Tuesday 12 May 2020

Pharos Energy plc, an independent oil and gas exploration and production company, issues the following Trading and Operations update in advance of the Company’s AGM on 20 May 2020. The information contained herein has not been audited and may be subject to further review and amendment.

Ed Story, President and Chief Executive Officer, commented:

“The health and safety of our employees, contractors and other stakeholders is always a primary focus of Pharos. As the COVID-19 pandemic continues, it remains at the forefront of our thinking as we maintain production operations. Earlier in the year in response to low oil prices, we took prompt action and cut capital expenditure by deferring some of our largely discretionary investments in Egypt. We are working closely with our partners to achieve cost reductions across the business and are managing our portfolio to ensure we remain robust in this challenging period. We firmly believe demand for oil and gas will continue to be an important component of the global energy mix over many future decades and we are positioning ourselves to survive the low oil price environment for the medium to long term for the benefit of all our stakeholders”.

Summary

• Despite the COVID-19 pandemic, production operations continue in both Vietnam and Egypt, with strict health and safety measures in place. No reported cases of COVID-19 amongst staff, contractors or JV partners to date.
• Group working interest Q1 production 11,589 boepd net
• Egypt Q1 production 5,596 bopd; April averaged 6,396 bopd and peaked at 7,009 bopd 23 April 2020
• Vietnam Q1 production 5,993 boepd; April averaged 6,467 boepd
• Vietnam 2019 two-well TGT drilling campaign completed on time and under budget, and the upgrade to Gas Turbine compressors completed ahead of schedule in Q1 2020
• Group revenue for Q1 2020 was c.$35.0m before the benefit of our Q1 hedges of $5.8m;
• A further $6.3m of hedging revenues have been booked for April
• Mark to Market (“MTM”) value of hedges as at 30 April for the remainder of 2020 stands at $23.7m
• Remaining eight months of the year c.52% of forecast production, hedged at an average price of c.$53/bbl
• Group Q1 cash Opex was under $12/bbl
• Cash balances as at 30 April 2020 of c.$54.5m, Net debt of c.$41.7m
• Cash capex for full year of $44m of which over 60% incurred by 30 April
• Dividend payments withdrawn for 2020 given the continued uncertainly in the macro environment
• Group is targeting an overall reduction in its cost base of c.25% across the business
• 2020 Production Guidance
• Egypt 2020 production guidance, taking account of capex deferral programme now updated to 5,000- 6,000 bopd
• Vietnam 2020 production guidance remains unchanged at 5,500-6,500 boepd net

COVID- 19 response

We have taken swift and robust action to help our employees, contractors and other stakeholders to stay safe and well. Our production operations in Egypt and Vietnam have not been disrupted by COVID-19 and, in line with the government directives in Egypt, Vietnam and the UK, measures are in place to minimise the risk of any outbreak occurring. In Vietnam, in addition to following government guidelines, the HLHVJOC has implemented a policy of testing all staff for COVID-19 before transfer to offshore operations. In the event that a case of COVID-19 is identified offshore, personnel evacuation plans and other mitigation measures are in place to ensure that the impact of any outbreak is quickly contained and operations are maintained.

In Egypt, at the El Fayum base camp, Petrosilah has implemented robust health and safety and social distancing measures to mitigate the risk of any cases of COVID- 19 arising.

In the UK and Vietnam, office staff have been working from home with negligible disruption to the business. In the Cairo office, in line with Egyptian government guidelines, social distancing measures are in place; half the staff work from home and half in the office on a two-week rotation with negligible disruption to the business.

Outlook

We have acted promptly to protect the balance sheet and preserve the resilience of our business in order to survive in a prolonged period of low oil prices. The business in Vietnam is well positioned with its low breakeven price; and in Egypt, we are using the break in drilling activity to improve revenues, costs and productivity. Our approach to hedging will stand us in good stead this year while we shape the business to be fit for purpose for the future.

In a prolonged oil price environment the company has flexibility across the business and continues to evaluate alternative scenarios for its Egyptian assets, where the inherent flexibility offers a range of operational options if the downturn progresses.