred on or after available against which the deductible contract. Insurance service results Group because there is no material hedge discounted using a current pre-tax rate Differences between the production sold the beginning of that period. Application temporary difference, carried forward (including presentation of insurance accounting of interest rate exposures. Phase that reflects, where appropriate, the risk and the Group’s share of production result of this amendment was effective post EU tax credits or tax losses can be utilised. revenue) are presented separately from 2 addresses financial reporting when an specific to the liability. Where discounting in an overlift or an underlift. Overlift and endorsement which occurred in April 2020. • Deferred income tax assets and liabilities insurance finance income or expenses. existing interest rate benchmark is replaced is used, the increase in the provision due to underlift are valued at market value and with an alternative RFR, including the are measured on an undiscounted basis Since the amendments apply prospectively It also requires an entity to make an the passage of time is recognised as part of included within payables or receivables effects of changes to contractual cash flows at the tax rates that are expected to to transactions or other events that occur accounting policy choice of whether to finance costs in the income statement. respectively. Movements during the or hedging relationships arising from the apply when the related asset is realised on or after the date of first application, recognise all insurance finance income or accounting period are recognised within replacement of an interest rate benchmark The estimated cost of dismantling and or liability is settled, based on tax rates the Group was not affected by these expenses in profit or loss or to recognise cost of sales in the income statement with an alternative benchmark rate restoring the production and related and laws enacted or substantively such that gross profit is recognised on an amendments on the date of transition. some of that income or expenses in other (replacement issues). The Group has not facilities at the end of the economic life enacted at the reporting date. The entitlement basis. comprehensive income. The Group does of each field is recognised in full at the carrying amount of the deferred income Amendments to IAS 1 and IAS 8: not expect any existing contracts to be early adopted Phase 2 requirements. commencement of oil and gas production. tax asset is reviewed at each balance Definition of material impacted by the new standard however, Interest income Critical accounting judgements The amount provided is the present value sheet date. this will be assessed closer to adoption of Interest income is recognised on an In October 2018, the IASB issued and estimates of the estimated future restoration cost. • Deferred income tax assets and 1 January 2023. accruals basis, by reference to the principal amendments to IAS 1 Presentation of A non-current asset is also recognised. Any liabilities are offset, only if a legally Financial Statements and IAS 8 The preparation of the Group’s financial outstanding and at the effective interest Amendments to IAS 1, ‘Presentation of changes to estimated costs or discount enforceable right exists to offset current Accounting Policies, Changes in Accounting statements in conformity with IFRS requires rate method. financial statements’ – classification of rates are dealt with prospectively. assets against current tax liabilities, Estimates and Errors to align the definition management to make judgements, liabilities as current or non-current the deferred income tax relates to the Borrowing costs of ‘material’ across the standards and to estimates and assumptions at the date of Trade payables same tax authority and that same tax clarify certain aspects of the definition. The On 23 January 2020, the IASB issued the financial statements. Estimates and Borrowing costs directly attributable to Initial recognition of trade payables is at authority permits the Group to make a new definition states that, ’Information is a narrow-scope amendment to IAS 1 assumptions are continuously evaluated the acquisition, construction or production fair value. Subsequently they are stated at single net payment. material if omitting, misstating or obscuring to clarify that liabilities are classified as and are based on management experience of an asset that necessarily takes a amortised cost. it could reasonably be expected to influence either current or non-current, depending and other factors, including expectations Revenue from contracts with substantial period of time to get ready for decisions that the primary users of general on the rights that exist at the end of of future events that are believed to be customers its intended use or sale (a qualifying asset) Taxes purpose financial statements make on the the reporting period. Liabilities are reasonable under the circumstances. are capitalised as part of the cost of the Revenue from contracts with customers basis of those financial statements, which classified as non-current if the entity has Uncertainty about these assumptions i. Current tax respective assets. is recognised when the Group satisfies a provide financial information about a a substantive right to defer settlement and estimates could result in outcomes Current tax assets and liabilities for the that require a material adjustment to the performance obligation by transferring a New accounting standards and specific reporting entity.’ for at least 12 months at the end of the current and prior periods are measured at good or service to a customer. A good or carrying amount of the assets or liabilities interpretations reporting period. The Group will consider the amount expected to be recovered from service is transferred when the customer The amendments to the definition of if its liabilities are either current or non- affected in future periods. In particular, the or paid to the taxation authorities. The tax obtains control of that good or service. The Group adopted new and revised material did not have a significant impact current when the standard is effective Group has identified the following areas rates and laws used to compute the amount Revenue associated with the sale of accounting standards and interpretations on the Group’s consolidated financial from 1 January 2023. where significant judgement, estimates and are those that are enacted or substantively crude oil, natural gas, and natural gas relevant to its business and effective for statements. assumptions are required.

56 Chrysaor Holdings Limited Chrysaor Holdings Limited 57 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements 3. Segment information for the year ending 31 December 2020 (continued) The chief operating decision maker, who is responsible for allocating and managed in two regions, namely the UK North Sea and the resources and assessing performance of the Group’s business Norwegian North Sea. The Norwegian business unit currently does segments, has been identified as the Chief Executive Officer. not generate revenue or have any material operating income, and as such all revenues are attributable to the UK. The Group’s activities consist of one class of business being the Judgements reserves and resources of oil and gas • Decommissioning costs acquisition, exploration, development and production of oil and Information on major customers can be found in note 4. future production rates and costs to • Exploration and evaluation Decommissioning costs will be incurred by gas reserves and related activities, and are split geographically develop reserves and resources, and the expenditure the Group at the end of the operating life of determination of the discount rate. Any most of the Group’s facilities and properties. As at 31 December 2020, the Group changes in these assumptions may have The Group assesses its decommissioning held a balance of $391.3 million a material impact on the measurement of (2019: $425.3 million) relating to provision at each reporting date. The ultimate the recoverable amount and could result 2020 2019 expenditure on unproved hydrocarbon decommissioning costs are uncertain and in adjustments to any impairment losses cost estimates can vary in response to many $000 $000 resources within other intangible assets to be recognised. which represent active exploration and factors including the expected timing, extent Income statement evaluation activities. The application and amount of expenditure. On the basis See note 10 for further information. UK (681,003) 772,820 of the Group’s accounting policy for that all other assumptions in the calculation exploration and evaluation expenditure Impairment losses relating to goodwill remain the same a 10 percent increase in the Norway (6,366) (10,303) requires judgement to determine whether cannot be reversed in future periods. cost estimates, and a 10 percent decrease Group operating (loss)/profit (687,369) 762,517 future economic benefits are likely, from in the discount rates used to assess the final • Recoverability of oil and gas assets decommissioning obligation, would result in either exploitation or sale, or whether Finance income 7,463 31,611 activities have not reached a stage which For impairment review purposes, the increases to the decommissioning provision permits a reasonable assessment of the Group’s oil and gas assets are analysed of approximately $458 million and Finance expenses (297,841) (338,570) $118 million respectively. This change existence of commercial reserves. The into cash-generating units (CGUs) as (Loss)/profit before taxation (977,747) 455,558 would be principally offset by a change determination of reserves and resources is identified in accordance with IAS36. to the value of the associated asset unless itself an estimation process that requires A review is carried out at each reporting Income tax credit/(expense) 199,308 (236,711) the asset is fully depreciated, in which case varying degrees of uncertainty depending date for any indicators that the the change in estimate is recognised directly (Loss)/profit for the financial year (778,439) 218,847 on how the resources are classified. If, after carrying value of the Group’s assets within the income statement. expenditure is capitalised, information may be impaired. Where an indicator of becomes available suggesting that the impairment exists, a formal estimate of • Climate change Balance sheet (segment assets) recovery of the expenditure is unlikely, the recoverable amount is made, which The Group recognises that there may be the relevant capitalised amount is written UK 9,433,252 11,296,039 is considered to be the higher of the fair potential financial implications in the future off in the income statement in the period value less costs of disposal and value-in- from climate change risk. The Group expects Norway 49,292 32,555 when the new information becomes use, then compared to the carrying value that climate change policies, legislation available. Total assets 9,482,544 11,328,594 of the asset or CGU. The assessments of and regulation will increase, and likely on fair value less cost of disposal, generally Key sources of estimation accelerating timelines in order to meet referenced by the present value of the the Government targets which, although uncertainty Balance sheet (segment liabilities) future net cash flows expected to be will result in intended benefits, is likely to • Goodwill derived from production of commercial increase associated costs and administration UK (8,379,988) (9,404,440) reserves, requires the use of estimates requirements as well as potentially limiting the The Group tests goodwill annually for and assumptions on uncontrollable investment capital available to the industry. Norway (35,260) (15,202) impairment, or more frequently if there parameters such as long-term oil prices These in due course may well have an impact are indications that goodwill might be Total liabilities (8,415,248) (9,419,642) (considering current and historical prices, across a number of areas of accounting impaired. Impairment is determined for price trends and related factors), foreign including impairment, fair values, increased goodwill by assessing the recoverable exchange rates and discount rates. costs, onerous contracts and contingent amount of each CGU to which the liabilities. However as at the balance sheet goodwill relates. Where the recoverable The Group’s estimate of the recoverable date the Group believes there is no material amount of the CGU is less than its carrying value of its assets is sensitive to impact on balance sheet carrying values amount, an impairment loss is recognised commodity prices and discount rates. of assets or liabilities. Although this is an in the income statement. A change in the long-term price estimate, it is not considered a critical assumptions of 10 percent, an increase The recoverable amount of goodwill is estimate, as management’s view is that at the in the long-term foreign exchange rate based on estimates and assumptions, end of the current reporting period there is no of 4% and a 1 percent change in the post- regarding in particular the expected significant risk of climate change resulting in a tax discount rate are considered to be market outlook (including future material adjustment to the carrying amounts reasonably possible for the purposes of commodity prices) used for the of assets and liabilities, within the next sensitivity analysis, the result of which can measurement of cash flows, estimates of financial year. be found in notes 10 and 12. the volume of commercially recoverable

58 Chrysaor Holdings Limited Chrysaor Holdings Limited 59 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements 5. Operating profit for the year ending 31 December 2020 (continued) This is stated after charging/(crediting):

2020 2019 Group $000 $000 2020 2019 Movement in over/under-lift balances and hydrocarbon inventories (119, 872) 26,249 Other information $000 $000 Production, insurance and transportation costs 754,204 586,224 Capital expenditure Depreciation of oil and gas assets (note 12) 1,168,938 889,226 UK 539,236 545,953 Depreciation of non-oil and gas assets (note 12) 5,659 4,905 Norway 17,001 5,670 Amortisation of non-oil and gas intangible assets (note 11) 17,196 9,275 Total capital expenditure 556,237 551,623 Depreciation of right of use oil and gas assets (note 13) 50,583 16,963 Depreciation of right of use non-oil and gas assets (note 13) 6,177 3,244 Depreciation, depletion and amortisation Amortisation of capacity rights (note 11) 1,749 2,097 UK 1,221,573 916,603 Capitalisation of IFRS16 lease depreciation on oil and gas assets (note 13) (28,199) (8,695) Norway 530 412 Impairment of property, plant and equipment (note 12) 643,977 - Total depreciation, depletion and amortisation 1,222,103 917,015 Impairment of goodwill (note 10) 411,435 -

Exploration and evaluation expenses Onerous contract provision (note 21) 18,475 - UK 7,770 5,052 Share based payments expense 11,800 10,905 Norway 5,403 9,981 Exploration and evaluation expenditure 13,173 15,033 Total exploration and evaluation expenses 13,173 15,033 Exploration costs written-off (note 11) 160,806 222 Remeasurement of royalty valuation 1,300 (2,400) All exploration costs written-off of $160.8 million (2019: $0.2 million) relate to the UK business unit and primarily relate to acquisition expenditure relating to acreage which is considered less prospective. Remeasurement of commodity price contingent consideration - 7,199 Remeasurement of exploration contingent consideration - (7,773) 4. Revenue and other income Remeasurement of acquisition completion adjustments 426 - 2020 2019 Remeasurement – gain on termination of lease (note 13) (515) - Group $000 $000 Auditors’ remuneration – audit of the financial statements 1,159 1,357 Crude oil sales 1,430,093 1,568,166 – other fees to auditors - taxation services 233 400 Gas sales 805,239 625,489 – other fees to auditors - transaction services 380 - Condensate sales 138,360 145,501 Hydrocarbon revenue 2,373,692 2,339,156 Tariff income 24,160 13,972 Other revenue 16,087 4,661 Total revenue from production activities 2,413,939 2,357,789 Other income - IFRS16 lease accounting-partner recovery 23,911 8,995 Total revenue and other income 2,437,850 2,366,784

Revenue of $1,624.6 million (2019: $2,195.7 million) were Approximately 95 percent (2019: 97 percent) of the revenues were from contracts with customers. This excludes realised hedging attributable to energy trading companies of the Shell group. gains on crude and gas sales in the year of $789.0 million (2019: $162.2 million) and realised hedging gains of $0.3 million The revenues for 2019 reflect the three months of oil and gas on carbon emissions swaps (2019: nil). production from the ConocoPhillips UK business following the acquisition described in note 15.

60 Chrysaor Holdings Limited Chrysaor Holdings Limited 61 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements 7. Finance income and finance expenses for the year ending 31 December 2020 (continued)

2020 2019 Finance income $000 $000

6. Staff costs Bank interest receivable 2,797 9,345

Other interest 4,666 22,266 2020 2019 $000 $000 7,463 31,611

Wages and salaries 146,393 82,479

Social security costs 21,498 12,408 Finance expenses Pension costs 18,650 11,173 Interest payable on Reserves Based Loan and junior facilities 98,464 83,955 Other staff costs including benefits 32,975 20,031 Interest payable on loan notes 25,385 69,767 219,516 126,091 Other interest 6,551 3,072

Lease interest 7,240 2,541

2020 2019 Foreign exchange losses 36,148 82,171 No. No. Bank and financing fees 36,137 39,272 Offshore based 373 206 Unwinding of discount on deferred consideration 93 80 Office and administration 676 357 Unwinding of discount on contingent consideration - 83 1,049 563 Unwinding of discount on decommissioning and other provisions 87,823 57,629

297,841 338,570 Staff costs above are recharged to joint venture partners or are All employees were engaged in the acquisition, exploration, capitalised to the extent that they are directly attributable to development and production of oil and gas reserves. capital or decommissioning projects. The above costs include share- Bank and financing fees include an amount of $17.0 million (note 22) and $0.7 million realised losses (2019: nil) on interest based payments to key management as disclosed in note 5. The Group operates a defined contribution pension plan and the amounts charged to the income statement represent the (2019: $15.6 million) relating to the amortisation of transaction costs rate swaps. capitalised against the Group’s long-term borrowings (note 22). Employment contracts are held by three subsidiaries of the Group, contributions payable in the year. Foreign exchange losses of $36.1 million (2019: $82.2 million) are net Chrysaor E&P Services Limited, Chrysaor Norge AS and from Net other interest includes a $4.9 million charge (2019: $19.7 million of $3.9 million realised gains (2019: nil) on forward foreign exchange 1 October 2019, Chrysaor Production (U.K.) Limited. credit) which represents interest under a financing arrangement contracts.

62 Chrysaor Holdings Limited Chrysaor Holdings Limited 63 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements 9. Income tax for the year ending 31 December 2020 (continued) The major components of income tax (credit)/expense for the years ended 31 December 2020 and 2019 are:

2020 2019 Current income tax expense: $000 $000 8. Directors’ remuneration UK corporation tax 355,708 105,076 Overseas tax (18,184) (11,779) Adjustments in respect of prior years (1,938) 1,521 2020 2019 $000 $000 Total current income tax expense 335,586 94,818

Directors’ remuneration 2,172 1,952 Deferred tax (credit)/expense: Payments made in lieu of pension contributions 213 171 UK corporation tax (545,624) 155,234 Pension costs 11 20 Overseas tax 12,987 2,170

2,396 2,143 Adjustments in respect of prior years (2,257) (15,511) Total deferred tax (credit)/expense (534,894) 141,893 Tax (credit)/expense in the income statement (199,308) 236,711 Included above are the emoluments of the two Executive Directors The directors did not receive any other remuneration. of the Group. The payments made in lieu of pension contributions The above amounts for remuneration include the following in were made at the same rate as pension contributions made to The tax (credit)/expense in the income statement is disclosed as follows: employees. The other Directors who served during the year received respect of the highest paid director: no emoluments from Group companies in respect of their services. Income tax (credit)/expense on continuing operations (199,308) 236,711 (199,308) 236,711 2020 2019 $000 $000 A reconciliation between total tax (credit)/expense and the accounting profit multiplied by the standard rate of corporation tax Directors’ remuneration 1,259 1,114 and supplementary charge applying to UK oil and gas production operations for the years ended 31 December 2020 and 2019 is as follows: Payments made in lieu of pension contributions 129 101

Pension costs 6 10 2020 2019 $000 $000 1,394 1,225 (Loss)/profit before taxation (977,747) 455,558 Group (loss)/profit before taxation at 40.0% weighted average (2019: 40.0%) (391,099) 182,224 Effects of: Expenses not deductible for tax purposes 176,558 13,143 Interest not deductible for supplementary charge 7,576 9,544 Adjustments in respect of prior years (4,195) (13,990) Movement in unrecognised deferred tax assets 17,346 29,231 Income not taxable (5,675) - Impact of losses relieved at different rates 20,710 43,514 Investment allowance (20,529) (27,150) Currency translation adjustment - 195 Total tax (credit)/ expense reported in the consolidated income statement (199,308) 236,711

The origination of and reversal of temporary differences are, as shown in the next table, related primarily to movements in the carrying amounts and tax base values of expenditure and the timing of when these items are charged and/or credited against accounting and taxable profit.

64 Chrysaor Holdings Limited Chrysaor Holdings Limited 65 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements 10. Goodwill for the year ending 31 December 2020 (continued)

2020 2019 Cost and net book value $000 $000

Deferred tax At 1 January 1,404,334 493,084 Deferred tax is presented net on the Group balance sheet as follows: Additions (note 15) - 908,359

Impairment charge (411,435) - Accelerated Capital Fair value on Finalisation of 2019 business combination (note 15) (5,302) - Allowances Abandonment Losses derivatives Other Total $000 $000 $000 $000 $000 $000 Currency translation adjustment 2,456 2,891 As at 1 January 2019 (1,492,476) 587,264 257,611 (150,420) 29,275 (768,746) At 31 December 2020 990,053 1,404,334 Deferred tax (expense) 138,882 11,848 (255,651) - (36,972) (141,893)

Comprehensive income/(loss) (20,061) 15,647 - 21,625 5,044 22,255 Goodwill represents the difference between Determining recoverable amount Production volumes are based on life of the aggregate of the fair value of purchase field production profiles for each asset Acquisition accounting (1,790,753) 974,065 - - 55,782 (760,906) The recoverable amounts of the CGU consideration transferred at the acquisition within the CGU. Proven and probable and fields have been determined on a date and the fair value of the identifiable assets. reserves are estimates of the amount As at 31 December 2019 (3,164,408) 1,588,824 1,960 (128,795) 53,129 (1,649,290) fair value less costs to sell basis. The key of oil and gas that can be economically assumptions used in determining the fair The goodwill balance arose on the acquisition extracted from the Group’s oil and gas Deferred tax credit 519,060 25,830 125 - (10,121) 534,894 value are often subjective, such as the of the ConocoPhillips UK business which assets. The Group estimates its reserves future long-term oil price assumption, Comprehensive income - - - 71,302 - 71,302 completed on 30 September 2019, the using standard recognised evaluation or the operational performance of the acquisition of UK North Sea assets from Shell techniques and is assessed at least assets. Discounted cash flow models Foreign exchange (24,322) 26,039 194 414 1,274 3,599 which completed on 1 November 2017, and annually by management and by an comprising asset-by-asset life of field on the acquisition of additional equity in the independent consultant. Proven and Acquisition accounting - - - - 8,114 8,114 projections using Level 3 inputs (based Armada, Maria and Seymour fields from Spirit probable reserves are determined using on IFRS 13 fair value hierarchy) have Energy, which completed on 1 June 2018. estimates of oil and gas in place, recovery As at 31 December 2020 (2,669,670) 1,640,693 2,279 (57,079) 52,396 (1,031,381) been used to determine the recoverable factors and future commodity prices. Goodwill acquired through business amounts. The cash flows have been combinations has been allocated to a modelled on a post-tax and post- Operating expenditure, capital expenditure decommissioning basis at the Group’s single cash generating unit (CGU), the UK and decommissioning costs are derived post-tax discount rate of 6 percent Continental Shelf (UKCS), and this is therefore from the Group’s Business Plan. The Norwegian related tax losses are The Group has tax losses, mainly from Changes in tax rate (2019: 6 percent). Risks specific to assets the lowest level at which goodwill is reviewed. not expected to be recovered within non-ring fence activities, of $192.5 million within the CGU are reflected within the The discount rate reflects management’s Legislation will be introduced in Finance the next twelve months. Companies (2019: $132.4 million), a portion of cash flow forecasts. estimate of the Group’s Weighted Average Bill 2021 to increase the main rate of Impairment testing of goodwill operating on the Norwegian which may potentially be available for Cost of Capital (WACC), considering UK corporation tax for non-ring fence Continental Shelf under the offshore tax offset against future taxable profits. In accordance with ‘IAS 36: Impairment Key assumptions used in both debt and equity. The cost of equity profits from 19 percent to 25 percent regime can claim the tax value of any An associated deferred tax asset of of Assets’, goodwill has been reviewed for calculations is derived from an expected return on from 1 April 2023. This is not expected to unused tax losses or other tax credits $37.3 million (2019: $27.7 million) has not impairment at the year-end. In assessing investment by the Group’s investors, have a material impact on the Group. Assumptions involved in impairment related to its offshore activities to be been recognised in respect of these losses whether goodwill has been impaired, the and the cost of debt is based on its measurement include estimates of paid in cash (including interest) from the as they may not be used to offset taxable carrying amount of the CGU for goodwill is interest-bearing borrowings. Segment commercial reserves and production tax authorities when operations cease. profits elsewhere in the Group due to risk is incorporated by applying a beta compared with its recoverable amount. volumes, future oil and gas prices, Deferred tax assets that are based on uncertainty of recovery. The Group has factor based on publicly available market discount rates and the level and timing of offshore tax losses carried forward are recognised a deferred tax asset of The Group tests goodwill annually for data. The discount rate is based on an expenditures, all of which are inherently therefore normally recognised in full. $2.3 million (2019: $2.0 million) in relation impairment, or more frequently if there are assessment of a relevant peer group’s post- uncertain. There is no time limit on the right to to tax losses only to the extent of indications that goodwill might be impaired. tax WACC. carry tax losses forward in Norway. anticipated future taxable profits. At the year-end, the Group tested for Management’s commodity price curve Foreign exchange rates are based on impairment in accordance with accounting assumptions are benchmarked against Deferred tax assets are recognised The Group has not recognised a deferred management’s long-term rate assumptions, policy, and following changes to the Group’s a range of external forward price curves to the extent that it is probable that tax asset of $6.3m (2019: $2.8m) in relation with reference to a range of underlying long-term commodity price assumptions on a regular basis. The first three years taxable profits will be available against to accelerated capital allowances on the economic indicators. for impairment purposes linked to the reflect the market forward prices curves which the tax assets can be utilised, basis that these deferred tax assets will not deterioration in the macroeconomic transitioning to a flat long-term price from under relevant tax law. be recoverable in the foreseeable future. environment for the oil and gas industry, 2023. The long-term commodity prices a goodwill impairment of $411.4 million used were $60 per barrel for crude and was recognised. 40p per therm for gas.

66 Chrysaor Holdings Limited Chrysaor Holdings Limited 67 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements Exploration costs written-off relates to costs associated with licence The capacity rights represent National Transmission System (NTS) relinquishments and uncommercial well evaluations. entry capacity at Bacton and Teesside acquired as part of the business for the year ending 31 December 2020 (continued) combination completed in 2017. These rights have a remaining useful Non-oil and gas assets relate primarily to group IT software. In addition, life of two years and are amortised on a contractual volume basis. there is expenditure on the Acorn project, a project focussed on carbon dioxide (CO2) capture and storage which is planned to use existing On 1 January 2020, IT software costs at 31 December 2019 were reclassified from property, plant and equipment to non-oil and gas Sensitivity to changes in assumptions used in calculations impairment test would result in a further impairment to technology to this new area of application that may help accelerate assets within intangible assets, with subsequent IT software costs goodwill of $324.0 million, and a 10% increase in the decarbonisation. Acorn project costs are held within intangible assets The Group has run sensitivities on its long-term commodity price incurred during 2020 also recorded as intangible assets in line with long-term oil and gas price deck applied in the impairment until an assessment of its economic commerciality is determined. assumptions, which have been based on long range forecasts Group accounting policy. test would result in a reduction to the goodwill impairment of from external financial analysts, using alternate long-term price $355.6 million. A 1 percent increase in the discount rate would assumptions, foreign exchange rates and discount rates. These are result in a further impairment to goodwill of $100.4 million, considered to be reasonably possible changes for the purposes of and a 4% increase in the long-term foreign exchange rate 12. Property, plant and equipment sensitivity analysis. Sensitivity analysis indicates that a 10 percent assumption would result in a further impairment to goodwill reduction in the long-term oil and gas price deck applied in the of $44.3 million. Fixtures and Oil and gas fittings & office assets equipment Total 11. Other intangible assets Cost $000 $000 $000 At 1 January 2019 4,437,097 33,529 4,470,626 Oil and gas Non-oil and Capacity assets gas assets rights Total Additions 452,059 16,952 469,011 Cost $000 $000 $000 $000 At 1 January 2019 52,543 - 9,634 62,177 Additions from business combinations and joint arrangements (note 15) 4,248,567 7,518 4,256,085 Additions 81,792 820 - 82,612 Increase in decommissioning asset 24,062 - 24,062 Additions from business combinations and joint arrangements (note 15) 325,880 - - 325,880 Transfer from intangible assets 39,002 - 39,002 Transfers to property, plant & equipment (39,002) - - (39,002) Currency translation adjustment 57,532 2,308 59,840 Unsuccessful exploration written-off (222) - - (222) At 31 December 2019 9,258,319 60,307 9,318,626 Currency translation adjustment 4,262 - 374 4,636 Reclassification of IT software from property, plant and equipment - (39,153) (39,153) At 31 December 2019 425,253 820 10,008 436,081 Reclassification of IT software from property, plant and equipment - 39,153 - 39,153 At 31 December 2019 restated 9,258,319 21,154 9,279,473 At 31 December 2019 restated 425,253 39,973 10,008 475,234 Additions 414,886 1,065 415,951 Additions 90,069 50,217 - 140,286 Transfers to intangible assets (32,600) - (32,600) Reduction in decommissioning asset (note 21) (2,996) - - (2,996) Increase in decommissioning asset (note 21) 257,587 - 257,587 Disposals (75) - - (75) Currency translation adjustment 97,784 652 98,436 Transfers from property, plant & equipment 32,600 - - 32,600 Unsuccessful exploration written-off (160,806) - - (160,806) At 31 December 2020 9,995,976 22,871 10,018,847 Currency translation adjustment 7,232 4,687 318 12,237 Accumulated depreciation: At 31 December 2020 391,277 94,877 10,326 496,480 At 1 January 2019 716,042 10,759 726,801 Charge for the year 889,226 14,180 903,406 Accumulated amortisation: At 1 January 2019 - - 3,248 3,248 Currency translation adjustment 7,873 940 8,813 Charge for the year - - 2,097 2,097 At 31 December 2019 1,613,141 25,879 1,639,020 Currency translation adjustment - - 208 208 Reclassification of IT software from property, plant and equipment - (16,077) (16,077) At 31 December 2019 - - 5,553 5,553 At 31 December 2019 restated 1,613,141 9,802 1,622,943 Reclassification of IT software from property, plant and equipment - 16,077 - 16,077 Charge for the year 1,168,938 5,659 1,174,597 At 31 December 2019 restated - 16,077 5,553 21,630 Charge for the year - 17,196 1,749 18,945 Impairment charge 643,977 - 643,977 Currency translation adjustment - 1,559 283 1,842 Currency translation adjustment 54,237 664 54,901 At 31 December 2020 - 34,832 7,585 42,417 At 31 December 2020 3,480,293 16,125 3,496,418 Net book value: Net book value: At 31 December 2020 391,277 60,045 2,741 454,063 At 31 December 2020 6,515,683 6,746 6,522,429 At 31 December 2019 425,253 820 4,455 430,528 At 31 December 2019 7,645,178 34,428 7,679,606

68 Chrysaor Holdings Limited Chrysaor Holdings Limited 69 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements 13. Leases - right of use assets for the year ending 31 December 2020 (continued) (i) This note provides information for leases where the Group is a lessee.

2020 2019 Right of use assets $000 $000 Property, plant and equipment The Group uses the fair value less cost of to the long-term oil and gas prices (continued) disposal method (FVLCD) to calculate the specified above would result in a further Land and buildings 54,917 58,092 recoverable amount of the cash generating post-tax impairment of $344.5 million. Drilling rigs 75,631 159,945 During the year, the Group recognised a units (CGU) consistent with a level 3 A 10 percent increase in the long-term net pre-tax impairment charge of $644.0 fair value measurement. In determining oil and gas price deck would reduce the Equipment 1,658 3,186 million (post-tax $386.4 million) within the FVLCD, appropriate discounted-cash-flow post-tax impairment charge by $204.6 132,206 221,223 income statement. This represents a write- valuation models were used, incorporating million. Considering the discount rates, down of property, plant and equipment market-based assumptions. Management’s the Group believes a 1 percent increase assets of $712.1 million offset by a pre-tax commodity price curve assumptions are in the post-tax rate is considered to be a Lease liabilities impairment credit of $68.1 million in respect benchmarked against a range of external reasonable possibility for the purpose of of reductions to decommissioning estimates forward price curves on a regular basis. sensitivity analysis. A 1 percent increase in Current 60,120 79,525 on the Group’s non-producing assets with Individual field price differentials are then the post-tax rate would lead to a further Non-Current 80,820 145,403 no remaining net book value. applied. The first three years reflect the post-tax impairment of $9.9 million, and an 140,940 224,928 market forward prices curves transitioning increase in the long-term foreign exchange This arises primarily due to the reduction to a flat long-term price from 2023. The rate assumption of 4%, which the Group in our commodity price assumptions for long-term commodity prices used were believes to be a reasonable possibility, impairment purposes to $60 per barrel for There were no additions to the right-of-use assets during the year (2019: $226.4 million, including $207.0 million from business $60 per barrel for crude and 40p per therm would result in a further impairment crude oil and 40p per therm for natural combinations, see note 15). During the year, a lease contract in relation to a drilling rig, and equipment to support the rig, was for gas. of $100.8 million. The impairment was gas rather than a fundamental change in terminated, resulting in a remeasurement gain of $0.5 million (2019: nil). calculated as detailed above. the nature of the producing assets. These Production volumes are based on life of (ii) The consolidated income statement includes the following amounts relating to leases: assumptions show a reduction compared field production profiles for each asset An increase in the decommissioning to the $65 per barrel for crude oil and within the CGU. Proven and probable assets of $257.6 million (2019: $24.1 million) 50p per therm used for the purchase reserves are estimates of the amount was made during the year as a result of 2020 2019 price accounting for the acquisition of of oil and gas that can be economically both obligations and an update to the Depreciation charge of right of use assets $000 $000 the ConocoPhillips business. Impairments extracted from the Group’s oil and gas decommissioning estimates (note 21). on property, plant and equipment are assets. The Group estimates its reserves Land and buildings 7,197 3,244 reversible in the future. using standard recognised evaluation Further information on additions Drilling rigs 48,276 16,585 techniques and is assessed at least from business combinations and joint In addition, we recorded a goodwill annually by management and by an arrangements can be found in note 15. Equipment 1,287 378 impairment charge of $411.4 million in independent consultant. Proven and the period (2019: $nil). This was also 56,760 20,207 probable reserves are determined using Included within property, plant and attributable to changes in the Group’s estimates of oil and gas in place, recovery equipment additions of $416.0 million assessment of long-term commodity prices Capitalisation of IFRS16 lease depreciation factors and future commodity prices. (2019: $469.0 million) are associated and are not reversible in the future. cash flows of $457.6 million Land and buildings - - Operating expenditure, capital expenditure (2019: $447.6 million) and non-cash While the strong hedge programme has Drilling rigs (27,369) (8,580) and decommissioning costs are derived flow movements of $41.6 million protected the balance sheet position and from the Group’s Business Plan. The (2019: ($21.4 million), represented revenue performance, the programme Equipment (830) (115) discount rate reflects management’s by a $58.2 million movement in capital cannot be taken into account for estimate of the Group’s Weighted Average accruals (2019: ($17.5 million)) less Depreciation charge included within Consolidated Income Statement 28,561 11,512 impairment purposes. Cost of Capital (WACC), see note 10 for $16.6 million of capitalised leased Key assumptions used in calculations further details. Foreign exchange rates are depreciation (2019: $3.9 million). based on management’s long-term rate Of the $28.2 million (2019: $8.7 million) capitalised IFRS16 lease depreciation, $16.6 million (2019: $3.9 million) has been capitalised within Assumptions involved in impairment assumptions, with reference to a range of On 1 January 2020, IT software costs at property, plant and equipment and $11.6 million (2019: $4.8 million) within provisions (note 21). measurement include estimates of underlying economic indicators. 31 December 2019 were reclassified from commercial reserves and production property, plant and equipment to non-oil volumes, future oil and gas prices, A reduction or increase in the long-term and gas assets within intangible assets, Lease interest (included in finance expenses – note 7) 7,240 2,541 discount rates and the level and timing of oil and gas prices of 10% are considered with subsequent IT software costs incurred expenditures, all of which are inherently to be reasonably possible changes for the during 2020 also recorded as intangible The total cash outflow for leases in 2020 was $60.5 million (2019: $20.6 million). uncertain. purpose of sensitivity analysis. Decreases assets in line with Group accounting policy.

70 Chrysaor Holdings Limited Chrysaor Holdings Limited 71 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements (i) Held by Chrysaor E&P Limited The Company holds 100 percent of the share capital and voting rights (ii) Held by Chrysaor Resources (UK) Holdings Limited in each of the companies above, unless otherwise stated. for the year ending 31 December 2020 (continued) (iii) Held by Chrysaor Production Holdings Limited (iv) Held by Chrysaor Petroleum Company U.K. Limited All the subsidiaries are registered in England and Wales, with the (v) Held by Chrysaor Production Limited exception of Chrysaor Norge AS, which is registered in Norway, and (vi) Held by Chrysaor Production (U.K.) Limited Chrysaor (U.K.) Lambda Limited, which is registered in the Republic (vii) Held by Chrysaor (U.K.) Sigma Limited of Ireland. The registered office of all subsidiaries noted above is 14. Investments and amounts due from subsidiary undertakings (viii) 98.04% held by Chrysaor Production (U.K.) Limited and 1.96% held by Chrysaor Brettenham House, Lancaster Place, London, United Kingdom, WC2E (U.K.) Delta Limited At 31 December 2020, the subsidiary undertakings of the Company which were all wholly owned were: 7EN, apart from Chrysaor Norge AS whose registered office is Haakon (ix) 99.999% held by Chrysaor (U.K.) Theta Limited and 0.001% held by Chrysaor VII’s gate 1, 4th Floor, 0161 Oslo, Norway, and Chrysaor (U.K.) Lambda (U.K.) Eta Limited Limited whose registered office is Riverside One, Sir John Rogerson's (x) Held by Chrysaor (U.K.) Zeta Limited Quay, Dublin 2, Ireland. Country of (xi) Held by Chrysaor (U.K.) Alpha Limited Name of Company incorporation Main activity Chrysaor E&P Limited UK Holding company 15. Business combinations and acquisition of interests in joint arrangements Chrysaor Production Holdings Limited (i) UK Holding company Chrysaor Resources (UK) Holdings Limited (i) UK Holding company Business combinations during the year ended The transaction completed on 30 September 2019 and adds two new operated hubs to Chrysaor’s portfolio in the UK Central North Chrysaor E&P Finance Limited (i) UK Financing company 31 December 2019 Sea, Greater Britannia Area and J-Area, in addition to a non- Chrysaor E&P Services Limited (i) UK Service company In April 2019, Chrysaor entered into an agreement to acquire operated interest in the Clair Field area. The fair values of the net the ConocoPhillips UK business for a headline consideration of identifiable assets acquired from the transaction are as follows: Chrysaor North Sea Limited (i) UK Oil and gas $2.675 billion. Chrysaor Limited (i) UK Oil and gas Chrysaor CNS Limited (i) UK Oil and gas Total $000 Chrysaor Norge AS (i) Norway Oil and gas Exploration, evaluation and other intangible assets 325,880 Chrysaor Resources (Irish Sea) Limited (ii) UK Oil and gas Property, plant and equipment – oil and gas assets 4,248,567 Chrysaor Marketing Limited (i) UK Oil and gas Property, plant and equipment – non-oil and gas assets 7,518 Chrysaor Production Limited (iii) UK Holding company Property, plant and equipment – right of use assets 206,978 Chrysaor Production (U.K.) Limited (v) UK Oil and gas Total fixed assets 4,788,943 Chrysaor Petroleum Company U.K. Limited (iii) UK Oil and gas Inventories 54,203 Cash 247,034 Chrysaor (U.K.) Theta Limited (vii) UK Oil and gas Trade and other receivables 223,884 Chrysaor (U.K.) Alpha Limited (vi) UK Oil and gas Trade and other payables (324,753) Chrysaor (U.K.) Beta Limited (xi) UK Oil and gas Deferred tax (752,869) Chrysaor Developments Limited (vi) UK Oil and gas Provision for decommissioning (2,408,211) Chrysaor Petroleum Limited (vi) UK Oil and gas IFRS16 lease liabilities (206,978) Chrysaor (U.K.) Sigma Limited (viii) UK Oil and gas Fair value of identifiable net assets acquired 1,621,253 Harbour Energy Developments Limited (formerly Chrysaor (Glen) Limited (vi) UK Dormant company Cash consideration 2,424,747 Chrysaor (U.K.) Zeta Limited (vi) UK Non-trading holding company Additional completion adjustments 99,563 Total consideration transferred 2,524,310 Chrysaor (U.K.) Eta Limited (x) UK Non-trading Goodwill recognised 903,057 Chrysaor (U.K.) Delta Limited (vi) UK Non-trading holding company As reported at 31 December 2019 Harbour Energy Limited (formerly Chrysaor Supply & Trading Limited) (iii) UK Dormant company Fair value of identifiable net assets acquired 1,613,139 Chrysaor Energy Limited (i) UK Non-trading Cash consideration transferred 2,430,049 Chrysaor (U.K.) Lambda Limited (ix) ROI Dormant company Additional completion adjustments 91,449 Chrysaor Investments Limited (vi) UK Dormant company Goodwill recognised at 31 December 2019 908,359 Harbour Energy Production Limited (formerly Chrysaor Production Oil Movement in the year UK Dormant company (GB) Limited) (iv) Fair value of identifiable net assets acquired (deferred tax) 8,114 Harbour Energy Services Limited (formerly Chrysaor Petroleum Chemicals U.K. Cash consideration (5,302) UK Dormant company Limited) (iv) Additional completion adjustments 8,114 Chrysaor (U.K.) Britannia Limited (vi) UK Dormant company Adjusted Goodwill recognised at 31 December 2020 903,057

72 Chrysaor Holdings Limited Chrysaor Holdings Limited 73 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements 17. Trade and other receivables for the year ending 31 December 2020 (continued) 2020 2019 $000 $000 Trade debtors 189,532 186,593 Business combinations during the year as property, plant and equipment were value at completion, with a corresponding ended 31 December 2019 determined by reference to commodity increase to additional completion Under-lift position 93,077 34,358 forward price curves for the first three adjustments. Pursuant to a settlement Other debtors 98,736 177,072 In November 2019, $38.2 million of years following the acquisition date and, agreement between Chrysaor and additional completion adjustments were for subsequent years, based on a market ConocoPhillips dated 31 December 2020, paid to ConocoPhillips US, representing the Prepayments 60,976 60,417 consensus. None of the goodwill a reduction to cash consideration of first of four annual payments to be made is deductible for corporation tax. $5.3 million was received on 22 January Corporation tax receivable 19,031 15,678 during 2019 to 2022. 2021. Combined, these adjustments have From the date of acquisition, the business resulted in a decrease to goodwill of 461,352 474,118 Acquisition related costs of $7.6 million contributed $264.6 million of revenue $5.3 million. were incurred during 2019 and recognised and $88 million loss before tax from as an expense within General and continuing operations of the Group. Had Chrysaor and ConocoPhillips are in Administrative costs. Trade debtors are non-interest bearing and are generally on 20 to 30 days’ terms. As at 31 December 2020, there were no trade the acquisition been affected at 1 January dispute concerning certain adjustments to be made to the specified consideration receivables that were past due (2019: $nil). The cash consideration was funded from 2019, the business would have contributed of $2.675 billion relating to Chrysaor’s Other debtors mainly relate to amounts due from joint venture partners. existing cash resources and additional RBL revenue of $1.0 billion in the year to purchase of ConocoPhillips’ UK oil and funding of $1.68 billion from the upsized 31 December 2019, and $32.4 million of a gas business in 2019. The dispute is due The carrying value of the trade and other receivables are equal to their fair value as at the balance sheet date. No provision for doubtful $3 billion debt facility. loss towards profit before taxation. to be heard in the High Court of England debts has been recorded as at 31 December 2020 or 31 December 2019. The adjusted goodwill of $903.1 million, In April 2019, Chrysaor entered into an and Wales in May 2021. If ConocoPhillips succeeds in the case, there will be no which has arisen principally due to the agreement to acquire the ConocoPhillips 2020 2019 requirement to recognise deferred tax UK business for a headline consideration further payment to ConocoPhillips but, Non-current $000 $000 on the difference between the assigned of $2.675 billion. Taking into account the if Chrysaor succeeds in the case, it will be Other receivables 3,577 2,604 fair values and the tax bases of assets interim period cashflows since the effective entitled to a refund in respect of overpaid and liabilities acquired in a business date of 1 January 2018 and conventional consideration of approximately $120 million. 3,577 2,604 combination, has been recognised on the working capital adjustments, the price acquisition, representing the excess of the payable at completion of the acquisition total consideration transferred over the fair was $2.521 billion. During 2020, the fair value of the net assets acquired. The fair value of net asset acquired increased by values for the oil and gas assets recognised $8.1 million due to a revised deferred tax 18. Cash and cash equivalents

2020 2019 $000 $000 16. Inventories Cash at bank and in hand 445,377 573,182

2020 2019 $000 $000 Cash at bank earns interest at floating rates based on daily bank deposit rates. The Group only deposits cash with major banks of high- quality credit standing. high-quality credit standing. Hydrocarbons 34,112 35,170 Consumables and subsea supplies 126,416 111,711 160,528 146,881

Hydrocarbon inventories are measured at net realisable value. Inventories of consumables and subsea supplies include a provision of $8.9 million (2019: $9.7 million) where it is considered that the net realisable value is lower than the original cost.

Inventories recognised as an expense during the year ended 31 December 2020 amounted to $3.3 million (2019: $8.1 million). These expenses are included within production costs.

74 Chrysaor Holdings Limited Chrysaor Holdings Limited 75 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements 21. Provisions for the year ending 31 December 2020 (continued) Decommissioning provision Other Total $000 $000 $000 19. Commitments At 1 January 2019 1,468,044 7,690 1,475,734 Additions from business combinations and joint arrangements (note 15) 2,408,211 - 2,408,211 Capital commitments Additions 28,389 - 28,389 As at 31 December 2020, the Group had commitments for future capital expenditure amounting to $231.1 million (2019: $420.5 million). Where the commitment relates to a joint arrangement, the amount represents the Group’s net share of the commitment. Where the Group is Changes in estimates – decrease to decommissioning asset (4,327) - (4,327) not the operator of the joint arrangement then the amounts are based on the Group’s net share of committed future work programmes. Remeasurements - (7,773) (7,773) Amounts used (46,816) - (46,816) 20. Trade and other payables Interest on decommissioning lease (1,076) - (1,076) Depreciation, depletion & amortisation on decommissioning right-of-use leased asset (4,821) - (4,821) 2020 2019 Current $000 $000 Unwinding of discount 57,629 83 57,712 Trade payables 108,492 116,221 Currency translation adjustment 44,587 - 44,587 Overlift position 20,047 83,370 At 31 December 2019 3,949,820 - 3,949,820 Other payables 105,698 40,970 Additions 29,948 18,475 48,423 Accruals 271,988 427,861 Changes in estimates – increase to oil and gas tangible decommissioning assets 227,639 - 227,639 Deferred income 34,114 8,014 Changes in estimates – decrease to oil and gas intangible decommissioning assets (2,996) - (2,996) 540,339 676,436 Amounts used (142,035) (5,429) (147,464) Amounts recovered from prior owner 3,997 - 3,997 Depreciation, depletion & amortisation on decommissioning right-of-use leased asset (11,608) - (11,608) 2020 2019 Non-current $000 $000 Interest on decommissioning lease (1,414) - (1,414) Other payables 29,825 52,375 Unwinding of discount 87,823 - 87,823 29,825 52,375 Currency translation adjustment 55,898 817 56,715 At 31 December 2020 4,197,072 13,863 4,210,935 Other payables, within both current, $46.0 million (2019: $19.9 million) and non-current $24.4 million (2019: $39.7 million) ‘trade and other payables’, includes the present value of additional completion payments payable to ConocoPhillips Company as part of the acquisition of the ConocoPhillips UK business. The amounts are payable in 3 further instalments between 2021 and 2022.

Non-current Current liabilities Liabilities Total Classified within: $000 $000 $000 At 31 December 2020 4,020,768 190,167 4,210,935 At 31 December 2019 3,766,739 183,081 3,949,820

76 Chrysaor Holdings Limited Chrysaor Holdings Limited 77 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements The deferred fees shown in current and During 2019, Chrysaor entered into a NOK the remaining C Loan Notes took place, non-current assets reflects the expected 750 million exploration finance facility with of $30.2 million. for the year ending 31 December 2020 (continued) amortisation of fees within earlier periods Skandinaviska Enskilda Banken in relation where there is no expected repayment of to part-financing the exploration activities The Group has facilities to issue up to principal. of Chrysaor Norge AS. At the balance sheet $750 million of Letters of Credit, of which date, the amount drawn down on the facility $557 million was in issue as at 31 December Interest of $2.8 million (2019: $11.7 million) (2019: $599 million), mainly in respect of The Group provides for the estimated These provisions have been created become economically unviable, which in was NOK 124 million (2019: NOK 83 million). future abandonment liabilities. future decommissioning costs on its oil based on internal and third-party itself will depend on future commodity on the Reserve Based Loan (RBL) Incremental transaction costs of and gas assets at the balance sheet estimates. Assumptions based on the prices, which are inherently uncertain. and junior facilities had accrued by $53.6 million and $8 million were Other loans represent a commercial date. The payment dates of expected current economic environment have the balance sheet date and has been incorporated into the initial carrying financing arrangement with BHGE, covering decommissioning costs are uncertain and been made, which management believe Other provisions relate to a provision for classified within accruals and deferred amount of the RBL and junior facilities a 3-year work programme for drilling, are based on economic assumptions of are a reasonable basis upon which to an onerous contract in respect of the income. respectively, when those facilities were completion and subsea tie-in of development the fields concerned. The Group currently estimate the future liability. These estimates termination cost of the rig which had been Since the original RBL facility in 2017 to completed in 2017, and a further wells on Chrysaor’s operated assets. As part expects to incur decommissioning costs are reviewed regularly to consider any operating on the Schiehallion field, but no the present day, the Group has made $45.1 million and $18.4 million of of the deal, BHGE contribute to the costs of over the next 40 years, the majority of material changes to the assumptions. future approved activities have resulted in various amendments to the terms of the transaction costs were capitalised when the work programme by funding a portion which are anticipated to be incurred However, actual decommissioning costs the contract being terminated. RBL facility, these include: the terms of the RBL were amended in of the capital expenditure, in exchange for a between the next 15 to 25 years. will ultimately depend upon market prices June 2019 and June 2020; these amounts greater exposure to returns, as well as risks, Decommissioning provisions are discounted for the necessary decommissioning • term extended to 31 December 2025 are being amortised over the term of should certain targets and success criteria, at a risk-free rate of between 1.2 percent work required, which will reflect market • facility size now at $3 billion the relevant arrangement. During the both operational and geological, be met. and 1.9 percent (2019: 2019: 2.3 percent conditions at the relevant time. In addition, (with $1 billion accordion option) year $16.9 million (2019: $15.5 million) of Interest on this financing arrangement has and 2.8 percent) and the unwinding of the the timing of decommissioning liabilities transaction costs in relation to the RBL been calculated using the effective interest discount is presented within finance costs. will depend upon the dates when the fields • debt availability currently at $2.5 billion and junior facilities, and $0.1 million method with reference to the expected cash • debt availability to be redetermined on (2019: $0.1 million) in relation to the flows, using an estimated reserve case. an annual basis exploration finance facility, have been The table below details the change in the 22. Borrowings and facilities • interest at USD LIBOR plus a margin amortised, and are included within carrying amount of the Group’s borrowings of 3.25 percent, rising to a margin of financing costs. At the balance sheet The Group’s borrowings are carried at amortised cost and denominated in US Dollars. arising from financing cash flows. 3.5 percent from June 2023 date, the outstanding RBL and junior • the incorporation of a margin loan balances excluding incremental adjustment linked to carbon-emission transaction costs were $1,518 million 2020 2019 reductions and $400 million respectively $000 $000 (2019: $2,134 million and $400 million). • the syndication group now stands at As at 31 December 2020, the junior facility Reserves based loan facility 1,448,550 2,067,339 18 banks. remained fully drawn and $1,013 million Junior facility 396,422 395,613 Certain fees are also payable, including remained available for drawdown under 10% Unsecured C loan notes 2027 - 34,355 fees on available commitments at 40 the RBL facility. percent of the applicable margin and 10% Unsecured D loan notes 2027 264,751 282,151 commission on letters of credit issued The unecured loan notes were issued in 2017 and are listed on The International Stock Exploration finance facility 14,151 8,999 at 50 percent of the applicable margin. The junior facility of $400 million carries Exchange (formerly the Channel Islands Securities Exchange). They incur interest of Other loans 37,541 34,228 interest at six-month USD LIBOR plus a 10 percent per annum which, at the election margin of 5.25 percent, rising to a margin 2,161,415 2,822,685 of the Company, is capitalised and added to of 5.5 percent from June 2023, and is the principal amount each 31 December. The repayable in semi-annual instalments C loan notes and D loan notes rank junior between 30 June 2022 and 30 June 2026. to any senior bank debt. None of the loan notes carry voting rights. 2020 2019 The extensions and amendments made Classified within $000 $000 to the senior and junior facilities were In February 2020, a partial cash redemption such that they were not deemed to be Non-current liabilities 2,160,312 2,205,322 of the C Loan Notes of $4.9 million and a replacement of the existing Group’s D Loan Notes of $42.0 million took place, Current liabilities 21,546 617,363 borrowing facilities. and in November 2020 a full redemption of 2,181,858 2,822,685 Non-current assets (deferred fees) (141) - Current assets (deferred fees) (20,302) - 2,161,415 2,822,685

78 Chrysaor Holdings Limited Chrysaor Holdings Limited 79 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements 23. Other financial assets and liabilities for the year ending 31 December 2020 (continued) The Group held the following financial instruments at fair value at 31 December 2020. The fair values of all derivative financial instruments are based on estimates from observable inputs and are all level 2 in the IFRS 13 hierarchy, except for the royalty valuation and the Shell contingent consideration, which both include estimates based on unobservable inputs and are level 3 in the IFRS 13 hierarchy.

$000 31 December 2020 31 December 2019 Total borrowings as at 1 January 2019 1,804,889 Assets Liabilities Assets Liabilities $000 $000 $000 $000 Repayment of senior debt (200,000) Proceeds from drawdown of borrowing facilities 1,834,000 Measured at fair value through profit and loss Proceeds from financing arrangement 29,600 Royalty consideration 3,000 - 3,000 - Proceeds from exploration financing facility 9,275 Commodity derivatives – contingent consideration - - - (12,495) Conversion of E loan notes to equity (675,264) 3,000 - 3,000 (12,495) Transaction costs on senior debt paid and capitalised (45,134) Transaction costs on exploration financing facility paid and capitalised (507) Measure at fair value through other comprehensive income Currency translation adjustments 174 Commodity derivatives – cash flow hedges 191,606 (74,166) 190,888 (27,950) Loan notes interest capitalised 69,767 Foreign exchange derivatives – cash flow hedges 12,565 - - - Financing arrangement interest (receivable) (19,696) Carbon swaps – cash flow hedges 15,417 - - - Amortisation of transaction costs 15,581 219,588 (74,166) 190,888 (27,950) Total borrowings as at 31 December 2019 2,822,685 Total current 222,588 (74,166) 193,888 (40,445) Repayment of senior debt (774,000) Repayment of financing arrangement (1,634) Measured at fair value through profit and loss Repayment of exploration financing facility (8,704) Royalty consideration 6,720 - 9,100 - Proceeds from drawdown of borrowing facilities 157,500 Proceeds from exploration financing facility 12,858 Measured at fair value through other comprehensive income Loan notes redemption (77,140) Commodity derivatives – cash flow hedges 72,792 (48,448) 193,130 (3,663) Transaction costs on senior debt paid and capitalised (18,385) Interest rate derivatives – cash flow hedges - (4,042) - - Currency translation adjustments 851 Carbon swaps – cash flow hedges 10,859 - - - Loan notes interest capitalised 25,385 83,651 (52,490) 193,130 (3,663) Financing arrangement interest payable 4,947 Total non-current 90,371 (52,490) 202,230 (3,663) Amortisation of transaction costs 17,052 Total current and non-current 312,959 (126,656) 396,118 (44,108) Total borrowings as at 31 December 2020 2,161,415

Fair value measurements All financial instruments that are initially recognised and subsequently re-measured at fair value have been classified in accordance with the hierarchy described in IFRS 13 “Fair Value Measurement”. The hierarchy groups fair value measurements into the following levels based on the degree to which the fair value is observable.

Level 1: fair value measurements are derived from unadjusted quoted prices for identical assets or liabilities.

Level 2: fair value measurements include inputs, other than quoted prices included within level 1, which are observable directly or indirectly.

Level 3: fair value measurements are derived from valuation techniques that include significant inputs not based on observable data.

80 Chrysaor Holdings Limited Chrysaor Holdings Limited 81 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements Part of the consideration received on The agreement with the sellers of the UK techniques, the key inputs for which include the sale of the Group’s interest in a pre- North Sea assets purchased by the Group future commodity prices and volatility. for the year ending 31 December 2020 (continued) production development in 2015 was a in 2017 includes contingent consideration royalty interest, which is recognised on dependent on future commodity prices over Fair value movements recognised in the the balance sheet as a financial asset. At the four-year period ended 31 December income statement on financial instruments 31 December 2020, the Group valued the 2021. These contingent payments and are shown below. outstanding consideration receivable at receipts represent a series of option Financial assets Financial liabilities $9.7 million (2019: $12.1 million) of which contracts. The fair value of the contingent $3.0 million (2019: $3.0 million) is considered payments are presented as a financial Level 2 Level 3 Level 2 Level 3 $000 $000 $000 $000 to be receivable within one year. liability and estimated using valuation

As at 31 December 2020 2020 2019 Royalty valuation - 9,720 - - $000 $000 Commodity derivatives – cash flow hedges 264,398 - (122,614) - (Expense) included in the income statement Foreign exchange derivatives – cash flow hedges 12,565 - - - Remeasurement of royalty valuation (1,300) 2,400 Carbon swaps – cash flow hedges 26,276 - - - Remeasurement of commodity price contingent consideration - (7,199) Interest rate derivatives – cash flow hedges - - (4,042) - (1,300) (4,799) 303,239 9,720 (126,656) -

Fair values of other financial instruments As at 31 December 2019 The following financial instruments are measured at amortised cost and are considered to have fair values different to their book values. Royalty valuation - 12,100 - - Commodity derivatives – cash flow hedges 384,018 - (31,613) - 2020 2019 Commodity derivatives – contingent consideration - - - (12,495) Book value Fair value Book value Fair value 384,018 12,100 (31,613) (12,495) $000 $000 $000 $000 Long-term borrowings – loan notes (264,751) (298,955) (316,506) (357,676) There were no transfers between fair value levels in the year. The movements in the year associated with financial assets and liabilities measured in accordance with level 3 of the fair value hierarchy are shown below: The fair values of the loan notes are within level 2 of the fair value hierarchy and have been estimated by discounting all future cash flows by the relevant market yield curve at the balance sheet date adjusted for an appropriate credit margin. The fair values of other financial Financial assets Financial liabilities instruments not measured at fair value including cash and short-term deposits, trade receivables, trade payables and floating rate 2020 2019 2020 2019 borrowings approximate their carrying amounts. $000 $000 $000 $000

Fair value as at 1 January 12,100 12,700 (12,495) (39,354) Cash flow hedge accounting Additions - - - - The Group uses a combination of fixed price The following table indicates the physical sales contracts and cash-settled volumes, average hedged price and Settlements (1,080) (3,000) 12,495 34,058 fixed price commodity swaps, and options timings associated with the Group’s to manage the price risk associated with financial commodity derivatives. Volumes Gains and losses recognised in the income statement (1,300) 2,400 - (7,199) its underlying oil and gas revenues. As hedged through fixed price contracts Currency translation adjustments - - - - at 31 December 2020, all of the Group’s with customers for physical delivery are cash-settled fixed price commodity swap excluded. Fair value as at 31 December 9,720 12,100 - (12,495) derivatives have been designated as cash flow hedges of highly probable forecast sales of oil and gas.

82 Chrysaor Holdings Limited Chrysaor Holdings Limited 83 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements • Fair value changes from derivatives to hedge the commodity price exposure The following table summarises the and other financial instruments not associated with 50 to 70 percent of the impact on the Group’s pre-tax profit and for the year ending 31 December 2020 (continued) designated as cash flow hedges are next 12 months’ production (‘year 1’), equity from a reasonably foreseeable presented as a sensitivity to profit between 40 and 60 percent of ‘year 2’ movement in commodity prices on the before tax only and not included in production, between 30 and 50 percent fair value of commodity based derivative shareholders’ equity. of ‘year 3’ production and up to 40 instruments held by the Group at the percent of ‘year 4’ production. The Group balance sheet date. a. Commodity price risk Position as at 31 December 2020 2021 2022 2023 2024 2025 manages these risks through the use of Oil volume hedged (thousand bbls) 20,006 1,095 - - - The Group is exposed to the risk of fixed priced contracts with customers for fluctuations in prevailing market commodity physical delivery and derivative financial Weighted average hedged price ($/bbl) 57.51 60.07 - - - prices on the mix of oil and gas products. instruments including fixed priced swaps On a rolling basis, the Group’s policy is and options. Gas volume hedged (million therms) 1,235 1,392 1,136 433 90 Weighted average hedged price (p/therm) 44p 44p 41p 43p 45p

As at 31 December 2020, the fair value in other comprehensive income in respect December 2020, net deferred pre-tax gains Effect on profit Effect of net financial commodity derivatives of the effective portion of the hedge of $117.4 million (2019: gains $162.9 million) Market before tax on equity designated as cash flow hedges was relationships. Amounts deferred in other are expected to be released to the income As at 31 December 2020 movement $000 $000 $141.8 million (2019: $352.4 million) and net comprehensive income will be released to statement within one year. Brent oil price USD10/bbl increase - (123,347) unrealised pre-tax gains of $113.0 million the income statement as the underlying (2019: gains $321.2 million) was deferred hedged transactions occur. As at 31 Brent oil price USD10/bbl decrease - 123,347

NBP gas price GBP 0.1/therm increase - (261,881)

24. Financial risk factors and risk management NBP gas price GBP 0.1/therm decrease - 261,881

As at 31 December 2019 The Group’s principal financial assets The Group’s senior management oversees The sensitivity analyses have been and liabilities comprise trade and other the management of financial risks. The prepared on the basis that the number Brent oil price USD10/bbl increase - (208,370) receivables, cash and short-term deposits Group’s senior management ensures that of financial instruments are all constant. accounts, trade payables, interest bearing financial risk-taking activities are governed The sensitivity analyses are intended to Brent oil price USD10/bbl decrease - 208,370 loans and derivative financial instruments. by appropriate policies and procedures and illustrate the sensitivity to changes in NBP gas price GBP 0.1/therm increase - (135,893) The main purpose of these financial that financial risks are identified, measured market variables on the composition of instruments is to manage short-term cash the Group’s financial instruments at the and managed in accordance with Group NBP gas price GBP 0.1/therm decrease - 135,893 flow and price exposures and raise finance policies and risk objectives. All derivative balance sheet date and show the impact for the Group’s expenditure programme. activities for risk management purposes on profit or loss and shareholders’ equity, Further information on the Group’s financial where applicable. are carried out by specialist teams that instrument risk management objectives, have the appropriate skills, experience and policies and strategies are set out in the The following assumptions have been made b. Interest rate risk Floating rate financial assets comprise cash and cash equivalents supervision. It is the Group’s policy that discussion of capital management policies in calculating the sensitivity analyses: which earn interest at the relevant market rate. The Group monitors no trading in derivatives for speculative Floating rate borrowings comprise loans under the RBL and junior in the Strategic Report. its exposure to fluctuations in interest rates and uses interest rate purposes shall be undertaken. • The sensitivity of the relevant profit facilities which incur interest fixed either one month, three months before tax item and/or equity is the derivatives to manage the fixed and floating composition of its Risk exposures and responses or six months in advance at USD LIBOR plus a margin of 3.25 to Market risk effect of the assumed changes in 5.25 percent. Fixed rate borrowings comprise a series of shareholder borrowings. The Group manages its exposure to key respective market risks for the full year loan notes which incur interest at 10 percent per annum. At the Market risk is the risk that the fair value of financial risks in accordance with its based on the financial assets and option of the Company, interest on the shareholder loan notes can The below represents interest rate financial instruments in place at future cash flows of a financial instrument financial risk management policy. The financial liabilities held at the balance be capitalised into the principal amount and settled at maturity. 31 December 2020: objective of the policy is to support the will fluctuate because of changes in market sheet date. delivery of the Group’s financial targets prices. Market risk comprises three types • The sensitivities indicate the effect of while protecting future financial security. of risk: commodity price risk, interest rate a reasonable increase in each market The main risks that could adversely affect risk and foreign currency risk. Financial variable. Unless otherwise stated, the Derivative Currency Period of hedge Terms the Group’s financial assets, liabilities instruments mainly affected by market risk effect of a corresponding decrease or future cash flows are; market risks include loans and borrowings, deposits and in these variables is considered Interest rate swaps $700 million Jun 20 – Jun 25 Average 0.5561% comprising commodity price risk, interest derivative financial instruments. approximately equal and opposite. rate risk and foreign currency risk, liquidity • Fair value changes from derivative risk, and credit risk. Management reviews The sensitivity analyses in the following instruments designated as cash flow and agreed policies for managing each of sections relate to the position as at 31 hedges are considered fully effective these risks are summarised in this note. December 2020 and 2019. and recorded in shareholders’ equity, net of tax.

84 Chrysaor Holdings Limited Chrysaor Holdings Limited 85 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements c. Foreign currency risk arise from sales or purchases denominated As at 31 December 2019, the Group had not in currencies other than the functional entered into any exchange rate derivatives. for the year ending 31 December 2020 (continued) The Group is exposed to foreign currency currency of the relevant entity, such risk primarily arising from exchange exposures are monitored and hedged with The following table demonstrates the rate movements in US Dollar against agreement from the Board. sensitivity to a reasonably foreseeable Pounds Sterling. To mitigate exposure to change in US Dollar against Pounds movements in exchange rates, wherever The Group enters into forward contracts as There were no interest rate financial instruments in place at 31 December 2019. Sterling with all other variables held possible financial assets and liabilities a means of hedging its exposure to foreign constant, of the Group’s profit before tax The interest rate and currency profile of the Group’s interest-bearing financial assets and liabilities is shown below. are held in currencies that match the exchange rate risks. As at 31 December (due to foreign exchange translation of functional currency of the relevant entity. 2020, the Group had £135.0 million hedged monetary assets and liabilities). The impact The Group has subsidiaries with functional at forward rates of between $1.2321 and of translating the net assets of foreign Cash Fixed rate Floating rate currencies of Pounds Sterling, US Dollar $1.2990: £1 for the period January 2021 to operations into US Dollars is excluded from at bank borrowings borrowings Total and Norwegian Krone. Exposures can also November 2021. the sensitivity analysis. As at 31 December 2020 $000 $000 $000 $000 US Dollars 414,629 (264,751) (1,882,513) (1,732,635) Pound Sterling 27,232 - - 27,232 Effect on profit Effect Norwegian Krone 3,324 - (14,151) (10,827) Market before tax on equity 2020 movement $000 $000 Other 192 - - 192 US dollar/Sterling 10% strengthening 163,766 18,452 445,377 (264,751) (1,896,664) (1,716,038) US dollar/Sterling 10% weakening (163,766) 18,452

As at 31 December 2019 2019 US Dollars 510,109 (316,506) (2,497,180) (2,303,577) US dollar/Sterling 10% strengthening 133,595 - Pound Sterling 53,694 - - 53,694 US dollar/Sterling 10% weakening (133,595) - Norwegian Krone 15 - (8,999) (8,984) Other 9,364 - - 9,364 573,182 (316,506) (2,506,179) (2,249,503) d. Credit risk note 4, whereby the revenue from one e. Liquidity risk customer exceeds 95 percent of the Credit risk is the risk that a counterparty will The Group monitors the amount of Group’s consolidated revenue. not meet its obligations under a financial borrowings maturing within any specific The following table illustrates the indicative pre-tax effect on profit and equity of applying a reasonably foreseeable increase in interest rates to the Group’s instrument or customer contract, leading The credit risk on liquid funds and derivative period and proposes to meet its financing commitments from the operating cash flows financial assets and liabilities at the balance sheet date. to financial loss. The Group is exposed financial instruments is limited because of the business and existing committed to credit risk from its operating activities the counterparties are internationally (primarily for trade receivables) and from its lines of credit. Effect on profit Effect recognised banking institutions and are Market before tax on equity financing activities, including deposits with considered to represent minimal credit risk. The table below summarises the maturity 2020 movement $000 $000 banks and derivative financial instruments. profile of the Group’s financial liabilities There are no significant concentrations at 31 December 2020 and 2019 based on US interest rates +100 basis points (15,029) 25,232 The Group only sells hydrocarbons to of credit risk within the Group unless contractual undiscounted payments. recognised and creditworthy parties, otherwise disclosed, and credit losses are typically the trading arm of large, expected to be near to zero. The maximum 2019 international oil and gas companies. credit risk exposure relating to financial US interest rates +100 basis points (20,239) - An indication of the concentration of credit assets is represented by carrying value as risk on trade receivables is shown in at the balance sheet date.

86 Chrysaor Holdings Limited Chrysaor Holdings Limited 87 Financial Statements Report and Financial Statements 2020 Report and Financial Statements 2020 Financial Statements

Notes to the financial statements The maturity profile in the above tables reflect only one side of the Group’s liquidity position. Interest bearing loans and borrowings and trade payables mainly originate from the financing of assets used in the Group’s ongoing operations such as property, plant and equipment for the year ending 31 December 2020 (continued) and working capital such as inventories. These assets are considered part of the Group’s overall liquidity risk.

25. Called up share capital Within 1 to 2 2 to 5 Over one year years years 5 years Total 2020 2019 As at 31 December 2020 $000 $000 $000 $000 $000 Allotted, called up and fully paid No. $000 No. $000 F Ordinary shares of £0.01 each 4,994,624 61 4,994,624 61 Non-derivative financial liabilities G Ordinary shares of £0.40 each 18,900 10 18,900 10 Reserves Based Loan facility 53,038 73,107 1,595,880 - 1,722,025 M Ordinary shares of £0.01 each 9,865 - 9,865 - Junior facility 22,324 175,178 225,201 45,685 468,388 71 71 Loan notes - - - 507,905 507,905

Exploration finance facility 14,702 - - - 14,702 As at 31 December 2020 and 31 December 2019, the share capital comprised of three classes of ordinary shares. Each F and G ordinary Other loans 7,254 14,929 31,283 5,736 59,202 share carries equal voting and dividend rights. Trade and other payables 673,606 29,825 - - 703,431 M ordinary shares carry no voting rights and are subordinate to both F and G ordinary shares regarding rights to dividend and other distributions. Lease obligations 60,120 44,892 23,865 31,489 160,366 831,044 337,931 1,876,229 590,815 3,636,019

Derivative financial liabilities Net-settled commodity derivatives 74,166 20,361 28,087 - 122,614 Net-settled interest rate derivatives - - 4,042 - 4,042 Total as at 31 December 2020 905,210 358,292 1,908,358 590,815 3,762,675

Within 1 to 2 2 to 5 Over one year years years 5 years Total As at 31 December 2019 $000 $000 $000 $000 $000

Non-derivative financial liabilities Reserves based loan facility 713,412 580,844 1,030,513 79,060 2,403,829 Junior facility 29,154 29,075 354,062 105,674 517,965 Loan notes - - - 660,052 660,052 Exploration finance facility 9,732 - - - 9,732 Other loans 16,046 13,290 23,856 - 53,192 Trade and other payables 593,066 32,575 19,800 - 645,441 Lease obligations 80,045 72,220 54,938 30,302 237,505 1,441,455 728,004 1,483,169 875,088 4,527,716

Derivative financial liabilities Net-settled commodity derivatives 40,445 1,330 2,333 - 44,108 Total as at 31 December 2019 1,481,900 729,334 1,485,502 875,088 4,571,824

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Notes to the financial statements Reconciliation of net cash flow to movement in net borrowings for the year ending 31 December 2020 (continued) 2020 2019 $000 $000 Proceeds from drawdown of borrowing facilities (157,500) (1,834,000) 26. Notes to the statement of cash flows Proceeds from financing arrangement - (29,600) Net cash flows from operating activities consist of: Conversion of E loan notes to equity - 675,264 Proceeds from exploration financing facility loan (12,858) (9,275) 2020 2019 $000 $000 Repayment of senior debt 774,000 200,000 (Loss)/profit before taxation (977,747) 455,558 Loan notes partial redemption 77,140 - Finance cost, excluding foreign exchange 261,693 256,399 Repayment of exploration financing facility loan 8,704 - Finance income, excluding foreign exchange (7,463) (31,611) Repayment of financing arrangement 1,634 - Depreciation, depletion and amortisation 1,222,103 917,015 Transaction costs capitalised 18,385 45,641 Impairment of property, plant and equipment 643,977 - Financing arrangement interest (payable)/receivable (4,947) 19,696 Impairment of goodwill 411,435 - Amortisation of transaction costs capitalised (17,052) (15,581) Taxes paid (189,592) (90,183) Currency translation adjustment on EFF loan (848) (175) Share based payments 11,800 10,905 Currency translation adjustment on transaction costs (3) 1 Decommissioning payments (162,071) (28,955) Loan notes interest capitalised (25,385) (69,767) Onerous contract provision 18,475 - Movement in total borrowings 661,270 (1,017,796) Exploration costs written-off 160,806 222 Movement in cash and cash equivalents (127,805) 256,871 Remeasurement on commodity price contingent consideration - 7,199 Decrease/(increase) in net borrowings in the year 533,465 (760,925) Remeasurement on exploration contingent consideration - (7,773) Opening net borrowings (2,249,503) (1,488,578) Remeasurement of acquisition completion adjustments 426 - Closing net borrowings (1,716,038) (2,249,503) Onerous contract payments (5,429) - Analysis of net borrowings Decrease in royalty consideration receivable 2,380 600 Gain on termination of IFRS16 lease (515) - 2020 2019 $000 $000 Loss on disposal of exploration and evaluation asset 55 - Cash and cash equivalents 445,377 573,182 Movement in realised cashflow hedges not yet settled (5,658) (23,746) Reserves Based Loan facility (1,448,550) (2,067,339) Unrealised foreign exchange loss 34,681 63,767 Junior facility (396,422) (395,613) Net debt (1,399,595) (1,889,770) Working capital adjustments: Shareholder loan notes (264,751) (316,506) (Increase)/decrease in inventories (11,186) 208 Exploration financing facility (14,151) (8,999) Decrease/(increase) in trade and other receivables 41,530 (6,086) Financing arrangement (37,541) (34,228) Decrease in trade and other payables (76,338) (4,858) Closing net borrowings (1,716,038) (2,249,503) Net cash inflow from operating activities 1,373,362 1,518,661

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Notes to the financial statements for the year ending 31 December 2020 (continued) Glossary 2C Contingent resources 2P Proven and probable reserves bbl Barrel 27. Related party disclosures BMS Business management system boe Barrel of oil equivalent boepd Barrel of oil equivalent per day The consolidated financial statements 89.6 percent from 48 percent. In February Copies of the Harbour Energy Holdings include the financial statements of the 2020, a partial redemption of both the Ltd consolidated financial statements can CEO Chief executive officer Company and its subsidiaries, a list of C Loan Notes and D Loan Notes took be obtained from the company secretary CUI Corrosion under insulation which is contained in note 14. place, of $4.9 million and $42.0 million at 7th Floor, 20 St. James’s Street, London, DD&A Depreciation, depletion and amortisation respectively, and in November 2020, a full SW1A 1ES. DNV Det Norske Veritas-Germanischer Lloyd The Group’s main related parties redemption of the remaining C Loan Notes EFF Exploration financing facility comprise members of key management took place, of $30.3 million. Key management compensation personnel and Harbour Energy Limited ESR Elected safety representative Remuneration of key management (Harbour Energy) along with affiliated As at 31 December 2020, the carrying FID Final investment decision personnel, including directors of the persons and entities. Harbour Energy is amount of D loan notes due to FEED Front End Engineering & Design Group, is shown below. The remuneration an energy investment vehicle formed by Harbour Energy was $264.8 million FPS Forties pipeline system of the Non-Executive Chairman is wholly EIG Global Energy Partners and is the (2019: $282.2 million) and the value paid by EIG Management Company. The HSEx Health and safety executive Group’s primary private equity investor. of C loan notes due to key management remuneration of the Harbour-appointed HSEQ Health, safety, environment and quality Transactions with these related parties are personnel was $nil million (2019: $2.0 million). directors for their board roles of the MAE Major accident event disclosed below. The amount of interest charged to the income statement associated with all loan Company is wholly paid by Harbour Energy. mboepd Thousand barrels of oil equivalent per day notes payable to Harbour Energy and key mmboe Million barrels of oil equivalent Share capital Post balance sheet events management was $24.6 million and MPE Ministry of petroleum and energy, Norway On 31 August 2019, the 10 percent $0.1 million respectively (2019: $67.3 million The merger with Premier continues per Unsecured E Loan notes held by Harbour OPPC Oil pollution prevention and control and $0.1 million respectively). deal plans and is expected to complete OPRED Offshore petroleum regulator for environment and decommissioning Energy, with a principal and accrued around 31 March 2021, with the admission interest value of $675.3 million, were The Company also pays governance of the new group to the London Stock OSDR Offshore safety directive regulator exchanged for 4,013,524 F ordinary shares and monitoring fees to its institutional Exchange. PCOA Put and call options agreement of £0.01 each. In November 2019, 225 M shareholders. For the year ended POP Platform operating procedure ordinary shares of £0.01 each were issued 31 December 2020, the total fees In February 2021, the Board approved a SWE Safe working essentials to certain members of key management payable to Harbour Energy amounted to partial redemption of the D Loan Notes of TAR Turnaround for a cash consideration of £10 per share. $8.6 million (2019: $8.6 million) and to other $135.7 million, for which the payment was shareholders $1.0 million (2019: $1.0 million) made on 15 March 2021. TRIF Total recordable incident frequency Shareholder loan notes with $0.6 million outstanding as at the WOSPS West of Shetland pipeline system At the end of 2018, Harbour Energy held balance sheet date (2019: $1.0 million). E loan notes with a principal value of Controlling Party $566.9 million plus accrued interest. Non-IFRS measures • Operating cost per barrel: direct • Free cash flow: defined as EBITDAX less On 31 August 2019, all the E Loan Notes The immediate parent undertaking is operating costs (excluding over/ capital expenditure. including accrued interest were exchanged Harbour Chrysaor Equity Holdings Ltd The Group uses certain measures of underlift) for the year including tariff for F ordinary shares, at a value of (Cayman). The ultimate parent undertaking performance that are not specifically • Net debt: the cash and cash equivalents expense and insurance costs less tariff $675.3 million. The main impact of the and the largest and smallest group to defined under IFRS or other generally less total senior and junior debt recognised income, divided by working interest exchange is that Harbour Energy’s direct consolidate these financial statements is accepted accounting principles. These on the consolidated balance sheet. This is production. This is a useful indicator equity interest in CHL increased to Harbour Energy Holdings Ltd (Cayman). non-IFRS measures, which are presented an indicator of the Group’s indebtedness of ongoing operating costs from the within the Financial Review are EBITDAX, and contribution to capital structure. Group’s producing assets. Cost per barrel, Depreciation, depletion and amortisation per barrel, free cash flow • Depreciation, depletion and and net debt and are defined below. amortisation (DD&A) per barrel: 2020 2019 depreciation and amortisation of oil $000 $000 • EBITDAX: is defined as earnings and gas properties for the year divided Salaries and short-term benefits 13,576 10,811 before tax, interest, depreciation and by working interest production. This is amortisation, remeasurements and a useful indicator of ongoing rates of Payments made in lieu of pension contributions 802 517 exploration expenditure. This is a depreciation and amortisation of the useful indicator of underlying business Pension benefits 120 190 Group’s producing assets. performance. 14,498 11,518

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