Providing creative solutions through the energy transition EnQuest PLC EnQuest PLC Annual Report and Accounts 2020 Annual Report and Accounts 2020 Our purpose Contents STRATEGIC REPORT 01 Highlights Providing creative 02 Stakeholder engagement 04 Key performance indicators 06 Our purpose solutions through the 08 Protecting our people 10 Chairman’s statement 12 Chief Executive’s report energy transition 16 Transforming our business 18 Operating review 24 Reserves and resources 25 Hydrocarbon assets 26 Financial review Our strategy 32 Environmental, Social and Governance EnQuest’s strategic vision is to be the operator 34 A responsible operator 38 Our people and communities of choice for maturing and underdeveloped 46 Robust risk management hydrocarbon assets by focusing on operational framework 60 Business conduct excellence, differential capability, value enhancement 61 Task Force on Climate-related and financial discipline. Financial Disclosures CORPORATE GOVERNANCE 64 Board of Directors 66 Executive Committee 68 Chairman’s letter Our business model 70 Corporate governance statement 75 Audit committee report STRATEGIC 82 Directors’ remuneration report PILLARS 102 Governance and nomination BUSINESS committee report CE FOCUS D N DR I 105 Safety, climate and risk E IL FF LL BUSINESS LI E E MODEL N R committee report C S G E X T A N 107 Technical and reserves E E N T S I L S D A committee report A L A S N E U C 109 Directors’ report O A I R B T U - P S A A T E B R A A FINANCIAL STATEMENTS E I L M T P I T 114 Statement of Directors’ I O E Y - Responsibilities for the Group Deliver B A Financial Statements C K 115 Independent Auditor’s Report S to the Members of EnQuest PLC 125 Group Income Statement 126 Group Balance Sheet 127 Group Statement of Changes De-lever Grow in Equity F 128 Group Statement of Cash Flows I N T 129 Notes to the Group Financial A N N E Statements C M IA E 169 Statement of Directors’ L C D N Responsibilities for the Parent IS A C H Company Financial Statements I EN PL DE T E 170 Company Balance Sheet IN VELOPMEN LU E VA 171 Company Statement of Changes in Equity 172 Notes to the Financial Statements Read more See pages 01, 176 Glossary – Non-GAAP measures 06 to 07, 10 to 179 Company information 23 and 26-33 Strategic report Corporate governance Financial statements Highlights 2020 performance 2021 outlook3 EnQuest’s quick and decisive actions in early 2020 have transformed the Company, Net production Net production range materially lowering its cost base and free (Boepd) (Boepd) cash flow breakeven1. Production for the year was in line with guidance, reflecting a better than expected performance at Kraken offset by lower production in c. Malaysia, while operating and capital 59,116 46,000 expenditures were reduced by $296 million. Free cash flow generation of $211 million -14% to was strong, facilitating a further reduction 52,000 in net debt. Business performance gross 1 profit of $71.4 million was 84.8% lower than Unit opex Operating expenditure 2019, primarily reflecting lower market prices ($/Boe) ($ million) for oil. The Group recorded a Business performance loss before finance costs and tax of $20 million, reflecting the c. increased non-cash decommissioning 15 265 provision for fully impaired assets. The proposed acquisition of the Golden -26% Eagle assets in the UK North Sea will strengthen the business, adding material 1 EBITDA Cash capital and low-cost production and cash flows. ($ million) abandonment expenditure ($ million) 551 c.120 -45% Free cash flow breakeven2 Read more ($/Boe) See pages 04, 10 to 23 and 26 to 31 32 -35% 2020 2019 Change 2020 statutory reporting metrics $m $m % Revenue and other operating income 865.6 1,646.5 (47.4) Profit/(loss) before tax (566.0) (729.1) 22.4 Basic earnings/(loss) per share (cents) (37.8) (27.4) (38.0) Net cash flow from operating activities 522.1 962.3 (45.7) Net assets/(liabilities) (64.6) 559.1 (114.0) Notes: 1 See reconciliation of alternative performance measures within the ‘Glossary – Non-GAAP measures’ starting on page 176 2 Based on the Group’s aggregate cash outflows prior to any debt repayments and $37.3 million of Magnus-related third-party gas purchases divided by net working interest production 3 Based on the Group’s existing portfolio This Strategic report includes details of EnQuest’s strategy, business model, capabilities, Values, performance and key risks. The Group’s performance since the last Annual Report and current outlook is covered within the Chairman’s statement, the Chief Executive’s report, the Operating and Financial reviews and the Environmental, Social and Governance section. Unless otherwise stated, all figures quoted in the Strategic report are on a Business performance basis and are in US Dollars. EnQuest PLC Annual Report and Accounts 2020 01 Stakeholder engagement Direct Board-level Section 172 Stakeholder Why they are important engagement in 2020 Other 2020 activities A. Workforce Our employee and contractor workforce is critical to Employee forum; video See pages 16 and 17 for an overview of the UK’s Statement the delivery of SAFE Results and EnQuest’s success. messages; subject matter Transformation 2020 programme and pages 38 to As such, we are committed to ensuring EnQuest expert virtual attendance at 43 of the ESG section which detail the various The Directors have always had regard remains a great place to work. We have a strong set Board and Board Committee people-related initiatives implemented during the for the potential impact of the Group’s of Values that underpin our way of working and are meetings; physical and virtual year, including the employee survey results and our activities on its various stakeholders. dedicated to delivering SAFE Results. We provide a safety leadership people’s safety and wellbeing, particularly in relation rewarding work environment, with opportunities for engagement visits, corporate to the asset integrity issues faced in 2020, combined In the majority of cases, information growth and learning while contributing to the purpose evolution; and with the dual impacts of EnQuest’s response to and feedback are provided delivery of our strategy. interactive virtual town halls. COVID-19 (also see pages 08 to 09) and the UK throughout the year to the Directors Transformation programme. by the Group’s Executive Directors, B. Investors Our investors support management in the execution Virtual meetings, calls and See the Strategic report on pages 01 to 63 which senior and functional management of EnQuest’s business strategy, including the direct correspondence in explains the Company’s performance and and external advisers through a provision of capital for management to develop relation to the Group’s investment decisions during 2020. variety of Board reports, presentations the business in order to deliver returns in a financial and operating Page 72 of the Corporate governance statement responsible manner. performance, purpose outlines how the Group engages with its investors. and ad hoc correspondence. When statement, ESG philosophy, appropriate, the Directors may advise emissions reduction targets further engagement is required, and the Group’s proposed which could potentially be direct Remuneration Policy updates. engagement by the relevant Director, C. Partners We collaborate with our joint venture partners, None. The Group has regular engagement with its joint and/or request additional information securing their support to deliver our asset plans. We venture partners on day-to-day asset management to ensure they have a full value their contribution to the effective operational and the execution of the longer-term asset strategy. and financial management of our assets as we This occurs through a combination of formal appreciation of a given situation prior deliver on our business strategy. interactions, governed by joint operating agreements, to making any decisions. As such, the and via informal engagement, including sharing of Directors are able to fulfil their duty to relevant industry experience, insights and best practice and/or developing performance promote the long-term success of the improvement initiatives. Company for its stakeholders. See pages 18 to 23 of the Strategic report for further details on operational and financial activities and The Directors consider the items decisions undertaken across our assets. disclosed on the following page to be Joint venture partners are recognised as one of the principal decisions on the basis of Group’s principal risks and uncertainties on page 57. materiality of the incremental impact these are anticipated to have on D. Host EnQuest works closely with the host governments Video meetings and calls with For further details, see pages 08 to 09 for our governments and regulators in the jurisdictions in which it the Oil and Gas Authority in the COVID-19 response which was aligned to a number of stakeholders and/or operates. The Group complies with the necessary UK and Malaysian Petroleum government and regulatory advice, the Strategic the Company. and regulators regulatory requirements, including those related to Management in Malaysia. report on pages 01 to 63 and the Group’s Principal environmental matters such as reducing emissions, Risks and Uncertainties on pages 46 to 59, which to ensure the Company maintains a positive outline EnQuest’s strong relationships with reputation and licence to operate, enabling the governments and regulators. Pages 32, 33 and 63 of effective delivery of the Group’s plans for its existing the ESG section and pages 110 to 113 of the Directors’ portfolio and providing access to appropriate Report outline further details on the Group’s growth opportunities. regulatory compliance activities. E. Suppliers EnQuest relies on its suppliers to provide specialist None.