Annual Report and Accounts
RAK Petroleum plc
1
Contents
Chairman’s Letter 2
I. Strategic Report 4
II. Report of the Directors 17
III. Audit Committee Report 33
IV. Directors’ Remuneration Report 36
V. Directors’ Remuneration Policy 42
VI.
Statement of Directors’ Responsibilities 51
VII. Consolidated and Parent Company Financial Statements 52
-
Consolidated Statement of Cash Flows 63
-
Consolidated Statement of Changes
in Equity 64
-
Parent Company Statement of Cash Flows 66
-
Parent Company Statement of Changes in Equity 66
2
RAK Petroleum
plc
Chairman’s
Letter
Dear Shareholders:
On behalf of the Board of Directors of
RAK Petroleum plc (“RAK Petroleum”
or the “Company”), I am pleased
to present the Annual Report of the
Company’s business activities together
with the Consolidated and Parent
Company Financial Statements for the
year ended 31 December 2021 and the
Auditors’ report thereon.
The Company currently holds interests
in two oil and gas companies (the
“Investment Entities”): DNO ASA
(“DNO”) and Foxtrot International
LDC (“Foxtrot International”). At
31 December 2021, the Company
indirectly owned 44.94 percent of the
total outstanding shares of DNO and
indirectly owned 33.33 percent of
Foxtrot International.
DNO
On the ftieth anniversary of its
founding, DNO reported record
revenues exceeding USD 1 billion in
2021, up 63 percent from a year earlier
on the back of higher oil and gas prices
and solid production performance.
Annual operating prot climbed to
USD 321 million, compared to an
operating loss of USD 315 million in
2020. Strong 2021 free cash ow of
USD 362 million drove a 68 percent
reduction in net debt to USD 153
million at year-end.
Notwithstanding reduced drilling
activity due to the Covid-19 pandemic
and related budget cuts, DNO
managed to maintain gross operated
production of 108,700 barrels of oil
per day (“bopd”) at its agship Tawke
licence in the Kurdistan region of Iraq
(“Kurdistan”), representing 81,500
bopd net to DNO. North Sea net
production averaged 12,900 barrels
of oil equivalent per day (“boepd”),
bringing DNO’s total 2021 net
production to 94,500 boepd.
Starting in the third quarter of
2021, DNO ramped up its drilling
activity on the Tawke licence,
aiming to keep licence production
essentially unchanged in 2022. Also
contributing to enhanced oil recovery
within the licence is the USD 110
million Peshkabir-Tawke gas project
commissioned in mid-2020. During
2021, a total of 7.6 billion cubic feet
of otherwise ared gas, equivalent to
461,500 tonnes of CO
2
, was captured
at the Peshkabir eld and injected into
the Tawke eld for pressure support.
In late December 2021, the
DNO-operated Baeshiqa licence
development was approved by the
Kurdistan Regional Government
(“KRG”). The project represents
DNO’s rst new eld development
in Kurdistan since the start-up of
Peshkabir in 2017, and as with
Peshkabir, DNO is fast-tracking
production, targeting organic growth
in Kurdistan overall.
In the North Sea, DNO is positioned
to grow as new production comes on
stream. Currently, DNO is involved in
the ongoing Fenja eld development
as well as holding a stake in four PDOs
(plan for development and operation)
projects targeting 2022 sanction,
including DNO-operated Brasse.
North Sea exploration continues to be
prioritised following two discoveries
in 2021 which are expected to
be commercial. Seven North Sea
exploration wells are planned for
2022, all in proven basins and close to
existing infrastructure.
At year-end 2021, DNO held 90
licences across its portfolio. In
Kurdistan, DNO continues to produce
what are among the lowest cost barrels
in the global oil and gas industry
while the North Sea offers high quality
exploration opportunities. With a
record-high operational spend of USD
800 million planned in 2022, DNO
remains committed to explore for and
produce oil and gas in a commercially
attractive but also socially responsible
and environmentally sensitive manner.
Following a resumption of DNO’s
dividend policy, a dividend of USD
9.8 million was received from DNO in
late 2021. This fourth dividend receipt
brings the total dividends received
from DNO since 2018 to almost USD
40 million.
3
agreements. I am privileged to serve
as the Chairman of both Investment
Entities while Shelley Watson, the
Company’s Chief Operating Ofcer
and Chief Financial Ofcer, serves
as a member of the DNO Board of
Directors, its Audit Committee and its
HSSE Committee.
On behalf of the Board of Directors,
I gratefully acknowledge executive
management’s and staff’s diligence and
commitment to the Company.
Finally, the members of the Board of
Directors are grateful to our fellow
RAK Petroleum shareholders for your
continued support and condence and
invite you to visit our website (www.
rakpetroleum.uk) for updates on our
activities.
Bijan Mossavar-Rahmani
Executive Chairman of the
Board of Directors
31 March 2022
Foxtrot International
Foxtrot International continued to be
a critical part of Côte d’Ivoire’s total
gas production from its offshore CI-27
licence, supplying over 85 percent
of the country’s gas needs in 2021.
Gas sales for the year averaged 183.8
million standard cubic feet per day
(“mmscfd”) with sales increasing at
times to over 200 mmscfd to meet
increasing demand from the electricity
sector.
Following amendments to their gas
sales and purchase agreement and
the Production Sharing Contract with
the Government of Côte d’Ivoire
extending the terms of the agreements
for 10 years until August 2034 and
increasing the price of gas from the
date of signature in February 2020,
the CI-27 joint venture partnership has
begun spending approximately USD
130 million on new onshore processing
facilities and pipelines to supply gas to
two new power stations in the country.
This work is well underway with the
drilling of three new and two side-
track wells also in progress at year-end.
This additional processing and well
capacity is slated to enable an increase
in gas supply to over 230 mmscfd,
subject to electricity sector demand
and well performance.
Our share of net cash ow from
Foxtrot International was USD
5.1 million during the year. Since
acquisition, the Company has received
a cumulative net cash ow of USD
83.2 million from Foxtrot International.
Cash ow from Foxtrot International is
expected to be positive going forward
with any future capital investments
funded by operating revenue.
RAK Petroleum
The Company retains a small
team of experienced operational,
legal, commercial and nancial
professionals responsible for managing
investments, screening new ventures,
compliance with regulatory and
listing requirements and shareholder
relations. In addition, the Company
supports DNO and Foxtrot International
through board positions and services
4
RAK Petroleum
plc
•
Improving liquidity and realisable
value in the Company’s equity
shares;
•
Continuing to help enhance
the operating and nancial
performance of its Investment
Entities in a socially responsible
and environmentally sensitive
manner;
•
Focusing on growth in the
Middle East, West Africa and
North Sea regions, both through
its Investment Entities and by
seeking to identify other attractive
acquisition opportunities in
oil and gas exploration and
production when perceived
geopolitical and other risks are
manageable; and
•
Continuing to enhance
relationships with governments
and other stakeholders in support
of its Investment Entities.
The Company can generate signicant
shareholder returns by growth in the
market value of its shares, through
dividends or through other
distributions to shareholders.
Although inuenced by many factors,
the market value of the Company’s
shares can grow principally through
growth in the net asset values (“NAV
Growth”) of the Investment Entities or
through a lower discount of those net
asset values (“NAV Discount”) to the
market value of the Company’s
shares. One strategy of the Company
is to seek to reduce that NAV Discount
over time, or even reverse it, so that
the Company’s shareholders can
realise the underlying market values of
the Company’s investments.
The Company’s indirect shareholding
in DNO is its largest asset by far and
has the greatest impact upon the
overall value of the Company. DNO
paid dividends to its shareholders in
September 2018, March 2019 and
November 2019. DNO then
suspended its dividend programme in
2020 as part of its cost reduction
programme in response to the
The Company
RAK Petroleum plc (“RAK Petroleum”
or the “Company”) is a public limited
company by shares incorporated
on 17 June 2013 under the laws of
England and Wales and pursuant
to the Companies Act 2006 (“UK
Companies Act”) with company
number 08572925 and registered
ofce at Highdown House, Yeoman
Way, Worthing, West Sussex
BN99 3HH, United Kingdom. The
Company’s Class A Shares have
been listed on the Oslo Børs since 7
November 2014.
The Company currently holds interests
in two oil and gas companies (the
“Investment Entities”): DNO ASA
(“DNO”) and Foxtrot International
LDC (“Foxtrot International”). At
31 December 2021, the Company
indirectly owned 44.94 percent of the
total outstanding shares of DNO and
indirectly owned 33.33 percent of
Foxtrot International.
The Company’s interests in the
Investment Entities are held through
RAK Petroleum Holdings B.V.
(“RAKP BV”), an entity established
under the laws of the Netherlands.
RAKP BV holds the Company’s
44.94 percent interest in DNO as
well as its 100 percent interest in
Mondoil Enterprises, LLC (“Mondoil
Enterprises”). Mondoil Enterprises
owns 50 percent of Mondoil Côte
d’Ivoire LLC (“Mondoil Côte d’Ivoire”),
which, in turn, owns 66.66 percent
of Foxtrot International, resulting in
the Company’s indirect 33.33 percent
interest in Foxtrot International.
Our Company’s Strategy,
Objectives and Business
Model
The Company’s fundamental objective
is to generate significant total
shareholder returns from investments
in the oil and gas industry, with a
focus on the Middle East, West Africa
and North Sea regions.
The Company seeks to pursue this
objective by:
I. Strategic
Report
5
Covid-19 pandemic and oil price
collapse in March 2020. DNO resumed
its dividend programme in 2021 with
payments of dividends in December
2021 and March 2022. There is no
assurance that dividends will continue,
and if they did, that these would be
paid on a regular basis.
Distributions from Foxtrot
International have provided the
Company with regular cash ow for
several years and these distributions
may not only provide for all the
Company’s working capital needs, but
may also be available for future
investments, share buybacks or for
dividends or other cash distributions
to the Company’s shareholders.
Dividends or other cash distributions
can be made available either through
dividends to the Company from the
Investment Entities or through an
extraordinary transaction involving the
Company and/or the Investment
Entities.
Development and
Performance of the Business
During the Year and its
Position at Year-End
The Company’s and the Group’s
key performance indicators are the
nancial performance indicators of its
Investment Entities.
Until year-end 2017, the Group had
accounted for its interest in DNO using
the equity method of accounting and
reported its results in prior years on
that basis. Upon re-examination of the
factors that inuence that decision
following discussion with a Review
Group of the United Kingdom’s (“UK”)
Financial Reporting Council (“FRC”)
during 2017, the Group determined
to account for DNO on a consolidated
basis for the year ended 31 December
2017 and has continued to do so
for the years ended 31 December
2018 through to 31 December 2021.
Further detail regarding this judgement
can be found in the Notes to the
Consolidated and Parent Company
Financial Statements. The share of
prot attributable to the Company’s
shareholders is not materially
affected by this change in accounting
treatment; however, the presentation
and statement of nancial position of
the Group is affected. Throughout this
Annual Report, references to the Group
include DNO on a gross consolidated
basis.
The Company and its wholly-owned
subsidiaries have no direct production
or expenditure in oil and gas assets.
Rather, production and expenditure
in oil and gas assets are carried out
through the Investment Entities, DNO
and Foxtrot International, which are
discussed separately below. Due to the
nuances of the nancial reporting rules
which require DNO but not Foxtrot
International to be included in the
Group’s non-nancial performance
gures, it is more meaningful to discuss
the business for the year ended 31
December 2021 of the Company and
each Investment Entity separately.
As a consequence of the results of its
Investment Entities, the Group recorded
a consolidated net comprehensive
income attributable to equity holders
of the Company of USD 99.8 million
for the year 2021 (net comprehensive
loss of USD 131.80 million in 2020).
At 31 December 2021, total cash and
cash equivalents of the Company stood
at USD 4.2 million and including its
wholly-owned subsidiaries stood at
USD 35.6 million. The Company had
no bank debt remaining at year-end
2021 (USD 2.1 million at 31 December
2020).
At 31 December 2021, the Company’s
stake in DNO had a market value of
USD 519.7 million based on DNO’s
quoted share price and year-end
exchange rate and represented
approximately 85 percent of the net
asset value of the Company, using
DNO’s quoted share price and the book
value of Mondoil Enterprises.
Net equity of the Group attributable to
equity holders of the Company at 31
December 2021 stood at USD 797.1
million compared with USD 697.3
million at 31 December 2020.
DNO
DNO is a Norwegian exploration and
production company listed on the Oslo
Børs (Oslo Stock Exchange) and focused
on the Middle East and North Sea
regions. It has interests in oil and gas
licences in various stages of exploration,
development and production, both
onshore and offshore. DNO’s growth
comes through smart exploration, cost
effective and fast track development,
efcient operating techniques and
strategic acquisitions.
Founded in 1971 and listed on the Oslo
Børs since 1981, DNO is headquartered
in Oslo, with ofces in Stavanger,
Dubai, Aberdeen and Erbil with a
total of 1,327 employees at year-end
2021. The Executive Chairman of the
Board of Directors of the Company,
Mr. Mossavar-Rahmani, is also the
Executive Chairman of the DNO Board
of Directors.
At 31 December 2021, DNO held
interests in 90 licences in four countries
on two continents in the Middle East
and North Sea regions and had one
of the largest market capitalisations
among oil and gas companies listed
on the Oslo Børs. DNO’s principal
producing assets and reserves are in
Kurdistan where it holds two licences,
in Norway where it holds 73 licences
and in the UK where it holds 11
licences. Licences are also held in the
Netherlands (two licences), Ireland (one
licence) and Yemen (one licence).
Following DNO’s re-entry into the North
Sea through strategic 2017 and 2019
acquisitions, DNO became a full cycle
North Sea player with a signicant
portfolio of exploration, production
and development projects and an
experienced North Sea oil and gas
team.
DNO continues to develop a pipeline
of new business opportunities with
a focus on its core Middle East and
North Sea regions. It actively pursues
growth opportunities in exploration,
development and production assets,
both organically and through potential
6
RAK Petroleum
plc
mergers and acquisitions. DNO
announced in January 2022, following
the reporting period, that it had been
awarded participation in 10 additional
exploration licences in Norway, of
which three are operatorships, under
Norway’s Awards in Predened Areas
(“APA”) 2021 licensing round.
DNO reported gross operated
production in 2020 of 108,713 barrels
of oil equivalent per day (“boepd”),
down from 110,282 boepd in 2020.
DNO’s net production stood at 94,477
boepd in 2021 down from 100,063
boepd in 2020
1
.
With net proven and probable (“2P”)
reserves totalling 331 million barrels
of oil equivalent (“MMboe”) across its
portfolio, DNO has the asset base to
sustain long-term production growth.
During 2021, DNO had an average
lifting cost of USD 5.3 per barrel of oil
equivalent (“boe”) (2020: USD 4.9 per
boe).
Middle East
DNO holds three operated licences
in the Middle East; two in Kurdistan
(Tawke and Baeshiqa) and one in
Yemen (Block 47).
DNO holds a 75 percent interest in
and is operator of the Tawke licence
with Genel Energy plc holding
the remaining 25 percent. Gross
production from the Tawke licence,
containing the Tawke and Peshkabir
elds, averaged 108,713 barrels of
oil per day (“bopd”) during 2021
(110,282 bopd in 2020). The Tawke
eld contributed 46,933 bopd (55,570
bopd in 2020) and the Peshkabir eld
contributed 61,780 bopd (52,712
bopd in 2020).
Drilling at the Tawke eld resumed
in the third quarter of 2021 after an
18-month pause. With few new wells,
production decline has been partially
offset by gas injection and workovers.
At year-end four new Tawke eld
development wells had been spudded,
in addition to four Peshkabir wells
spudded during the year.
DNO’s USD 110 million Peshkabir-
Tawke gas project, which was
commissioned in mid-2020, captured
and injected 7.6 billion cubic feet
(461,500 tonnes of CO
2
equivalent) of
Peshkabir gas that would otherwise
have been ared into the Tawke eld
in 2021.
Following KRG approval in August
2021 of the acquisition by DNO of
ExxonMobil Kurdistan Region of Iraq’s
(“ExxonMobil”) 32 percent interest,
DNO is operator of the Baeshiqa
licence with a 64 percent interest (80
percent paying interest), along with
Turkish Energy Company Limited with
16 percent (20 percent paying interest)
and the KRG with 20 percent (carried
interest).
In parallel, commerciality was declared
on the licence and development plans
submitted. Shortly before year-end,
the rst phase development plan
for the licence was approved by the
KRG, clearing the way for a fast-track
project to deliver early production
from previously drilled but suspended
discovery wells. The Baeshiqa
development is DNO’s rst new eld
development in Kurdistan since the
start-up of the Peshkabir eld in 2017.
The Baeshiqa licence contains
two large structures with multiple
independent stacked reservoirs,
including in the Cretaceous, Jurassic
and Triassic formations. The structures
at Baeshiqa and Zartik have the
potential to be part of a single
accumulation of hydrocarbons at one
or more of the geological formation
intervals.
At the Baeshiqa structure and
following a discovery in 2019, testing
and appraisal of the Baeshiqa-2
exploration well was concluded in
2020. The well tested hydrocarbons
to surface from multiple Jurassic and
Triassic zones. DNO has performed
additional appraisal studies in 2021.
At the Zartik structure approximately
15 kilometres southeast of the
Baeshiqa-2 discovery well, DNO
completed drilling of the Zartik-1 well
in 2020. The well tested hydrocarbons
at surface from several Jurassic zones.
DNO performed additional appraisal
studies in 2021.
At the Tawke licence containing the
Tawke and Peshkabir elds, at year-
end 2021 gross proven (“1P”) reserves
stood at 216.2 million barrels of oil
(“MMbbls”) (162.2 MMbbls on a net
basis), compared to 234.4 MMbbls
(175.8 MMbbls on a net basis) at
year-end 2020. At year-end 2021
gross proven and probable (“2P”)
reserves stood at 356.6 MMbbls (267.4
MMbbls on a net basis), compared
to 393.9 MMbbls (295.4 MMbbls
on a net basis) at year-end 2020. At
year-end 2021 gross proven, probable
and possible (“3P”) reserves stood at
464.7 MMbbls (348.5 MMbbls on a
net basis), compared to 604.9 MMbbls
(453.7 MMbbls on a net basis) at year-
end 2020. At year-end 2021, gross 2C
resources stood at 47.6 MMbbls (35.7
MMbbls on a net basis), compared to
17.7 MMbbls (13.3 MMbbls on a net
basis) at year-end 2020.
At the Baeshiqa licence, the Baeshiqa
structure recorded gross 2C resources
of 48.4 MMbbls (31.0 MMbbls on a
net basis) at year-end 2021, compared
to 37.8 MMbbls (12.2 MMbls on a net
basis) at year-end 2020. At the Zartik
structure gross 2C resources stood at
7.4 MMbbls (4.7 MMbbls on a net
basis) at year-end 2021, compared to
4.7 MMbbls (1.5 MMbbls on a net
basis) at year-end 2020.
In Yemen, political instability has
meant the Block 47 licence remains in
force majeure with the development
of the Yaalen eld on hold. Gross 2C
resources at Block 47 stood at 6.2
MMbbls (4.8 MMbbls on a net basis),
unchanged from year-end 2020.
North Sea
In 2021, DNO continued to high-
grade its North Sea portfolio through
a combination of licencing round
awards, licence transactions and
relinquishment of licences considered
not sufciently attractive.
1
Effective from 2021, DNO reports its net production, reserves and resources based on the percentage ownership in all its licences. Prior to 2021, DNO reported its net gures from licences
governed by production sharing arrangements on a Company Working Interest (taking account of royalty) basis. Comparison gures for 2020 are updated accordingly
7
At year-end 2021, DNO held interests
in 87 (2020: 95) licences across its
North Sea portfolio, of which 26 were
operatorships, with 73 (2020: 76)
licences in Norway (23 operatorships),
11 (2020:16) licences in the UK (three
operatorships), two licences in the
Netherlands and one licence in Ireland.
DNO had diversied production across
10 elds in the North Sea of which
eight are in Norway and two in the UK.
During 2021, net production averaged
12,942 boepd (17,352 boepd in
2020), of which 12,469 boepd were
attributable to Norway and 473 boepd
to the UK (16,465 boepd and 887
boepd, respectively, in 2020).
In 2021, North Sea production
was down compared to 2020 due
to natural decline and planned
maintenance.
DNO conducted an active drilling
programme in Norway with seven
development wells and ve exploration
wells during the year. This resulted
in four discoveries, two of which are
expected to be commercial, notably
Røver Nord in licence PL923 and the
deeper Are formation of the 2020
Bergknapp discovery in licence PL836S.
Also in Norway, the DNO-operated
Brasse project as well as the partner-
operated Iris-Hades, Gjøk and Orion
discoveries target 2022 PDO (plan for
development and operation) sanction,
supporting DNO’s North Sea growth
ambitions.
DNO-operated plugging and
abandonment operations on the
Olsevar eld in Norway and the Ketch
eld in the UK were completed during
2021.
In January 2022, DNO’s wholly-owned
subsidiary DNO Norge AS was awarded
participation in 10 exploration licences,
of which three are operatorships,
under Norway’s Awards in Predened
Areas (APA) 2021 licencing round.
At year-end 2021, DNO held 73
licences in Norway in various stages
of exploration, development and
production. Across its Norway portfolio
and on a net basis, DNO’s 1P reserves
totalled 33.2 MMboe, 2P reserves
stood at 52.3 MMboe, 3P reserves
totalled 70.2 MMboe and 2C resources
stood at 112.2 MMboe. On a net basis,
at year-end 2020, DNO’s portfolio of
76 licences in Norway held 1P reserves
of 40.0 MMboe, 2P reserves of 63.1
MMboe, 3P reserves of 94.0 MMboe
and 2C resources of 118.7 MMboe.
In the UK, DNO held 11 licences at
year-end 2021. On a net basis, 1P
reserves totalled 0.7 MMboe, 2P
reserves stood at 1.6 MMboe, 3P
reserves totalled 1.9 MMboe and 2C
resources stood at 1.1 MMboe. In the
UK at year-end 2020, on a net basis,
DNO’s 16 licences held 1P reserves
of 1.0 MMboe, 2P reserves of 1.4
MMboe, 3P reserves of 1.9 MMboe
and 2C resources of 0.9 MMboe.
Overall Reserves and Resources
DNO’s Annual Statement of Reserves
and Resources (“ASSR”) has been
prepared in accordance with the
Oslo Børs listing and disclosure
requirements Circular No. 1/2013 and
the Petroleum Resource Management
System approved by the Society of
Petroleum Engineers. International
petroleum consultants DeGolyer and
MacNaughton carried out the annual
independent audit of the Tawke licence
(containing the Tawke and Peshkabir
elds) and the Baeshiqa licence
(containing the Baeshiqa and Zartik
discoveries) in Kurdistan. International
petroleum consultants Gaffney, Cline &
Associates carried out an independent
audit of DNO’s licences in Norway and
the UK. DNO internally assessed Yemen
Block 47.
At year-end 2021, DNO’s net 1P
reserves stood at 196.1 MMboe,
compared to 216.9 MMboe at
year-end 2020, after adjusting for
production during the year and
upward technical revisions. On a 2P
reserves basis, DNO’s net reserves stood
at 321.4 MMboe, compared to 359.9
MMboe at year-end 2020. On a 3P
reserves basis, DNO’s net reserves were
420.6 MMboe, compared to 549.6
MMboe at year-end 2020. DNO’s net
2C resources were 189.5 MMboe,
compared to 151.3 MMboe at year-
end 2020.
DNO’s net production in 2021 totalled
34.5 MMboe (of which 29.8 MMbbls
of oil were in Kurdistan, 4.5 MMboe
in Norway and the balance in the UK),
compared to 36.6 MMboe in 2020 (of
which 30.3 MMbbls were in Kurdistan,
6.0 MMboe in Norway and the balance
in the UK).
DNO’s net year-end 2021 Reserve
Life Index (reserves divided by current
period production rate) stood at 5.7
years on a 1P reserves basis, 9.3 years
on a 2P reserves basis and 12.2 years
on a 3P reserves basis.
Financial Performance
DNO’s total revenues in 2021 stood at
USD 1,004.1 million, up 63 percent
from USD 614.9 million in 2020 on the
back of higher oil and gas prices and
solid production. Kurdistan revenues
stood at USD 594.3 million (USD 369.1
million in 2020), while the North Sea
generated revenues of USD 409.8
million (USD 245.8 million in 2020).
DNO reported an annual operating
prot of USD 320.9 million (operating
loss of USD 314.5 million in 2020),
mainly driven by improved oil and
gas prices, lower depreciation and
impairments, partly offset by higher
expensed exploration.
Cost of goods sold of USD 443.1
million (USD 590.0 million in 2020)
was lower due to lower depreciation,
depletion and amortisation (“DD&A”)
per boe and reduced net production
in 2021. Lifting costs in 2021 totalled
USD 184.2 million, compared to USD
181.1 million in 2020. Lifting costs per
barrel in Kurdistan stood at USD 3.3
in 2021 (USD 3.1 per barrel in 2020).
Lifting costs in the North Sea were USD
17.9 per boe in 2021 (USD 13.6 per
boe in 2020). The increase in the North
Sea lifting cost per boe was driven
by changes in relative production
8
RAK Petroleum
plc
between different elds. Impairment
charges of USD 80.1 million in 2021
were down from USD 276.0 million
in 2020. Impairments in 2021 were
mainly driven by revision in reserves
and contingent resources and revision
of cost estimates for decommissioning
in the North Sea. Exploration costs
expensed of USD 132.3 million (USD
55.9 million in 2020) increased due to
higher expensing of wells and seismic
purchase in the North Sea.
DNO’s comprehensive net income
after accounting for nancial income
(USD 26.0 million, 2020: 19.8 million),
nancial expenses (USD 126.7 million,
2020: 131.0 million) and taxes (USD
16.3 million, 2020: (139.8) million) was
USD 195.0 million (USD 297.9 million
net loss in 2020).
DNO’s 2021 capital expenditures
amounted to USD 280.6 million,
up from USD 225.0 million in 2020
driven by higher activities at the Tawke
licence in Kurdistan following reduced
activities in the rst half of 2020 due to
the impact of Covid-19.
Net cash ows from DNO’s operating
activities for the year were USD 728.8
million, compared to USD 406.2 million
in 2020. North Sea tax refunds of
USD 174.7 million received during the
year contributed to the strong 2021
cash ows from operating activities.
The difference between the cash
generated from operations reported
in the cash ow statement and the
operating prot relates mainly to
DD&A, impairments and exploration
write-offs.
DNO ended the year with USD 736.6
million in cash and an additional USD
16.2 million in marketable securities
compared to USD 477.1 million in cash
and USD 12.6 million in marketable
securities at year-end 2020. Net
interest-bearing debt at year-end 2021
was USD 153.4 million compared to
USD 472.5 million at year-end 2020.
DNO’s closing share price on the Oslo
Børs was NOK 10.46 on 30 December
2021 (NOK 6.87 on 30 December
2020); the shares traded in a range
between NOK 6.41 and NOK 13.10
during 2021.
Further details concerning DNO’s
nancial results, operations and
reserves may be found in DNO’s 2021
Annual Report and Accounts, its 2021
Annual Statement of Reserves and
Resources, prepared in accordance
with Oslo Børs listing and disclosure
requirements (Circular No. 1/2013)
utilising the Norwegian Petroleum
Directorate classication system and its
Country-by-Country Report. All reports
are available on DNO’s website, www.
dno.no.
Foxtrot International
Foxtrot International is a privately-
held exploration and production
company active in West Africa and
headquartered in Abidjan, with
approximately 207 employees. The
Company’s Executive Chairman, Mr.
Mossavar-Rahmani, is the Chairman of
the Board and co-founder of Foxtrot
International.
Foxtrot International holds a 27.27
percent stake in and operates Block CI-
27 offshore Côte d’Ivoire, containing
the country’s largest reserves of gas
in four producing gas elds with
associated oil and condensates. In
addition to the Foxtrot gas eld, which
began production in 1999, the block
contains the Mahi gas eld, developed
in 2012, as well as the Marlin oil and
gas eld and the Manta gas eld which
began production in 2016, following
a four-year, USD 1 billion development
campaign covering the installation of a
second offshore platform and drilling
of additional wells. Gas produced by
Block CI-27 is transported via pipeline
to fuel power stations in Abidjan
pursuant to a gas sale and purchase
(take-or-pay) agreement put into
force in June 1999 and subsequently
amended and extended to 2034.
On 24 February 2020, the CI-27 joint
venture partnership, including Foxtrot
International, and the Government of
Côte d’Ivoire signed amendments to
their gas sales and purchase agreement
and the Production Sharing Contract
(“PSC”) extending the terms of the
agreements by 10 years until August
2034 and increasing the base price of
gas from the date of signature to USD
6.0 per million btu while maintaining
the existing indexation formula. The
take-or-pay level remains at 140
million standard cubic feet per day
(“mmscfd”). In connection with these
amendments the CI-27 joint venture
partnership will spend approximately
USD 130 million on new onshore
processing facilities and pipelines to
supply gas to two new power stations
to be built in Côte d’Ivoire. Additional
drilling of ve wells over the period of
the extension is planned to boost the
production capacity of the licence.
In 2021, Foxtrot International produced
a gross average of 183.8 mmscfd (up
18 percent from a year earlier due to
increased electricity demand) together
with another 1,483 barrels per day of
oil and condensates.
Foxtrot International’s business is much
less affected by the volatility in world
oil and gas prices than is DNO’s, as the
predominant portion of the former’s
revenues derives from gas sales under
a long-term contract at an agreed
price with an indexation formula that
is only indirectly and partially tied to
world oil prices. Foxtrot International’s
sales of oil and condensates take place
at arm’s-length market prices and
move up or down with changes in
international prices for these products.
Foxtrot International’s 2021 net prot
prior to accounting for depletion
was USD 55.5 million (net prot of
USD 9.4 million in 2020) or USD 18.5
million to the Company’s interest. After
accounting for the Company’s share
of depletion, the Company’s prot
from Foxtrot International in 2021 was
USD 16.0 million (USD 0.9 million in
2020). In 2021 the Company received
USD 20.8 million in cash distributions
from Foxtrot International (USD 17.3
million in 2019), USD 15.7 million of
which were reinvested. Combined with
the 2021 net dividend movement and
fair value depletion, the book value of
9
the Company’s investment in Foxtrot
International stood at USD 87.6 million
at 31 December 2021 (USD 76.8
million at 31 December 2020).
Principal Risks and
Uncertainties Facing the
Company
The Company’s Investment Entities face
the risks and uncertainties associated
with oil and gas operations in very
challenging parts of the world. This
section seeks to highlight those risks
that are most material and most likely
to impact the Company in the next
reporting period until 31 December
2022. While successful navigation of
these risks provides the opportunity
for substantial returns, there can be
no assurance that these risks will be
successfully mitigated.
Risk Management
As the principal foreseeable risks to
the Company’s Investment Entities are
external, there is little that Company
management or management of the
Investment Entities can do to avert
those risks directly or fully. However,
risk management is integral to all
of the activities of the Investment
Entities and the Company. Each
member of executive management
of the Company and the Investment
Entities is responsible for continuously
monitoring and managing risk within
the relevant business areas. Every
material decision is preceded by an
evaluation of applicable business risks.
Coronavirus
The outbreak of Covid-19 in December
2019 and the signicant decline in
oil prices in the rst quarter of 2020
had adverse effects on the Group’s
operations and nancial results
during 2020. The recovery of oil
and gas prices throughout the latter
part of 2020 and 2021 led to a near
normalisation of activities. Although
Covid-19 and related restrictions
continued to affect the operations of
DNO and Foxtrot International in 2021
with supply chain challenges being
evident in operations the world over,
no major business interruptions were
experienced from the pandemic to date.
DNO and Foxtrot International are
closely monitoring the impact of the
Covid-19 pandemic, including on
border closures, travel restrictions and
interruptions to supply chains and
third-party services, among others,
and continue to implement measures
required to minimise the adverse
impact on staff, operations, liquidity
and nancial results.
Commodity Price Risk
A substantial decline in world oil prices
has a substantial adverse impact on
the nancial results of DNO and on
the value of its assets. Signicantly
lower oil prices affect DNO’s revenues,
protability, ability and desirability of
implementing drilling plans and overall
short-to-medium term prospects of
the business. Lower oil prices also
affect the ability of the KRG to make
payments to DNO for its share of oil
exports from Kurdistan.
World oil markets have been
characterised by substantial volatility
over extended periods of time. From
mid-2017 to the third quarter of 2018,
oil prices rose steadily, increasing 60
percent before experiencing a rapid
decline also of 60 percent in the last
three months of 2018 and then varied
from a low of USD 50.47 per barrel
to a high of USD 86.29 per barrel in
2018 with a variation from a low of
USD 54.91 per barrel to a high of
USD 74.57 per barrel in 2019. During
March 2020, Brent oil prices fell to
a low of USD 19.33 per barrel but
recovered during the balance of the
year, averaging USD 49.99 per barrel in
the month of December. During 2021,
oil prices continued to be impacted by
world events reaching a high of over
USD 86 per barrel in the latter part of
the year, continuing to increase further
in early 2022, reaching over USD 120
per barrel in March, impacted by the
Russia-Ukraine conict. European gas
prices have also seen extreme peaks
during 2021 and early in 2022.
The Company cannot predict whether
or when further gyrations in oil prices
or gas prices will take place, up or
down, including because of uncertainty
about the trajectory and duration of
the Covid-19 pandemic and the Russia-
Ukraine conict amongst other factors.
Since the high in 2019 of more than
NOK 20 per share, the price of DNO
shares on the Oslo Børs declined to less
than NOK 3 per share in March 2020.
A signicant part of that decline was
due to the fall in world oil prices that
impacted revenues and operations of
oil companies across the sector.
Future oil price assumptions are key
estimates in the Group’s nancial
statements and a change in these
assumptions may impact the
recoverable amount of the Group’s oil
and gas assets, reserves and resources
estimates, operational spend level,
revenues and distribution of future
dividends. Low oil prices over an
extended period of time may also
increase the credit risk related to the
Group’s trade receivables.
Conversely, higher oil prices would
have a material positive impact on
DNO.
As described earlier, Foxtrot
International’s business is much less
affected by the volatility in world
oil prices than is DNO’s, as the
predominant portion of the former’s
revenues derives from gas sales under
a long-term contract at an agreed price
with an indexation formula that is only
indirectly and partially tied to world oil
prices.
Entitlement Risk
DNO has interests in two licences
in Kurdistan through PSCs and has
based its entitlement calculations on
the terms of these PSCs. In 2012, the
Federal Government of Iraq (“FGI”)
challenged the constitutional validity of
the Kurdistan Regional Oil and Gas Law
No. 27/2007 (“KOGL”) and the right
of the KRG to export oil independently
of the FGI. The Company notes from
public reports that on 15 February
2022, the Federal Supreme Court of
Iraq (“FSCI”) ruled on this matter along
with another related matter dating back
to 2019. Reportedly, the FSCI found
amongst other things that the KOGL
10
RAK Petroleum
plc
is unconstitutional, that the KRG is to
hand over all oil production from areas
located in the KRI to the FGI and that
the FGI has the right to pursue the
nullity of the oil contracts concluded by
the KRG. DNO was not a party to the
legal proceedings, and it is at present
unclear how the KRG and the FGI will
follow up on the ruling. At present,
normal operations are maintained at the
Tawke and Baeshiqa licences.
Historically, as a result of disagreements
between the FGI and the KRG,
economic conditions in Kurdistan and
limited available export channels, DNO
has faced constraints in fully monetising
its oil produced in Kurdistan. There is
no guarantee that oil and gas can be
exported in sufcient quantities or at
prices required to sustain its operations
and investment plans, or that DNO will
promptly receive its full entitlement
payments for the oil it delivers for
export. Export sales have not always
followed the PSC terms and there has
been uncertainty related to both timing
of revenue and receipt of payments.
The DNO Group has accumulated
a receivable against the KRG after
certain 2019 and 2020 entitlement
and override payments to the DNO
Group and other KRI oil exporters
were withheld early in 2020 by the
KRG in connection with the Covid-19
pandemic. Entitlement payments
were resumed in March 2020 and
override payments were resumed
in early 2021. In December 2020, a
plan was put in place by the KRG to
pay the international oil companies
operating in Kurdistan 50 percent of
incremental revenue in any month in
which Brent prices exceed USD 50 per
barrel towards the arrears for 2019 and
2020. In May 2021, the KRG informed
the international oil companies of
revised terms reducing the payment
of the arrears to 20 percent of
incremental revenue in any month
in which Brent prices exceed USD 50
per barrel. The KRG also advised that
all international oil company invoices,
including towards the arrears, will be
settled within 60 days of receipt. DNO
expects at a minimum to recover the
full nominal value of the withheld
receivables, and DNO continues to work
to improve the terms of recovery of
the arrears, including but not limited
to interest payments. During 2021, the
outstanding arrears were reduced from
USD 259 million at the start of the year
to USD 169 million at year-end.
Security Risk
Several of the licences and operations
of the Investment Entities are in areas
subject to war, terrorism and/or civil
strife. The Investment Entities work
to manage these risks through clearly
dened security protocols and practices.
Nevertheless, the Investment Entities
are often dependent on the quality of
the security and protection provided by
authorities in the host countries.
In Kurdistan, DNO continues to
closely monitor security conditions
although the operations to date have
seen minimal impact from regional
developments.
In Yemen, continuing hostilities make it
unlikely that DNO will soon revive the
operations it conducted in that country.
Although there has been civil unrest
from time to time in Côte d’Ivoire, there
has never been a meaningful disruption
of Foxtrot International’s operations.
Liquidity Risk
If Foxtrot International’s production
is disrupted, or the Company is
faced with unanticipated cash calls
resulting from any cost overruns or the
Company’s receipt of cash distributions
from Foxtrot International is otherwise
delayed for an extended period of
time, there would be a signicant
adverse effect on the Company and
its nancial results. Nevertheless, the
Company believes it has resources and
alternatives sufcient to ameliorate any
such disruptions in the short term.
Foxtrot International is a joint
venturer in Block CI-27 with SECI SA,
PETROCI and Energie de Côte d’Ivoire
("ENERCI"), jointly owned by the
three other co-venturers. If a partner’s
payment of a cash call from the joint
venture is delayed or defaulted, the
non-defaulting partners may under
certain circumstances be called upon
to cover the decit in the cash call in
proportion to their interests, with rights
to recover the shortfall from the joint
venture interest of the defaulting party.
In one instance in the rst quarter of
2016, one partner’s cash call payment
was delayed for 41 days. During 2017,
one partner of licence Block CI-502
failed to pay its share of a cash call
and legal processes were initiated to
recover these latter funds.
Similarly, although there are in place
certain limited payment guarantees
from the Government of Côte d’Ivoire
for gas purchases by the electricity
sector, if any buyer fails to pay for its
gas, oil or condensates purchases from
Foxtrot International for extended
periods of time, the payment delay or
default may have a material adverse
impact on Foxtrot International and
the Company’s cash ow. Historically,
payments for gas purchases by the
electricity sector were delayed from
time to time, due in part to the buyers’
difculty in obtaining US Dollars.
Foxtrot International has agreed to
accept payments from one buyer of
oil and condensates (approximately
7 percent of total revenue) in local
currency, to be used to cover local
currency expenditures, in the event US
Dollars cannot be obtained.
As discussed above under Entitlement
Risk, DNO’s ability to sell its Kurdistan
oil production and receive prompt
payment could substantially affect the
performance of DNO, including its
liquidity and its ability to pay dividends
to its shareholders.
Operational Risk
The Company’s Investment Entities,
DNO and Foxtrot International, are
exposed to operational risks across
their portfolios. Operational risk applies
to all stages of upstream operations,
including exploration, development
and production. Failure to manage
operations efciently can manifest
itself in project delays, cost overruns,
higher-than-estimated operating costs
and lower-than-expected oil and gas
production and/or reserves. Exploration
activities are capital intensive and
involve a high degree of geological
11
risk. Sustained exploration failure
can affect the future growth and
upside potential of the Investment
Entities and ultimately the Company.
The Investment Entities’ ability to
effectively manage and deliver value
from exploration, development and
production activities is dependent on
the quality of staff and contractors they
engage. Inefciency or interruption to
the supply chain or the unwillingness
of service contractors to engage
in the Investment Entities’ areas of
operation may also negatively affect
the Investment Entities’ operations,
and consequently the nancial results
of the Company.
Compliance Risk –
Anti-Corruption Policy
The Company and its Investment
Entities and other subsidiaries
have a policy of zero tolerance for
corruption, bribery and other illegal
or inappropriate business conduct.
Violations of compliance laws and
contractual obligations can result
in nes and a deterioration in the
Company’s and its Investment Entities’
ability to effectively execute their
business plans. The Company and
its Investment Entities and other
subsidiaries adhere to a strict and
comprehensive conict of interest
policy, trade sanctions and other
policies focused around a Code of
Conduct to ensure regulatory and
Company expectations are met. The
Company specically does not permit
or tolerate engaging in any form of
corruption or bribery and in September
2014 adopted an Anti-Corruption
Policy and an Anti-Corruption
Manual that explains and elaborates
the content and implications of the
Company’s policies in relation to anti-
corruption and anti-bribery matters.
The Investment Entities also have a
whistleblower procedure in place.
Political Risk
The Investment Entities assets are
located in some countries where
political, social and economic instability
may adversely impact their business.
Relevant political developments on
both the federal and regional level in
Iraq are closely observed. In Kurdistan,
DNO continues to monitor security
conditions although its operations to
date have seen minimal impact from
regional developments.
Stakeholder Risk
In order to operate effectively,
it is necessary for the Company,
its Investment Entities and other
subsidiaries to maintain productive
and proactive relationships with
stakeholders, host governments,
business partners and the communities
in which they operate. Failure to do so
can result in difculties in progressing
initiatives as well as delays to ongoing
operations.
Risks from Transition to a Lower
Carbon Economy/Climate
Change
Global concern over greenhouse
gas emissions and climate change,
transition to a lower carbon economy,
potential physical effects of climate
change, potential new laws and
regulations related thereto and
growing concerns of stakeholders
may adversely affect the business and
nancial condition of the Company
and its Investment Entities.
The transition to a low-carbon energy
future poses fundamental strategic
challenges for the oil and gas industry
with political, regulatory, market and
physical risks as well as reputational
impact.
Regulatory and climate policy risk:
Regulatory changes and policy
measures targeted at reducing
greenhouse gas emissions have
been introduced in some countries
of operation, may continue to be
expanded and may be introduced
elsewhere. As demonstrated by
DNO’s commissioning of the project
to capture Peshkabir associated gas
and reinject it into the Tawke eld to
signicantly reduce aring, efforts to
comply with these measures may be
expensive but may also improve overall
eld production.
Notably, DNO’s greenhouse gas
emissions of approximately 7 kg CO
2
e/
boe as from mid-year 2020 compares
favourably to the target set by a
group of 12 of the world’s largest oil
companies comprising the Oil and Gas
Climate Initiative (“OGCI”) to reduce
the average carbon intensity of their
aggregated upstream oil and gas
operations to between 20-21 kgCO
2
e/
boe by 2025 from a collective baseline
of 23 kg CO2e/boe in 2017.
Stricter climate regulations and climate
policies could impact the Group's
nancial outlook through changes in
taxation and regulation which could
adversely affect the Group’s businesses
and nancial condition, including its
operating income and cash ow. In
particular, any regulations designed
to gradually limit fossil fuel use will
likely negatively and signicantly affect
the economic value of certain of the
Group’s assets, depending on the areas
impacted, the greenhouse gas emission
limits and the time horizons set.
Market-related risk: There is continuing
uncertainty over long-term demand
for oil and gas due to factors such
as technology development, climate
policies, changing consumer behaviour
and demographic changes. As
such, there is signicant uncertainty
regarding the long-term implications to
the Group arising from the transition
to a lower-carbon economy.
Technology-related risk: Technologies
to improve the efciency and
attractiveness of non-fossil fuel
powered vehicles and to increase
the efciency and reduce the cost of
renewable energy and low-carbon
technologies present potential risks
to the value and attractiveness of oil
reserves and growth opportunities
for the Company and its Investment
Entities, particularly DNO. Because
Foxtrot International principally
produces natural gas, which is a
relatively clean fossil fuel, it may be less
impacted by such developments.
Reputational impact: Increased
concern over climate change could
lead to increased litigation against
fossil fuel producers, as well as a more
12
RAK Petroleum
plc
negative perception of the oil and gas
industry. The latter could impact talent
attraction and retention, availability of
nancing and shareholder interest in
investing in oil and gas companies.
Physical climate risk factors: Changes
in climate from rising sea levels,
changes in sea currents and increasing
frequency of extreme weather
events could impact the operations
of the Investment Entities. Although
the Investment Entities’ facilities
are designed to withstand extreme
weather events, there is signicant
uncertainty regarding the magnitude,
impact and duration of any such
events.
These risks are present at the
Investment Entity level and are
monitored for compliance and
planning purposes by their
management, with Board of Directors
oversight.
Environmental, Social,
Community and Human
Rights Issues and Risks
As the Company’s business involves the
management of its investments in the
Investment Entities with a small staff
and minimal footprint, the potential
environmental, social and community
policies and impacts of its own or
any of its wholly-owned subsidiaries’
business activities are not material
and the Company is not aware of any
material social, community or human
rights impacts or issues regarding
its business activities. Accordingly, a
formal environmental, human rights,
social and community policy at the
Company level is immaterial and
impractical and has therefore not been
adopted.
Environmental/HSSE
Both of the Company’s Investment
Entities have robust environmental
compliance policies. To the Company’s
knowledge, after enquiry, neither DNO
nor Foxtrot International are aware of
material violations of any applicable
environmental regulations or rules.
Oil and gas exploration and production
inherently involves exposure to
potentially hazardous materials. The
loss of containment of hydrocarbons
or other dangerous substances could
represent signicant risks to the
environment. Through operational
controls, environmental impact
assessments, asset integrity protocols
and management systems related to
health, safety and the environment,
the Company’s Investment Entities aim
to mitigate hazards with a potentially
adverse impact on people, the
environment, assets and reputation.
DNO
DNO has in place its own robust Health,
Safety, Security and Environment
(“HSSE”) policies and standards which
are based on the following principles:
•
Avoid harm to all personnel
involved in, or affected by,
operations;
•
Minimise pollution and where
possible eliminate the impact of
operations on the environment;
•
Comply with all applicable legal
and regulatory requirements; and
•
Achieve continuous improvement
in HSSE performance.
During 2021, the following were
DNO’s key HSSE highlights:
•
There were three Lost Time Injuries
during the year compared to one
in 2020;
•
No Serious Vehicle Accident took
place with 2.6 million kilometres
driven, equal to 2020 with 2.4
million kilometres driven;
•
Total greenhouse gas emissions,
including from operations in
Kurdistan and the North Sea and
from all DNO’s ofces and travel,
stood at 426,109 tonnes of CO2
equivalent, compared to 422,643
tonnes in 2020;
•
DNO’s total greenhouse gas
emissions in 2021 were made
up of 424,040 tonnes of CO2 in
Scope 1 emissions, 342 tonnes
of CO2 in Scope 2 emissions and
1,726 tonnes of CO2 in Scope 3
emissions;
•
The number of spills/leaks reduced
to 6 in 2021 from 23 in 2020, with
total volumes spilled of 32 barrels,
most of which was removed and
remediated, compared to 6 barrels
in 2020.
DNO’s Total Recordable Injury
Frequency (“TRIF”) during 2021 was
0.48, down from 0.62 in 2020. A
comprehensive improvement plan to
further reduce the number of injuries
and high potential incidents has been
established and DNO continues to
work with its employees and third-
party contractors on programmes to
improve safety performance.
Foxtrot International
Protection of the environment is a core
concern for Foxtrot International. It has
adopted an environmental risk control
policy and every new project is the
object of an environmental impact
study and a specic analysis of
technological risks. Foxtrot
International focuses on eliminating
the risks of accidental emissions
through preventive maintenance and
periodic controls. Foxtrot International’s
dedication to principled environmental
management resulted in the company
receiving the ISO 14001 Certication in
2014 and being recognised for
environmental excellence for the third
consecutive year as the “Eco-Citizen
Company 2018,” awarded by the
Ministry of Environment and
Sustainable Development of Côte
d’Ivoire.
In 2021 Foxtrot International had
greenhouse gas emissions of 38,240
tonnes of CO
2
equivalent, compared to
43,674 tonnes of CO
2
equivalent in
2020.
Employee/Social/Human Rights
The Company has adopted an Anti-
Slavery and Human Trafcking Policy
that prohibits engaging in human
trafcking and seeks to ensure that the
Investment Entities and their
contractors adhere to that policy. It is
not aware of any breaches of those
policies or risks within its own
organisation or its Investment Entities.
13
DNO and Foxtrot International have
both implemented policies recognising
their responsibility to their employees,
communities and to human rights
generally.
Foxtrot International recognises human
capital is an invaluable asset for its
business and has made the physical
safety of staff and contractors a
priority. It maintains an active policy for
hygiene/health, safety and prevention
of labour-related accidents for all of its
activities. To this end, its activities are
conducted in compliance with the
following principles:
• All injuries and illnesses caused by
work are avoidable;
• There are no circumstances or
situations which may justify undue
exposure to risk and hazardous
situations; and
• Each employee has a responsibility
to himself or herself and vis-à-vis
fellow employees regarding safety
and prevention of work-related
accidents.
Foxtrot International’s occupational
health and safety management system
has been certied in accordance with
the OHSAS-18001 version 2007,
demonstrating the implementation of
best practices and the prioritisation of
employee health and safety.
Foxtrot International supports and
contributes to the efforts of its local
communities to improve living
conditions, with particular focus on
education. These range from building
classrooms and equipping school
canteens to drilling fresh water wells
and installing storage towers.
DNO, too, has had a longstanding
commitment to contributing to the
development of local communities in
which it operates. It creates jobs, hires
and trains local staff and partners with
local businesses that provide such
services as inspections, maintenance
support, civil engineering,
transportation, remediation, catering,
security, consumables, equipment and
waste disposal. It works to ensure that
its service providers are compliant with
internationally recognised human
rights protocols and in particular do
not engage in child labour practices.
In Kurdistan, DNO uses its operational
presence and capabilities to provide
services to nearby communities and
help develop infrastructure. DNO has
supplied electric power and fresh water
to villages, improved roads, distributed
winter clothes to children of displaced
families in refugee camps, built an
intermediate school and provided
classroom supplies for several primary
schools across the region.
Anti-Bribery/Anti-Corruption
In addition to the Company’s Anti-
Bribery and Anti-Corruption Policy
described above, both of the
Investment Entities have adopted
policies prohibiting bribery and
corruption.
DNO has adopted its own code of
conduct and anti-corruption policy of
zero tolerance for bribery, corruption,
fraud and other illegal business
conduct. The policies set out standards
and contain strict adherence guidelines
with respect to anti-corruption and it
provides training, monitoring and
implementation to prevent anyone
working for DNO, or acting on DNO’s
behalf, from engaging in any form of
illegal, unethical or other disallowed
corporate and personal conduct.
Foxtrot International has adopted a
code of ethics which requires strict
compliance with applicable laws and
regulations in the countries where it
does business including with respect to
anti-corruption, fraud and other illegal
business conduct. The code of ethics
provides that all employees must,
under all circumstances, observe the
highest standards of honesty and
integrity in their relations with
co-contractors and customers, in
particular as regards the nature, quality,
quantity and composition of products
and services offered. There is a process
for implementation and monitoring to
ensure strict compliance with the code.
Workforce Diversity
Although the Company has not
adopted a formal diversity policy
owing to the limited number of
ofcers and employees appointed
to or employed by the Company's
administrative, management and
supervisory bodies, as of the date
of this Annual Report four of six of
the employees of the Company are
women. All ve members of the Board
of Directors are men. One of the three
executive managers of the Company
is a woman. The Company has four
nationalities represented.
At year-end 2021, DNO had a
workforce of 1,327 employees, of
which 12 percent were women.
One of the eight members in the
senior management team of DNO is
a woman. Two of the ve members
of the DNO Board of Directors are
women. The DNO workforce is
characterised by strong cultural,
religious and national diversity, with
approximately 43 nationalities and 10
religious afliations represented.
During 2021, DNO has stepped up
recruitment and promotion of women.
At year-end, women represented 34
percent of employees in managerial,
administrative and other non-eld
operational positions. In the Erbil
ofce, women represented 28 percent
of all employees, the comparable
gure in the Dubai ofce was 21
percent and 46 percent in the Oslo
and Stavanger ofces. There were no
incidents of discrimination reported
through DNO’s internal mechanisms
for raising concern in 2021.
At year-end 2021, Foxtrot International
had a workforce of 207 employees,
of which 19 percent were women.
Nationals from Côte d’Ivoire make up
the majority of the workforce.
14
RAK Petroleum
plc
Section 172 Statement
The Board of Directors recognises
that the UK Companies Act requires
Directors to act in a way that promotes
the success of the Group for the
benet of shareholders as a whole,
with regard for:
• the likely long-term consequences
of any decision;
• the interests of the Group’s
employees;
• the need to foster the Group’s
business relationships with
suppliers, customers and others;
• the impact of the Group’s
operations on the community and
the environment;
• the desirability of the Group
maintaining a reputation for high
standards of business conduct; and
• the need to act fairly as between
members of the Company.
The Board of Directors has had regard
to those factors with respect to each
decision it takes and incorporates those
values in its decisions.
Stakeholder Engagement
Details of how we have engaged with,
and take into consideration, the
interests of those stakeholders who are
material to the long-term success of
the business can be found on the
following pages. These stakeholders
represent the key resources and
relationships that support the
generation and preservation of value in
the Group.
Shareholders
Engagement with shareholders plays
an important role throughout the
Group’s business, including at the
Board of Directors level. It helps the
Company gain a better understanding
of the impact of its decisions on
shareholder interests as well as gain an
insight into their needs and concerns.
During 2021 we engaged with our
shareholders as follows:
• Our Annual General Meeting held
virtually in the UK, included a
question and answer session in
which the Executive Chairman
entertained and answered
questions previously proffered by
shareholders in attendance;
• The Executive Chairman and
executive management made
themselves available throughout
2021 to attend virtual meetings
with major shareholders at the
latters’ request to gain an
understanding of any issues and
concerns;
• The Company published its annual
nancial results and half-yearly
nancial results and press releases
as appropriate to inform
shareholders of the Company’s
business activities;
• The Company’s investor website is
regularly reviewed and updated to
ensure that shareholder
information is current;
• The Nomination Committee solicits
shareholder input year-round; and
• Separately, DNO reports quarterly,
half-year and annual nancial
results and the Executive Chairman
and DNO present these results and
take questions from interested
parties, including DNO’s
shareholders. (DNO’s various
communications and presentations
to investors are set forth at its
website, www.dno.no).
Investment Entities/Customers
and Suppliers
Because of the nature of its business,
the Company’s most important
relationships are with its Investment
Entities rather than customers and
suppliers, who are in turn the focus of
DNO and Foxtrot International.
As reported throughout this report and
the accompanying Directors’ Report,
the Company maintains strong
engagement with DNO and Foxtrot
International. Although the Company’s
Board of Directors as a unit does not
have direct engagement with DNO and
Foxtrot International employees,
customers or suppliers, DNO’s and
Foxtrot International’s engagement
was monitored, inuenced and
approved by the Company’s Executive
Chairman and its Chief Operating
Ofcer/Chief Financial Ofcer. The
Company’s Executive Chairman serves
as Executive Chairman of DNO and as
Chairman of Foxtrot International. In
that capacity he engages with both
Investment Entities’ stakeholders. He
regularly meets with executive staff
and employees of DNO at its ofces or
virtually and retains close contact with
senior ofcials in Kurdistan. As
Chairman of Foxtrot International he
engages with senior management and
attends regular partner and
governmental meetings. The
Company’s Chief Operating Ofcer/
Chief Financial Ofcer also serves on
the DNO Board of Directors and its
audit committee and HSSE committee
and through this position engages with
DNO’s management and staff. She also
attends meetings with Foxtrot
International and its partners and
communicates with the Foxtrot
International staff on an ongoing basis.
The Managing Director of DNO, Mr.
Bjørn Dale, serves on the Company’s
Board of Directors. Among other
things, these strong and fruitful
engagements contributed to DNO’s
decision to distribute cash dividends to
shareholders, including the Company,
and endorsed DNO’s decision to
expand and diversify its assets.
Employees
The Company maintains a small group
of employees all of whom have access
to and regular interaction with
executive management and the
15
Executive Chairman. The Remuneration
Committee’s recommendations for
executive management are reviewed
and approved by the Board of
Directors.
DNO maintains strong relationships
with its employees, as set forth in its
Annual Report and its Corporate
Responsibility Highlights, which are
available at its website, www.dno.no.
Community and the
Environment
The Group is aware of its obligations to
advance societal interests, including
environmental concerns, many of
which are described above. Given its
structure and small footprint at the
Company level, these concerns are
addressed by the Investment Entities.
DNO maintains robust and active
contributions to each of the
communities in which it operates and
has devoted substantial efforts toward
diminishing the impact of its
operations on the environment, as
detailed in its Corporate Responsibility
Report. Notably, in June 2020 DNO
commissioned the Peshkabir-to-Tawke
gas gathering and injection project (the
rst enhanced oil recovery project in
Kurdistan), which is designed to
increase oil recovery rates at the Tawke
eld and eliminate gas aring at the
Peshkabir eld. Since its inception,
DNO has captured, piped and
reinjected 10 billion cubic feet (bcf) of
Peshkabir eld associated gas, which
otherwise would have been ared, into
the Tawke eld for pressure
maintenance.
Principal Decisions
2021 saw the continuation of
operational challenges for the
Company and its Investment Entities
due to the ongoing impact of the
Covid-19 pandemic on their
operations. Whilst world oil and gas
prices increased in 2021, supply chain
challenges, travel restrictions, and
other constraints remained. Uncertainty
also prevailed with easing of
restrictions followed by tightening of
restrictions on an ongoing basis
throughout the year.
Decisions by DNO and Foxtrot
International
Principal decisions by DNO in 2021
included (i) resumption of dividend
payments to its shareholders, including
the Company, (ii) increase in capital
spend by 22 percent compared to
2020, and (iii) development plan
submission for the Baeshiqa licence in
Kurdistan. The Company’s Board of
Directors had no direct control over
those decisions. However, those
decisions were monitored, inuenced
and voted on by the Company’s
Executive Chairman and Chief
Operating Ofcer/Chief Financial
Ofcer through their participation as
members of the DNO Board of
Directors, which is chaired by the
Company’s Executive Chairman. The
DNO Board of Directors is charged with
advancing the interests of all its
shareholders equally while considering
the interests of the stakeholder groups
that are affected by DNO’s business
activities. DNO advances those goals as
described in its Annual Report and its
Corporate Social Responsibility Report,
available at www.dno.no.
Foxtrot International made the
following principal decisions; (i) to
enter the second term of the CI-12
exploration licence offshore Côte
d’Ivoire, committing to drill one
exploration well in the second term;
(ii) to side-track two wells located in
the Marlin eld in licence CI-27
offshore Côte d’Ivoire. These two side-
tracks will be carried out following the
drilling of two new Marlin wells and
one new Manta well already
committed to in 2020 and currently
drilling.
Important Events and
Developments Since the End
of the Financial Year
The following events occurred in early
2022:
DNO Received 10 Awards in
Norway’s APA Licensing Round
On 18 January 2022, DNO announced
that its wholly-owned subsidiary, DNO
Norge AS, had been awarded
participation in 10 exploration
licences, of which three are
operatorships, under Norway’s Awards
in Predened Areas (“APA”) 2021
licensing round. Of the 10 new
licences, six are in the North Sea and
four in the Norwegian Sea.
DNO Received Payments from
Kurdistan
Since year-end 2021, DNO received
USD 153.3 million net to DNO from
the KRG for the months October and
November 2021 towards the respective
month’s entitlement share of oil
deliveries to the export market from
the Tawke licence, override payments
equivalent to three percent of the gross
Tawke licence revenues under the
August 2017 receivables settlement
agreement and arrears relating to
withheld payment of 2019 and 2020
entitlement and override invoices.
Federal Supreme Court of Iraq
Ruling
The Company notes from public
reports that on 15 February 2022, the
Federal Supreme Court of Iraq ruled
amongst other things that the
Kurdistan Oil and Gas Law 27/2007 is
unconstitutional, that the KRG is to
hand over all oil production from areas
located in the Kurdistan region of Iraq
to the Federal Government of Iraq
(“FGI”) and that the FGI has the right
to pursue the nullity of the oil contracts
concluded by the KRG. DNO was not a
party to the legal proceedings, and it is
unclear how the KRG and the FGI will
follow up on the ruling. At present,
normal operations are maintained at
the Tawke and Baeshiqa licences.
The Company continues to monitor
the situation. Any future impacts of
this ruling and subsequent actions by
the FGI and the KRG cannot currently
be estimated but may impact the
operations and nancial performance
of the Group.
16
RAK Petroleum
plc
DNO Board of Directors
Approve Dividend Payment
On 9 March 2022, DNO announced
that pursuant to the authorisation
granted at the 2021 annual general
meeting of its shareholders, the DNO
Board of Directors has decided to
distribute a dividend payment of NOK
0.20 per share to be made on or about
21 March 2022 to all shareholders of
record as of 15 March 2022. The
Company’s share of the dividend
payment was USD 9,877,192 million.
Potential Implications of the
Russia-Ukraine Conict
The Company notes the implications
for commodity prices and potential
interruptions of supply chains and
third-party services from the ongoing
Russia-Ukraine armed conict. The
Company, DNO and Foxtrot
International are monitoring
international sanctions and trade
control legislation in order to mitigate
the potential impact on operations. A
4 kilometre section of the Kurdistan
Export Pipeline, the operator of which
is 60 percent owned by Rosneft, is
used to transport DNO’s Kurdistan
crude oil to the Iraq/Turkey border for
export. DNO is monitoring the evolving
sanctions on Russian companies
following the conict with Ukraine to
ascertain whether alternative transport
arrangements should be put in place.
Notwithstanding continuing
uncertainties in international markets,
including oil, the Company believes it
has set in motion appropriate measures
to navigate these challenges and, as
conditions normalise, resume value
creation for our shareholders.
For and on behalf of the Board of
Directors
Bijan Mossavar-Rahmani
Executive Chairman of the
Board of Directors
31 March 2022
17
•
The Company’s Board of Directors
currently has authority to allot
an additional 31,213,100 Class
A Shares and will seek renewal
of that authority from the
shareholders at the 2022 Annual
General Meeting.
Changes to the Capital Structure
During the Reporting Period
There have been no changes to the
capital structure during the reporting
period.
Major Interests in the
Company’s Shares and Voting
Rights
Trading in the shares in the Company is
subject to the shareholding disclosure
regulations in sections 4-2 and 4-3 of
the Norwegian Securities Trading Act
and chapter 4 of the Norwegian
Securities Regulations. If a person’s,
entity’s or consolidated group’s
proportion of shares and/or rights to
shares in the Company reaches,
exceeds or falls below the respective
thresholds of 5, 10, 15, 20, 25 percent,
1/3, 50 percent, 2/3 or 90 percent of
the share capital or the voting rights of
the Company, the person entity or
consolidated group in question has an
obligation to notify Oslo Børs
immediately. The same applies if the
disclosure thresholds are passed due to
other circumstances, such as a change
in the Company’s share capital. This
information is published on the
Company’s website and with the Oslo
Børs.
Each Class A Share and Restricted Class
A Share carries one vote per share on
any matters put to the shareholders at
a general meeting and is entitled to
participate on a distribution of income
or capital pari passu with all other
Class A Shares and Restricted Class A
Shares. Each Class B Share carries two
votes per share on any matters put to
the shareholders at a general meeting
but does not carry any rights on a
distribution of income or capital (other
than entitlement to par value on a
return of capital or redemption).
Introduction
Capital Structure
or the “Company”) is incorporated
in the United Kingdom
to the laws of England and Wales,
including the United Kingdom
Companies Act 2006 (“Companies
Act”) (as amended from time to time).
Currently, the share capital of the
Company consists of:
•
194,484,040 Class A Shares that
are listed and freely traded on
the Oslo Børs and that carry one
vote per share on any matters put
to the shareholders at a general
meeting, each with a par value
of GBP 0.01 (“Class A Shares” or
“Shares”);
•
117,647,332 Restricted Class A
Shares whose trading is restricted
but which otherwise have the
same voting and economic rights
as Class A Shares, each with a par
value of GBP 0.01 (“Restricted
Class A Shares”);
•
117,647,332 Class B Shares,
whose trading is restricted and
which have no material economic
rights but two votes per share
on any matters put to the
shareholders at a general meeting,
each with a par value of GBP
0.0000001 (“Class B Shares”);
•
50,000 redeemable shares,
each with a par value of GBP
1.00 (these non-voting shares
were issued in connection with
the formalities of founding the
Company and the Company plans
to redeem them);
•
87,488,693 Class C Shares,
each with a par value of GBP
0.0000001. Class C Shares have
no voting rights and no material
economic rights;
•
Accordingly, there are 547,426,035
votes eligible to vote on matters
put to the shareholders at a
general meeting;
•
All shares are issued and fully paid;
II. Report of
the Directors
RAK Petroleum
plc
18
All Class A Shares are freely transferable. Restricted Class A Shares can only be transferred to certain permitted transferees
set forth in the Company’s Articles of Association – essentially related parties or charities. Transfers of Restricted Class A
Shares to non-permitted transferees give rise to loss of Class B Share voting rights. No Class B Share may be transferred
unless a corresponding number of Restricted Class A Shares held by such holder are at the same time transferred to the
same permitted transferee. Holders of Restricted Class A Shares may request that the Company release the trading
restrictions, which will give rise to cancellation of the associated Class B Shares.
All shareholders shall be treated on an equal basis unless there is just cause for treating them differently.
At 29 March 2022, the following information has been received or was available from holders of notiable interests in the
Company’s share capital:
Shareholder’s name Class A Shares Restricted Class A Shares Class B Shares Total votes Percent of total votes Type of interest
Bijan Mossavar-Rahmani
1
12,801,236 63,030,824 63,030,824 Indirect
201,893,708
36.88RAK Gas LLC
2,070,207 18,631,871 18,631,871
57,965,820 10.59 Direct
Al Majid Investment Co (LLC)
30,000,000
- -
30,000,000 5.48 Direct
TransAsia Gas International LLC
1,000,000 9,000,000 9,000,000
28,000,000 5.11 Direct
Massar Investments LLC
750,000 6,750,000 6,750,000
21,000,000 3.84 Direct
Treasury Shares (held by DNO)
2,675,600 13,174,137 13,174,137
42,198,011 7.71 Direct
Total Shares Outstanding
194,484,040 117,647,332 117,647,332
547,426,036 100.0
Corporate Governance
The Company seeks to comply with the applicable legal framework for companies listed on the Oslo Børs, and endorses
the Code of Practice for Corporate Governance (Norwegian: “Norsk anbefaling for eierstyring og selskapsledelse”) issued
by the Norwegian Corporate Governance Board, most recently revised on 14 October 2021 (the “Code”). The Code is
available at www.nues.no.
The Board of Directors of the Company on 24 September 2014 adopted a corporate governance policy (the “Corporate
Governance Policy”) that is based on the Code and reects the Company’s commitment to sound corporate governance
practices. Other than any deviations mentioned below in the overview of the Corporate Governance Policy, the Company
believes its policy complies with the Code.
The Board of Directors considers the way the Company is managed to be vital to the development of the Company’s value
over time. The Company’s Corporate Governance Policy is based on the Code and establishes a basis for good corporate
governance to help ensure the greatest possible value creation over time in the best interest of the Company and its
shareholders, employees and other stakeholders.
The Corporate Governance Policy contains measures that are, and will be, implemented to ensure effective management
and control over the Company’s activities based on the Code. It should therefore be noted that there may be other
legal requirements that apply to matters described in the Corporate Governance Policy. The primary objective is to have
systems for communication, monitoring and allocation of responsibility, as well as appropriate incentives, which contribute
to increasing and maximising the Company’s nancial results, long-term success and returns to shareholders on their
investments in the Company. The Company aims to have control and governance procedures that ensure equal treatment
of all shareholders, thereby providing a foundation for trust.
The Board of Directors, on an ongoing basis, monitors the governance of the Company and will develop and improve the
Corporate Governance Policy, as and when required. Other than any deviations mentioned below in the overview of the
Corporate Governance Policy, the Company believes its policy complies with the Code.
1
Shares shown for Mr. Mossavar-Rahmani are owned and controlled indirectly through RAKP Holdings Limited (Holdings). Each share in Holdings mirrors, is exchangeable into and gives the holder the
right to control the voting of a corresponding share in RAKP. In addition to shares he owns in Holdings, Mr. Mossavar-Rahmani has voting control over 12,801,236 Class A Shares, 7,198,764 Restricted
Class A Shares and 7,198,764 Class B Shares in Holdings held by BM-R Holdings LLC, a Delaware LLC 100% owned by him (BM-RHLLC). As announced on 8 February 2022, it is contemplated that
BM-RHLLC will gift 70-80% of its interests to trusts for the benet of Mr. Mossavar-Rahmani’s decendents. Mr. Mossavar-Rahmani will retain voting control over those shares through arrangements with
BM-RHLLC.
19
nominal amount of GBP 312,131,
representing approximately 10 percent
of the Company’s share capital.
The Board of Directors intends to
ask the shareholders at the 2022
Annual General Meeting to renew
this allotment authority, as the
Board of Directors wishes to retain
nancial exibility to grow the
business by executing on its strategy
of opportunistic acquisitions. The
Board of Directors will also propose
that it be authorised to issue new
shares in connection with the Long-
Term Incentive Plan (the “LTIP”)
for the Company’s Directors and
executive management. It follows
from the purposes of the proposed
authorisation that the shareholders’
preferential rights to subscribe to the
new shares (“pre-emption rights”) may
be waived and that the authorisation
can comprise a share capital increase
against contribution in kind. The
Board of Directors intends to ask the
shareholders at the 2022 Annual
General Meeting to renew this waiver
authority as well.
4. Equal Treatment of
Shareholders and Transactions
with Close Associates
4.1 General Information
The rights attached to each class of
the Company’s Shares is described
above. Apart from trading restrictions
applicable to Restricted Class A Shares
and Class B Shares, all shareholders
are treated on an equal basis, unless
there is just cause for treating them
differently.
4.2 Share Issues without
Pre-Emption Rights for Existing
Shareholders
Any decision to waive the pre-emption
rights of existing shareholders to
subscribe for shares in the event of
an increase in the share capital shall
be justied. If the Board of Directors
resolves to carry out a share issue
without pre-emption rights for existing
shareholders, then the justication
shall be publicly disclosed in a stock
exchange announcement issued in
connection with the share issue. Again,
purposes. If a general meeting is asked
to consider a mandate to the Board
of Directors for the issue of shares
for different purposes, each mandate
shall be considered separately by the
meeting. Mandates granted to the
Board of Directors are limited in time
to no later than the date of the next
Annual General Meeting. This also
applies to mandates granted to the
Board of Directors for the Company to
purchase its own shares.
The Board of Directors has previously
sought and the shareholders have
granted mandates for the Company
to purchase its own shares through a
buyback mechanism consistent with
the Companies Act in an amount up
to, essentially, 20 percent of the issued
Share Capital of the Company. The
Company used those mandates to
conduct share repurchases in the past
because, among other things, (i) its
available funds exceeded the near-term
cash needs of its business, (ii) relatively
low liquidity in the market for its shares
may have beed hindering the ability of
some shareholders to sell their shares,
and (iii) it believed its shares were
undervalued relative to their intrinsic
value. Thus, prior share repurchases
provided an opportunity for some
shareholders to sell their Shares and for
the Company to seek to capture value
for its continuing shareholders.
The preexisting authority to authorise
share repurchases expires at the
2022 Annual General Meeting and
the Board of Directors intends to
seek renewed authority from the
shareholders at its 2022 Annual
General Meeting. Although there
can be no assurances, the Board of
Directors or its appropriate delegates
may make a similar determination in
the future if the Company again has
funds exceeding the near-term cash
needs of its business.
The Board of Directors was generally
authorised at the 2021 Annual General
Meeting to allot new Class A Shares
in the Company or to grant rights
to subscribe for or to convert any
security into new Class A Shares in the
Company up to a maximum aggregate
2. Business
The fundamental objectives, strategies
and risk proles of the Group are
stated in the accompanying Strategic
Report. The Board of Directors reviews
the objectives, strategies and risk
proles included in the Strategic Report
each year and will modify them if that
becomes appropriate.
Pursuant to common practice for
companies incorporated in England
and Wales, the Articles of Association
of the Company do not include a
recitation of the specic business of the
Company and the Company will therefore
continue to set them forth in its annual
Strategic Report or Directors’ Report.
3. Equity and Dividends
The Board of Directors and executive
management of the Company act at
all times to keep the Company’s equity
capital at a level that is suitable in light
of the Company’s objectives, strategy
and risk prole.
The Company’s long-term objectives
include making distributions of net
income in the form of dividends. The
payment and level of any dividends
will depend on several factors,
including market outlook, cash ow,
capital expenditure plans and funding
requirements. These factors will be
measured against the Company’s
need to maintain adequate nancial
exibility, relevant restrictions on the
payment of dividends under the laws
of England and Wales and such other
factors as the Board of Directors may
consider relevant.
The Board of Directors’ current
dividend policy is further specied
below under the heading “Dividends
and Dividend Policy.”
If there is a proposal for the Board of
Directors to be given a mandate to
approve the distribution of dividends,
then the background of the proposal
will be explained. The Company had
no such proposals in 2021.
Mandates granted to the Board of
Directors to increase the Company’s
share capital are restricted to dened
20
RAK Petroleum
plc
the Board of Directors will seek the
dis-application of pre-emption rights as
to its renewed limited authority to allot
shares or options at the 2022 Annual
General Meeting.
4.3 Transactions in Own Shares
Any transactions the Company carries
out in its own shares shall be carried
out either through the Oslo Børs or
at prevailing stock exchange prices if
carried out in another way. If there
is limited liquidity in the Company’s
shares, the Company shall consider
other ways to ensure equal treatment
of all shareholders.
4.4 Transactions with Shareholders
and Other Closely-Related Parties
The Board of Directors shall arrange
for a valuation to be obtained from
an independent third party in the
event of a not immaterial transaction
between the Company and any of its
shareholders, a shareholder’s parent
company, members of the Board of
Directors, executive management or
closely related parties of any such
parties. An independent valuation
shall also be carried out in the event
of transactions between companies
within the same group where any of
the companies involved have minority
shareholders.
Members of the Board of Directors
and executive management must
notify the Board of Directors if they
have a signicant, direct or indirect,
interest in any transaction carried
out by the Company other than by
virtue of their position within the
Company. The Company has had a
services agreement with DNO since
2011 pursuant to which it was paid
USD 0.19 million in 2021. Bjørn Dale,
a member of the Company’s Board
of Directors, is the Managing Director
of DNO. Mr. Mossavar-Rahmani, the
Company’s Executive Chairman of the
Board of Directors and Shelley Watson,
the Company’s Chief Operating
Ofcer and Chief Financial Ofcer,
are members of the DNO Board of
Directors. For further details, see
Note 26 to the Consolidated and
Parent Company Financial Statements.
The Company has had a services
agreement with Foxtrot International
since 2020 pursuant to which it was
paid USD 0.10 million in 2021. Mr.
Mossavar-Rahmani is Chairman of
the Foxtrot International Board of
Directors.
5. Shares and Negotiability
The Company does not impose any
limits on a party’s ability to own, trade
or vote the Company’s Class A Shares,
traded on the Oslo Børs. There are
restrictions on trading and ownership
of the Company’s Restricted Class A
Shares and Class B Shares as described
above under “Share Capital.” There
are no limits on voting the Restricted
Class A Shares and Class B Shares.
The trading restrictions on Restricted
Class A Shares and Class B Shares
arise from the original capital structure
of the Company and rights granted
to legacy shareholders who acquired
Restricted Class A Shares in the
reorganisation of RAK Petroleum PCL
in 2014.
6. Annual General Meetings
The Board of Directors takes reasonable
steps to ensure that the Company’s
shareholders can participate in all
Annual General Meetings.
Among other things, the Board of
Directors will ensure that:
•
The notice and any supporting
documents and information on
the resolutions to be considered
at the Annual General Meeting
are available on the Company’s
website no later than 21 clear days
prior to the date of the Annual
General Meeting;
•
The resolutions and supporting
documentation, if any,
are sufciently detailed,
comprehensive and specic to
allow shareholders to understand
and form a view on matters that
are to be considered at the Annual
General Meeting;
•
The registration deadline, if any,
for shareholders to participate
at the Annual General Meeting
is set as closely as practically
possible to the date of the Annual
General Meeting and pursuant to
the provisions in the Company’s
Articles of Association; and
•
Shareholders are able to vote
on each individual matter,
including on each individual
candidate nominated for election.
Shareholders who cannot attend
the Annual General Meeting in
person are given the opportunity
to vote. The Company designs
the form for the appointment of
a proxy to make voting on each
individual matter possible and
nominates a person who can act
as a proxy for shareholders, usually
the Chairman of the Board of
Directors.
Pursuant to common practice for
companies incorporated in England
and Wales, the Articles of Association
of the Company stipulate that the
Chairman of the Board of Directors
shall chair any Annual General
Meetings at which he or she is present.
Therefore, there are no arrangements
made for election of an independent
chairman for the Annual General
Meetings, nor are all Directors required
to attend. This deviates from the Code.
The Chairman of the Nomination
Committee attends if matters within the
scope of the Nomination Committee
are being considered by the meeting.
7. Nomination Committee
As provided for in the Company’s
Articles of Association, at the
2015 Annual General Meeting,
the shareholders voted to create a
Nomination Committee with no more
than three members to be appointed
by shareholders at an Annual General
Meeting for a period up to two years;
the duties are to propose candidates
for election to the Board of Directors
and to the Nomination Committee and
to propose the fees to be paid to such
members. The members elected to the
Nomination Committee at the 2020
Annual General Meeting were Mr.
Nicholas Attencio, Dr. Øystein Noreng
and Mr. Mossavar-Rahmani, who was
elected as chairman. Mr. Mossavar-
Rahmani is the Executive Chairman of
the Board of Directors and a member
of executive management, which
deviates from the Code for reasons
21
that they may have in items to be
considered by the Board of Directors.
9.2 Audit Committee
The Board of Directors has an Audit
Committee as a preparatory and
advisory committee. The Board of
Directors has adopted Terms of
Reference for the Audit Committee
that are available on the Company’s
website. The entire Board of Directors
does not act as the Company’s Audit
Committee.
An Audit Committee Report that
includes details of its members is set
out on pages 33 to 35 of this Annual
Report.
9.3 Remuneration Committee
The Board of Directors has appointed
a Remuneration Committee as a
preparatory and advisory committee
for the Board of Directors to ensure
a thorough and independent
preparation of matters relating to
the compensation of executive
management. Members of the
Remuneration Committee are
restricted to members of the Board of
Directors who are independent of the
Company’s executive management,
other than the Executive Chairman
of the Board of Directors. The reason
for this deviation is detailed below.
The activities and composition of the
Company’s Remuneration Committee
are detailed in its report which is set
out on pages 36 to 41 of this Annual
Report.
9.4 Annual Evaluation
The Board of Directors annually
evaluates its efforts in the previous year.
10. Risk Management and
Internal Controls
The Board of Directors acts to ensure
that the Company has in place sound
internal controls and systems for risk
management that are appropriate
with respect to the extent and
nature of the Company’s and its
wholly-owned subsidiaries’ activities.
Internal controls and the systems for
risk management encompass the
Company’s corporate values and
ethical guidelines, including guidelines
are no circumstances or relations
that may be expected to be able to
inuence independent assessments by
the person in question.
The Executive Chairman of the Board
of Directors is a member of executive
management, which deviates from
the Code. The Board of Directors
does not otherwise include executive
management, although that is
common in English companies. The
reason for the deviation is set forth in
the Conduct of Business section below
on page 26.
The Annual General Meeting shall elect
the Chairman of the Board of Directors
so long as the applicable laws do not
require that the Board of Directors
must appoint the Chairman.
The terms of ofce for members of
the Board of Directors are not longer
than two years at a time and are set
forth below, as is their background,
qualications and independence as
well as their attendance record.
The members of the Board of Directors
are encouraged to own shares in the
Company. Their ownership is detailed
in the accompanying Remuneration
Report.
9. The Work of the Board of
Directors
9.1 General
The Board of Directors provides
details of its Committees in this
Annual Report. It is not common for
companies incorporated in the United
Kingdom to issue instructions for
the Board of Directors and executive
management as such instructions
would be governed by the articles
of association of the companies.
Therefore, there is no need for the
Company to have separate instructions
for the Board of Directors and
executive management. The Board of
Directors issues limits on the authorities
of executive management to act on
behalf of the Company. The Board
of Directors ensures that members of
the Board of Directors and executive
management make the Company
aware of any material interests
detailed in the Conduct of Business
section below on page 26.
The members’ remuneration (including
the chairman) was set at USD 5,000 in
2021 for one year. Each of their terms
of service will expire at the close of
the 2022 Annual General Meeting.
The Annual General Meeting will
stipulate guidelines for the duties of
the Nomination Committee, elect
the chairperson and members of the
Nomination Committee and determine
the Committee's remuneration. The
majority of the Nomination Committee
should be independent of executive
management and the Board of
Directors and only one member should
be a member of the Board of Directors.
Shareholders wishing to communicate
with the Nomination Committee may
initiate contact by email to kevin.
toner@rakpetroleum.uk. Anyone
proposing a candidate should
communicate with the Nomination
Committee no later than 45 days
before the scheduled date of the
Annual General Meeting. More
detailed biographies of the Nomination
Committee members may be found on
the Company’s website.
The Nomination Committee justies to
the Annual General Meeting separately
why it is proposing any candidate.
8. Board of Directors
Composition and Independence
The composition of the current
Board of Directors ensures that it
attends to the common interest
of all shareholders and meets the
Company’s need for expertise, capacity
and diversity. The Board of Directors
functions effectively as a collegial
body independently of any special
interests. Three of the ve shareholder-
elected members of the Board of
Directors are independent of the
Company’s executive management
and material business contacts and
three of the ve members of the Board
of Directors are independent of the
Company’s major shareholder(s). For
these purposes, a major shareholder
means one that owns 10 percent or
more of the Company’s issued and
outstanding shares or votes, and
independence shall entail that there
22
RAK Petroleum
plc
for corporate social responsibility.
The Company inuences the internal
controls and risk management
for the Investment Entities and its
wholly-owned subsidiaries through its
positions on their boards of directors.
DNO separately endorsed the Code
of Practice for Corporate Governance
issued by the Norwegian Corporate
Governance Board.
The Board of Directors acknowledges
its responsibility for establishing and
maintaining adequate internal controls
and risk management systems to
safeguard shareholders’ investments
and the Company’s assets and it
reviews these areas annually. Such
systems can be designed to manage,
but not eliminate entirely, the risk of
failure to achieve business objectives.
They can provide reasonable, but
not absolute, assurances that the
Company’s assets are safeguarded
and that the nancial information
used within the business for external
reporting is reliable.
The Company and its wholly-owned
subsidiaries maintain a centralised
nancial reporting system where
transactions and balances are
recognised and recorded in accordance
with prescribed accounting policies
and procedures and all material and
relevant information is reviewed
and reconciled as part of the annual
reporting process. The Investment
Entities maintain their own separate
centralised nancial reporting systems.
The Company to a great extent relies
on audited nancial reporting that it
timely receives from the Investment
Entities and reviews internally. In
addition, Ms. Watson, the Company’s
Chief Operating Ofcer and Chief
Financial Ofcer, is a member of the
DNO Board of Directors and its audit
committee, Mr. Mossavar-Rahmani
is Executive Chairman of DNO and
Chairman of the Foxtrot International
Board of Directors, and Mr. Dale, a
member of the Company’s Board of
Directors, is Managing Director of
DNO. In conjunction with DNO, the
Company has adopted procedures
seeking to ensure that its Board
of Directors has an adequate basis
on which to full its reporting
responsibilities regarding DNO.
The Board of Directors’ Audit
Committee also assures that the
Company’s Auditors have received
full cooperation from the nancial
reporting functions at both Investment
Entities and from the Company’s
executive management.
The Company has in place policies
which limit the authority and ability
of any single member of executive
management or member of the Board
of Directors to dispose of or transfer
Company assets and two approvals,
including that of the General Counsel,
are required to transfer or dispose of
any of the Company’s interest in DNO,
thus limiting the risks of improper
disposition.
The Board of Directors is regularly
updated on the Company’s nancial
situation, evaluates whether the
Company’s capital and liquidity are
adequate in terms of the risk from, and
scope of, the Company’s activities and
shall immediately take the necessary
action if it is demonstrated at any time
that the Company’s capital or liquidity
is inadequate.
11. Remuneration of the Board
of Directors
The remuneration of the Board of
Directors is to be decided by the
shareholders at an Annual General
Meeting of the Company at least every
two years and shall reect the duties,
expertise and time commitment of the
Board of Directors, including the level
of activity on any committees, as well
as the complexity of the Company’s
activities.
Other than the Executive Chairman,
who is also compensated as a
member of executive management,
remuneration for members of the
Board of Directors is not linked to
the Company’s performance and the
Company does not grant share options
to members of the Board of Directors.
Members of the Board of Directors
and/or companies with which they are
associated shall not take on specic
assignments for the Company in
addition to their appointment as a
member of the Board of Directors.
If they do nonetheless take on such
assignments, this should be disclosed
to the full Board of Directors. The
remuneration for such additional duties
shall be approved by the Board of
Directors.
Any remuneration in addition to
normal Board of Directors’ fees will
be specically identied in the Annual
Report.
12. Remuneration of Executive
Management
The Board of Directors has established
guidelines for the remuneration
of executive management of the
Company. These guidelines are
contained in the accompanying
Remuneration Policy, which
includes the main principles applied
in determining the salary and
other remuneration of executive
management. The Remuneration Policy
was approved by the shareholders at
the 2015 Annual General Meeting.
Performance-related remuneration of
executive management in the form
of share options, bonus programmes
or the like shall ensure convergence
of the nancial interests of executive
management and the shareholders.
The Remuneration Policy provides that
performance-related remuneration
shall be subject to an absolute limit.
The Remuneration Policy will be a
separate appendix to the agenda for
the Annual General Meeting. The
Remuneration Policy must be approved
by a vote at an Annual General
Meeting and is valid for three years.
As a result, the Board of Directors
obtained approval for the renewed
policy at the 2021 Annual General
Meeting.
The Company’s Remuneration Policy
does not relate to DNO or Foxtrot
International which each have their
own remuneration policies.
23
14. Take-Overs
14.1 General
In the event the Company becomes
the subject of a take-over offer,
the Board of Directors shall ensure
that the Company’s activities are
not unnecessarily interrupted. The
Board of Directors shall also ensure
that the shareholders have sufcient
information and time to assess the
offer.
14.2 Main Principles for Action in
the Event of a Take-Over Offer
In the event of a take-over offer, the
Board of Directors shall abide by the
principles of the Code, recognising
the duty the Board of Directors carries
for ensuring that the interests of the
shareholders are safeguarded. In
particular:
•
The Board of Directors shall ensure
that the take-over offer is made to
all shareholders and on the same
terms;
•
The Board of Directors shall not
undertake any actions intended
to give certain shareholders or
other parties an unreasonable
advantage at the expense of other
shareholders of the Company; and
•
The Board of Directors shall not
institute measures which have the
intention of protecting the
personal interests of its members.
The Board of Directors shall not
attempt to prevent or impede the
take-over offer unless this has been
decided by a general meeting in
accordance with applicable laws.
If a take-over offer is made for the
Company’s shares, the Board of
Directors shall issue a statement
evaluating the offer and making a
recommendation as to whether the
shareholders should accept such offer.
If the Board of Directors nds itself
unable to give a recommendation to
the shareholders on whether to accept
the offer, it shall explain the reasons
13. Information and
Communications
13.1 General Information
The Company provides timely and
precise information to its shareholders
and the nancial markets in general
(through the Oslo Børs). Such
information is provided in the form
of annual reports, half-year reports
and press releases and notices to the
Oslo Børs in accordance with what is
deemed necessary and suitable.
The Company publishes an annual
nancial calendar with an overview
of the dates of important events such
as the release of the Annual Report,
the Annual General Meeting, release
of Half-Year Report and payment of
dividends, if applicable.
Unless exceptions apply and are
invoked, the Company discloses inside
information on an ongoing basis. In
all circumstances, the Company shall
provide information about decisions
by the Board of Directors and the
Annual General Meeting concerning
dividends, amalgamations, mergers/
demergers or changes to the share
capital, the issuing of subscription
rights and convertible loans and shall
disclose all agreements of major
importance that are entered into by
the Company and closely-related
parties in accordance with applicable
laws and regulations.
13.2 Information to Shareholders
The Company has discussions with
important shareholders to enable
the Board of Directors to develop
a balanced understanding of the
circumstances and focus of its
shareholders. Such discussions are
conducted in compliance with the
provisions of applicable laws and
regulations and the principle of equal
treatment of all shareholders regarding
material information.
Information to the Company’s
shareholders is published on the
Company’s website at the same time
that it is sent to the shareholders.
for this. In the statement, the Board of
Directors shall make it clear whether
the views expressed are unanimous,
and if this is not the case, explain
the reasons why certain members of
the Board of Directors have excluded
themselves from the statement.
The Board of Directors shall consider
whether to arrange for a valuation of
a take-over offer from an independent
expert. However, if any member of the
Board of Directors, or close associates
of such member, or anyone who
has recently held a position but has
ceased to hold such a position as a
member of the Board of Directors, is
either the bidder or has a particular
personal interest in the offer, the
Board of Directors must arrange for an
independent valuation. This shall also
apply if the bidder owns 10 percent
or more of the Company’s issued and
outstanding shares or votes. Any such
valuation shall either be enclosed with
the Board of Directors’ statement
or reproduced or referred to in the
statement.
14.3 The Group’s Shareholding in
DNO Could Delay, Defer or Prevent
a Merger, Equity Offering, Takeover
or Other Business Combination
Involving the Company
With its 44.94 percent stake, the
Company is currently DNO’s largest
shareholder. An acquisition by a
Company shareholder or a third
party, alone or together with its close
associates, of shares in the Company
representing more than 50 percent of
the votes in the Company, will trigger
on the acquirer an obligation to make
a mandatory offer on the remaining
shares in DNO. Such a mandatory offer
obligation could delay, deter or prevent
a merger, equity offering, takeover or
other business combination involving
the Company. Moreover, any person
acting in concert with the Company to
purchase additional shares directly in
DNO will trigger an obligation to make
a mandatory offer on the remaining
shares in DNO.
RAK Petroleum
plc
24
15. Auditors
The Audit Committee’s Report is
included in this Annual Report and
details the Board of Directors’ activities
regarding the Company’s Auditors.
The Board of Directors ensures that the
Company’s Auditors submit the main
features of the plan for the audit of the
Company to the Audit Committee for
approval each year.
The Auditors participate in at least two
meetings of the Audit Committee: one
that addresses their audit plan and one
at which they report the results of their
audit of the annual accounts. They also
attend a portion of one meeting of the
Board of Directors with an opportunity
to address the members. The Auditors
report on any material changes in the
Company’s accounting principles and
key aspects of the audit, including
any key audit matters and areas of
judgement and estimation, and their
conclusions thereon. They also report
on matters on which there has been
disagreement between the Auditors
and the executive management of the
Company.
The Auditors annually report to the
Audit Committee any observations
regarding the Company’s internal
control procedures, including any
identied weaknesses and proposed
improvements, which come to their
attention during the audit.
The Board of Directors, through its
Audit Committee, holds a meeting
with the Auditors at least once a year
at which no representative of executive
management of the Company is
present. If the Audit Committee deems
it appropriate, or there is disagreement
with the Audit Committee, the Board
of Directors holds a meeting with
the Auditors without the presence of
executive management other than the
Executive Chairman of the Board of
Directors.
The Audit Committee has specied
that executive management can use
the Auditors for specic assignments
other than auditing only with the
approval of the Audit Committee.
The Audit Committee’s Report contains
the remuneration paid to the Auditors,
including details of the fee paid for
auditing work and any fees paid for
other specic assignments.
Composition of the Board
of Directors
The Company’s Board of Directors
has ve members:
•
Bijan Mossavar-Rahmani (Executive
Chairman);
•
Amir Ali Handjani;
•
Ahmed Jamal Jawa;
•
Bjørn Dale; and
•
Sultan Al Ghurair
All the members of the Company’s
Board of Directors were elected for
terms that will expire at the 2022
Annual General Meeting.
25
Bijan Mossavar-Rahmani
Executive Chairman
Mr. Mossavar-Rahmani has been Executive Chairman of the Board of Directors since the
Company’s founding in June 2013, having served as Executive Chairman of the Board of
Directors and Chief Executive Ofcer of RAK Petroleum PCL since May 2010. His role as
Executive Chairman of the Company encompasses the management responsibilities of the
Chief Executive Ofcer, including oversight of the Company’s strategy and operations.
Mr. Mossavar-Rahmani also holds the position of Executive Chairman of the DNO Board of
Directors and Chairman of the Foxtrot International Board of Directors.
In addition to his industry positions, Mr. Mossavar-Rahmani is active in philanthropy,
education and the arts. He is a member of Harvard University’s Global Advisory Council
and Trustee of the New York Metropolitan Museum of Art where he chairs the audit
committee. He has published more than 10 books on global energy markets and was
decorated Commandeur de l’Ordre National de la Côte d’Ivoire for services to the energy
sector of that country. He is a graduate of Princeton (AB) and Harvard Universities (MPA).
Mr. Mossavar-Rahmani is a U.S. citizen and resides in the United States.
Amir Ali Handjani
Director
Mr. Handjani has been a member of the Board of Directors since 2013, having served as a
member of the RAK Petroleum PCL Board of Directors since 2010 and also as its General
Counsel from 2006 to 2010. Mr. Handjani holds a B.A. degree from Boston College and a
Juris Doctor degree from the Northeastern University Law School. He is a member of the
District of Columbia and New Jersey Bar Associations. Mr. Handjani is a U.S. citizen and
resides in the United Arab Emirates.
Ahmed Jamal Jawa
Director
Mr. Jawa became a member of the Board of Directors at the time of listing, having served
as a member of the RAK Petroleum PCL Board of Directors since 2009. He serves as
chairman, chief executive ofcer and president of Starling Holding Ltd, a family ofce and a
global investment group that deals with private equity and direct investments worldwide.
Mr. Jawa serves on the board of Emaar Properties and is the chairman of its investment
committee and member of its risk committee and was elected its vice chairman in
December 2020. He is chairman of Emaar Turkey and a board member of Emaar Misr
in Egypt where he is chairman of the audit committee and a member of its investment
committee. Mr. Jawa also serves on the board of Emaar; The Economic City in Saudi Arabia
where he is a member of the nomination & remuneration committees. Mr. Jawa is also a
board member of Emaar Development, publicly traded on the Dubai nancial market, and
is a member of the investment and nomination committees.
He has been recognised as one of the ‘Global Leaders of Tomorrow’ by the World Economic
Forum in Davos. Mr. Jawa holds a Masters in Business Administration and a Bachelor of
Science in Business Administration, both from the University of San Francisco. Mr. Jawa is a
Saudi Arabian citizen and resides in the United Arab Emirates.
RAK Petroleum
plc
26
Bjørn Dale
Director
Mr. Dale is the Managing Director of DNO. Mr. Dale holds a Master of Law degree from the
University of Oslo and an Executive Master of Business Administration degree in nancial
management from the Stockholm School of Economics. Mr. Dale joined the Board of
Directors in 2015. Mr. Dale is a citizen and resident of Norway.
Sultan Al Ghurair
Director
Mr. Al Ghurair became a member of the Board of Directors in June 2016. He is a member
of the board of directors of Al Ghurair Investment LLC, one of the largest diversied
industrial enterprises in the Middle East. An experienced oil and gas and nance executive,
he serves as chief executive ofcer of Al Ghurair Energy DMCC, vice chairman of Libyan
Emirates Renery Company and a director of Pakistan-based TransAsia Renery Ltd. Mr. Al
Ghurair is also a director of Abdulla Al Ghurair Holding and of Mashreq Bank, where he is
a member of the audit committee. He holds a nance degree from Suffolk University in the
United States. He is a citizen and resident of the United Arab Emirates.
The Company’s registered ofce address at Highdown House, Yeoman Way, Worthing, West Sussex, BN99 3HH, United
Kingdom, serves as the business address (service address) for the members of the Board of Directors in relation to their
directorships of the Company.
The Company believes that Messrs. Jawa, Handjani and Al Ghurair are independent of the Company’s executive
management and material business contacts and of the Company’s major shareholders.
Directors’ Indemnities
The Company entered into agreements with each of the members of the Board of Directors and each member of
executive management identied below which provide them with broad indemnity, including defence costs, against third
party claims. In addition, the Company maintains Directors and Ofcers Liability Insurance that provides broad protection
to the members of the Board of Directors and executive management of the Company.
The Company has no pension scheme for which any of the Directors serve as trustee. As such, there are no agreements
or arrangements indemnifying any Director of the Company against liability incurred in connection with the Director’s
activities as trustee of any such scheme.
Conduct of Business
Dividends and Dividend Policy
The Company’s objective is to generate competitive total returns for its shareholders. The Company’s dividend policy is
balanced between adequate cash reserves, growth opportunities for the Company, nancial exibility, appropriate debt
levels, capital appreciation in the Company’s shares and cash returns for shareholders.
Declaration and payment of a dividend by the Company requires shareholder approval by ordinary resolution and
cannot exceed any recommendation by the Board of Directors. The level of dividends, if any, recommended by the
Board of Directors is guided by cash available, current earnings, market prospects, current and future capital expenditure
commitments, nancing obligations and availability and investment opportunities. In deciding whether to propose a
dividend and in determining the dividend amount (or of any other distribution or share buyback), the Board of Directors
considers legal restrictions regarding the distribution of dividends as governed by its Articles of Association and the
Companies Act.
Since the Company was incorporated on 17 June 2013 no dividends have been distributed to the Company’s shareholders
and there is no assurance that a dividend will be proposed or declared in any year. At the date of this report, the Company
has never declared any dividends and the Board of Directors has not proposed any dividend for 2020 or 2021.
27
the processes and procedures involved
with the Company’s nances, met with
the Company’s Auditors independently
of executive management and
issued its report with regard to those
Consolidated and Parent Company
Financial Statements. It also reviewed
the Company’s unaudited half-year
Consolidated Financial Statements.
The Audit Committee also met in
December 2021 to review and approve
the proposed audit plan and in
March 2022 to review the Company’s
proposed Consolidated and Parent
Company Financial Statements for the
period ending 31 December 2021 and
the processes and procedures involved
with the Company’s nances, met with
the Company’s Auditors independently
of executive management and
issued its report with regard to those
Consolidated and Parent Company
Financial Statements.
The Audit Committee’s Report for the
period ending 31 December 2021
appears on pages 33 to 35 of this
Annual Report.
Remuneration Committee
Pursuant to the Company’s Articles
of Association, the Board of
Directors established a Remuneration
Committee with two members,
currently currently Messrs. Mossavar-
Rahmani and Mr. Al Ghurair. The
Remuneration Committee met in 2021
to prepare the Remuneration Report
for 2020, which was approved by vote
of the shareholders at the 2021 Annual
General Meeting of the Company.
The Remuneration Committee also
met in 2021 with regard to the
salaries of executive management and
the potential award of bonuses to
executive management for 2021 and
again in 2022 to prepare the 2021
Remuneration Report, which appears
after this Directors’ Report. Both
members attended these meetings.
The Remuneration Committee’s report
for 2021 appears on pages 36 to 41 of
this Annual Report.
Compliance with the Corporate
Governance Code
The Company’s corporate governance
regime follows the specic provisions
of the Code with the following
exceptions:
strict and comprehensive conict of
interest policy, trade sanctions and
other policies focused around a code
of conduct to ensure regulatory and
company expectations are met. A
whistleblowing procedure is also in
place.
Insider Trading Policy
The Company strictly prohibits trading
of its shares while in possession of
inside information and to that end
the Board of Directors in September
2014 adopted an Insider Trading
Policy that establishes general rules
and procedures to assist the Company
and the insiders in complying with
the applicable legislation regarding
insider trading and to prevent acts
or omissions which may expose the
insiders or the Company to criticism
or undermine the general trust in the
Company or its shares. DNO enforces
its own insider trading policy.
Audit Committee
The Company has, in line with the
recommendations in the Code,
appointed, with effect from the rst
day of listing, an Audit Committee
consisting today of three members:
Messrs. Jawa (chairman), Handjani
and Dale. The members of the Audit
Committee will serve while they remain
members of the Board of Directors, or
until the Executive Chairman of the
Board of Directors decides otherwise or
they wish to retire.
The primary purpose of the Audit
Committee is to assist the Board of
Directors with the discharge of its
responsibilities in relation to nancial
reporting, including reviewing the
Company’s annual Consolidated and
Parent Company Financial Statements
and half-year Consolidated Financial
Statements and accounting policies,
external audits and internal controls,
reviewing and monitoring the scope
of the annual audit and the extent
of the non-audit work undertaken
by external auditors, advising on the
appointment of external auditors
and reviewing the effectiveness of
the internal controls and anti-fraud
systems in place within the Company.
The Audit Committee met in 2021
to review and approve the proposed
audit plan and then to review the
Company’s Consolidated and Parent
Company Financial Statements for the
period ending 31 December 2020 and
However, the Company distributed
to shareholders approximately USD
30 million by means of two Class A
Share buybacks that completed on 4
February 2019 and 2 May 2019. These
buybacks were conducted as a reverse
Dutch auction treating all shareholders
equally and resulted in the purchase
and cancellation of 15,683,333 Class
A Shares. The Company considers
that there are various material
considerations as to whether a
distribution of capital by share buyback
is preferable to payment of dividends
and these considerations change over
time.
The DNO Board of Directors assesses
on an annual basis whether dividend
payments to DNO shareholders
should be proposed for approval at
DNO’s Annual General Meeting. This
assessment is based on planned capital
expenditure, cash ow projections
and DNO’s objective of maintaining a
strong credit prole and robust capital
ratios.
The Company has received a total of
four dividend payments from DNO
since 2018, including one in 2021.
There can be no guarantee as to
whether DNO will issue any dividends
in the future. Payment of a dividend by
DNO is a material factor in the Board
of Directors’ consideration whether to
recommend that the Company pay a
dividend or otherwise distribute further
capital to the shareholders.
Anti-Corruption Policy and Manual
The Board of Directors believes that it
is essential that the Company uphold
the highest standards of conduct. The
Company is committed to operate in
accordance with ethical, responsible
and sound business principles and
comply with all applicable laws and
regulations. The Company specically
does not permit or tolerate engaging
in any form of corruption or bribery.
To this end, the Board of Directors
on 24 September 2014 adopted an
Anti-Corruption Policy and an Anti-
Corruption Manual that explains and
elaborates the content and implications
of the Company’s policies in relation
to anti-corruption and anti-bribery
matters. DNO enforces its own anti-
corruption policy. DNO has a policy of
zero tolerance for corruption, bribery
and other illegal or inappropriate
business conduct. DNO adheres to a
RAK Petroleum
plc
28
Deviation from section 5: “Shares and Negotiability”. As described above, the Company has three classes of voting shares.
The Class A Shares are listed on the Oslo Børs and are freely tradeable. There are restrictions on trading and ownership
of the Company’s Restricted Class A Shares and Class B Shares as described above under “Share Capital.” There are no
limits on voting the Restricted Class A Shares and Class B Shares. These limitations were adopted in connection with the
Company’s 2014 Initial Public Offering and the desire to implement trading restrictions on existing shareholders during a
six-month period following the listing. Owners of Restricted Class A Shares may request release of the restrictions, which
results in cancellation of the associated Class B Shares.
Deviation from section 8: “Corporate Assembly and Board of Directors’ Composition and Independence”. The Executive
Chairman of the Board of Directors, Mr. Mossavar-Rahmani, has served actively in executive management of the
Company since inception and is compensated accordingly, including with share awards under the LTIP. In addition, he
is the chairman of the Remuneration Committee and will in that position inuence the remuneration received by other
members of executive management. It is customary United Kingdom practice for public limited companies such as the
Company to have both non-executive and executive directors. Mr. Mossavar-Rahmani holds more than 24 percent of
the shares and more than 36 percent of the voting interests in the Company. He is an experienced executive who has
served as chairman or chief executive ofcer of multiple international oil and gas companies for the past 30 years. He
was previously Chairman of the Board of Directors and Chief Executive Ofcer of RAK Petroleum PCL and intimately
familiar with its activities and stakeholders, and as Executive Chairman of the Board of Directors of DNO and Chairman
of Foxtrot International he is similarly intimately familiar with the operations of both principal assets of the Group. He is
therefore uniquely qualied to lead the executive team managing these investments. It is also natural and appropriate
-- even expected -- for him to chair the Board of Directors, as he has by far the largest nancial stake in its considerations
and decisions. Because of his shareholding, there is no danger that as a member of both executive management and the
Board of Directors he will not protect and promote the interests of the shareholders. That is his primary interest.
Deviation from section 6: “General Meetings”. As is common for public limited companies established under English law,
the Articles of Association of the Company provide that the Chairman of the Board of Directors shall, as a general rule,
chair the Annual General Meetings. Directors are not required to attend Annual General Meetings as there has never been
an occasion justifying that expense.
Deviation from section 7: “Nomination Committee”. The chairman of the Nomination Committee, Mr. Mossavar-Rahmani,
is a member of the Board of Directors and of executive management and may offer himself for re-election to the Board of
Directors. The reasons supporting this are set forth above.
Executive Management
The members of the Company’s executive management and their shareholdings at the date of this report are:
Name and position Nature of interest Shares held
2
at 29 March 2022
Bijan Mossavar-Rahmani
3
Executive Chairman
Employed since 2008
Class A Shares
Restricted Class A Shares
Class B Shares
12,801,236
63,030,824
63,030,824
(36.88 percent of votes)
Kevin J. Toner
Managing Director
and General Counsel
Employed since 2013
Class A Shares
Restricted Class A Shares
Class B Shares
29,500
265,500
265,500
(0.15 percent of votes)
Shelley M. Watson
Chief Operating Ofcer
and Chief Financial Ofcer
Employed since 2017
Class A Shares
Restricted Class A Shares
Class B Shares
358,214
-
-
(0.06 percent of votes)
Lisa K. McPhillips
Chief of Staff and Deputy General Counsel
Employed since 2018
Class A Shares
Restricted Class A Shares
Class B Shares
-
-
-
(0.00 percent of votes)
2
Includes shares held by a Special Purpose Vehicle.
3
Shares shown for Mr. Mossavar-Rahmani are owned and controlled indirectly through RAKP Holdings Limited (Holdings). Each share in Holdings mirrors, is exchangeable into and gives the holder the
right to control the voting of a corresponding share in RAKP. In addition to shares he owns in Holdings, Mr. Mossavar-Rahmani has voting control over 12,801,236 Class A Shares, 7,198,764 Restricted
Class A Shares and 7,198,764 Class B Shares in Holdings held by BM-R Holdings LLC, a Delaware LLC 100% owned by him (BM-RHLLC). As announced on 8 February 2022, it is contemplated that
BM-RHLLC will gift 70-80% of its interests to trusts for the benet of Mr. Mossavar-Rahmani’s decendents. Mr. Mossavar-Rahmani will retain voting control over those shares through arrangements with
BM-RHLLC.
29
The Company’s registered ofce address at Highdown House, Yeoman Way, Worthing, West Sussex, BN99 3HH, United
Kingdom, serves as the business address (service address) for the members of executive management in relation to their
employment with the Company.
Brief Biographies of the Members of Executive Management
Bijan Mossavar-Rahmani
Executive Chairman
See information page 25
Kevin J. Toner
Managing Director and General Counsel
Mr. Toner became a senior strategic advisor to RAK Petroleum PCL before it began
acquiring shares in DNO in October 2009. He joined RAK Petroleum PCL as General
Counsel in August 2013. He previously practiced law in the United States for more than
25 years and was recognised as one of New York City’s Super Lawyers from 2006-2011.
Most recently he was a partner at the US law rm of Patton Boggs, where he was co-head
of the antitrust practice. Prior to that, Mr. Toner was a co-founding partner of the New
York ofce of Heller Ehrman LLP, where he served in various management roles including
co-head of the litigation department. Mr. Toner’s practice focused on representing boards,
board committees, executive management and institutions in matters regarding corporate
governance, complex commercial disputes, antitrust and securities litigation and internal
investigations. He has been a member of the executive committee of the antitrust section
of the New York State Bar Association. Mr. Toner earned a B.S.E. in mechanical and
aerospace engineering from Princeton University (1974) and his law degree, magna cum
laude, from Fordham University School of Law (1986), where he graduated rst in his class.
Shelley M. Watson
Chief Operating Ofcer and Chief Financial Ofcer
Ms. Watson joined the Company as Chief Operating Ofcer as of 1 February 2017 and
Chief Financial Ofcer as of 1 May 2017.
Ms. Watson has extensive experience in the oil and gas industry in the Middle East, most
recently as the General Manager of the Company's predecessor, RAK Petroleum PCL, until
the summer of 2014. She joined RAK Petroleum PCL as Group Commercial Director in 2007
and previously held commercial and operational management roles with Novus Petroleum
and Indago Petroleum. Ms. Watson holds a First Class Honours degree in chemical
engineering and a Bachelor of Commerce degree from the University of Melbourne.
Additional directorships or management positions during the last ve years: Board of
Directors of DNO ASA and member of its Audit Committee (since 2010) and its HSSE
Committee (since 2020).
Attendance at Board and Committee Meetings
The Company’s Board of Directors met twice during 2021. All Directors attended each of the Company’s Board of
Directors meetings in 2021. The Remuneration Committee met twice in 2021 and all members attended. The work of the
Audit Committee is described in its accompanying report.
Charitable Donations
The Company made no charitable donations during 2021.
30
RAK Petroleum
plc
the equity method of accounting.
DNO is accounted for as a subsidiary
due to the application of IFRS 10
regarding de-facto control, even
though the Company is treated equally
to other DNO shareholders and has no
obligation to fund DNO’s expenditures.
Reecting that the DNO Group is only
consolidated as a result of de-facto
control, in assessing the Group’s going
concern the Board of Directors made
separate consideration of the DNO
Group and the Company, its wholly-
owned subsidiaries and investment in
Foxtrot International.
Company, wholly-owned subsidiaries
and investment in Foxtrot International
The Board of Directors conducted
a review for the period up to end
June 2023 for the cash ow of
the Company, its wholly-owned
subsidiaries and investment in Foxtrot
International.
In making its determination, the Board
of Directors considered (i) the approved
budget for 2022 expenditures at
Foxtrot International and expectations
of expenditures over the remainder of
the forecast period, (ii) forecasted cash
ows from Foxtrot International, (iii)
forecasted general and administrative
expenses for the Company and its
wholly-owned subsidiaries and (vi) the
likelihood of DNO dividends. In this
regard, the Company benets from
Foxtrot International cash ows that
are not substantially dependent upon
world oil prices.
The underlying assumptions were
stress tested and reviewed in the
context of the Group’s liquidity and
the principal risks of the regions and
industry in which it operates and
with regard to the risks set out in
the Principal Risks section above. No
dividends are assumed from DNO in
the base case or stress testing analysis.
Reduced dividend revenue from Foxtrot
International was analysed at a level
of 25 percent, 50 percent and 100
percent reduction and opportunities
for the reduction of expenditure were
considered.
the Consolidated and Parent Company
Financial Statements.
Going Concern Treatment
Taking account of the Group’s present
position and principal risks, the
Board of Directors has a reasonable
expectation that the Group and the
Company will be able to continue in
operation and meet their liabilities as
they fall due for the period at least
12 months following approval of the
Consolidated and Parent Company
Financial Statements. In forming this
conclusion, the Board of Directors
considered the 15-month period to
June 2023.
The Company acts as a holding
company and currently holds interests
in two oil and gas companies (the
“Investment Entities”): DNO ASA
(“DNO”) and Foxtrot International
LDC (“Foxtrot International”). At
At 29 March 2022, the Company
indirectly owned 44.94 percent of the
total outstanding shares of DNO and
indirectly owned 33.33 percent of
Foxtrot International. The Company
and its wholly-owned subsidiaries have
no direct production or expenditure
in oil and gas assets. All production
and expenditure in oil and gas assets
is carried out through the Investment
Entities, DNO and Foxtrot International.
DNO is a Norwegian exploration and
production company listed on the
Oslo Børs (Oslo Stock Exchange). The
Company is one of many shareholders
and has no obligation to fund DNO’s
activities and expenditures. DNO has
in place debt facilities and would be
expected to be able to access funds if
necessary through the usual suite of
capital raising options available to any
listed company. Foxtrot International
is a privately-held company with two
shareholders responsible for funding
any expenditure requirements not
covered by revenue generated in
its operations. Foxtrot International
sends monthly dividend payments
from revenue generated from the
sale of gas, oil and condensates and
sends monthly cash calls to fund
anticipated expenditure. Foxtrot is
accounted for as a Joint Venture using
Political Donations
Although authorised to do so under
certain circumstances, neither the
Company nor any of its wholly-
owned subsidiaries made any political
donations during 2021. Neither of the
Investment Entities made any political
donations during 2021.
Important Events and
Developments Since the End
of the Financial Year
The events and developments since 31
December 2021 which the Board of
Directors believes were important to
the Company’s business are detailed in
the Strategic Report above in Section I.
Likely Future Developments
Affecting the Company’s
Business
The likely future developments that
may affect the Company’s business are
discussed in the Strategic Report above
in Section I.
Financial Risk Management
Objectives and Policies
The Company, and the Investment
Entities, do not generally use hedging
strategies that limit the exposure to
price movements except in limited
cases and, as a general matter, do not
regard their mandate as encompassing
hedging out of the risks associated
with oil and gas investments.
Exposure to Price Risk, Credit
Risk, Liquidity Risk and Cash
Flow Risk
The Company’s activities and those
of its Investment Entities expose
it to a variety of nancial risks.
The Company’s Board of Directors
provides certain guidance in managing
such risks, particularly as relates to
credit and liquidity risk. All material
borrowing arrangements require
approval from the Board of Directors
and the Company and its Investment
Entities do not currently use any
derivative nancial instruments to
manage nancial risks. The key
nancial risks and the Group’s major
exposures are as detailed in Note 27 to
31
The Board of Directors noted that
the liquidity of the Company, wholly-
owned subsidiaries and investment in
Foxtrot International is not reduced
to nil unless there is an extreme, and
highly unlikely, reduction in dividend
income from Foxtrot International
throughout the period to June
2023, with no mitigations being
implemented.
DNO Group
The Board of Directors noted that
for the purposes of the DNO Annual
Report and Accounts published on
17 March 2022, the DNO Board
of Directors concluded after their
own analysis that the going concern
basis of preparation was warranted
for DNO and took note of (i) DNO’s
exceptionally low reported lifting
costs in Kurdistan, (ii) nancing
arrangements that DNO has in place
(iii) DNO’s substantial proven and
probable producing oil reserves under
existing arrangements that permit cash
ow generation covering the forecast
period, (iv) the signicant improvement
in oil and gas prices, (v) the build-
up of DNO’s cash balance and (vi)
DNO’s ability to reduce investment
expenditure. The Board of Directors
noted that the period covered for
DNO’s assessment was to 31 December
2022. This period has subsequently
been extended for the purposes of the
Company’s going concern assessment.
For the Consolidated Financial
Statements of the Group, the going
concern assessment for the DNO
Group was reviewed in detail by the
Board of Directors for the period up
to end June 2023. A base case Brent
oil price of USD 65 per barrel was
assumed. Stress testing of the cash
ows was carried out at varying Brent
oil price assumptions (USD 45 per
barrel and USD 85 pence per therm)
without modelling the benets of
identied mitigation actions. The bond
covenants and reserves-based lending
covenants were also reviewed with
forecast minimum cash, equity and
EBITDAX (earnings before interest,
tax, depreciation, amortisation and
exploration expense) compared to the
covenant limits throughout the going
concern time period under the base
case and stress test cases. The EBITDAX
covenant is most sensitive to a severe
reduction in oil prices but this covenant
is not breached in the above cases,
without requiring mitigating actions.
In reviewing the DNO assessment of
going concern the Board of Directors
continued to monitor the uncertainty
caused by the Covid-19 pandemic
and its effect on the global economy,
while also noting the gradual easing
of restrictions since the reporting date.
The Board of Directors also noted the
consideration of the possible future
impacts of climate-change initiatives.
In addition, the Board of Directors
assessed the 15 February 2022 ruling
by the Federal Supreme Court of Iraq
(“FSCI”) on the Kurdistan Regional
Government’s (“KRG”’s) constitutional
rights and powers as regards oil and
gas as further detailed under Critical
Accounting Judgements and Estimates,
Risks Associated with Operating in
Kurdistan on page 91. It is currently not
clear how this ruling will be followed
up. To date there has been no effect
on operations but any development
will be closely monitored. In assessing
the effect on going concern, the Board
of Directors considered the potential
effect of a signicant interruption in
the settlement of receivables from
the KRG. Were such an interruption
to arise, the Board of Directors would
expect DNO to reassess the levels of
capital investment at the Tawke and
Baeshiqa licences as it did during
the initial stages of the Covid-19
pandemic.
Based on their assessment of this
analysis, the Board of Directors has a
reasonable expectation that the DNO
Group will be able to continue in
operation and manage its liabilities as
these fall due over the forecast period
to June 2023. The Board of Directors
noted DNO’s current cash balance
when reaching its going concern
conclusion.
Conclusion for the Group and
Company
Based on the assessment described
above, the Board of Directors has a
reasonable expectation that the Group
and the Company will be able to
continue in operation and meet their
liabilities for a period of at least 12
months, having assessed forecasts for
the 15-month period to June 2023.
Research and Development
Activities
The Company does not engage in
meaningful research and development
activities.
Existence of Branches
Outside the United Kingdom
During 2021, the Company had no
branches outside the United Kingdom
within the meaning of the Companies
Act.
Greenhouse Gas Emissions
The Company does not combust
fuel or operate facilities that directly
emit greenhouse gases, nor is it
responsible for facilities that do so
using the nancial control approach
to account for Greenhouse Gas
Emissions (“GGE”). During 2021, the
Company had no owned transport
vehicles. During 2021 the Company
rented ofce spaces in Dubai, Ras
Al Khaimah and Sydney. It was
responsible and billed separately for
electricity consumption in Dubai,
but not Ras Al Khaimah or Sydney.
Thus, the Company’s only GGE are
indirect emissions based on its level
of electricity consumption. Based on
its consumption and emission data
provided in its monthly bills by the
Dubai Electricity & Water Authority,
the Company’s cumulative 2021 GGE
and kWh usage in the Dubai ofce was
500 kg of CO
2
and 1,200 kWh (2020:
558 kg of CO
2
and 1,200 kWh).
In light of these circumstances, the
Company cannot say with clarity or
certainty the most meaningful intensity
32
RAK Petroleum
plc
LLP as Auditors will be put to the
shareholders at the 2022 Annual
General Meeting. Various matters
regarding the Auditors and their
compensation are included in the
accompanying Audit Committee
Report.
For and on behalf of the Board of
Directors
Bijan Mossavar-Rahmani
Executive Chairman of the
Board of Directors
31 March 2022
ratio to be used for assessment of its
performance. Expressed as a function
of the Number of Relevant Employees
using the ofce with measured GGE,
the Intensity ratio is:
2020: 0.1 tonnes/1 = 0.1T/Relevant
Employee.
2021: 0.1 tonnes/1 = 0.1T/Relevant
Employee.
Given the limited scope of GGE for
which the Company is responsible, the
Board of Directors does not believe
that GGE disclosures are meaningful or
material.
During 2021 DNO had greenhouse
gas emissions of 426,109 tonnes of
CO
2
equivalent, compared to 422,643
tonnes in 2020. DNO’s greenhouse gas
emissions in 2021 were categorised as
424,040 tonnes of CO
2
equivalent in
Scope 1, 342 tonnes of CO
2
equivalent
in Scope 2 and 1,726 tonnes of
CO
2
equivalent in Scope 3. In 2021
Foxtrot International had greenhouse
gas emissions of 38,240 tonnes of
CO
2
equivalent, compared to 43,674
tonnes of CO
2
equivalent in 2020.
Disclosure of Information to
the Auditors
So far as each Director is aware, there
is no relevant material information of
which the Company’s Auditors are
unaware. Each Director has taken all
steps that ought to have been taken
as a Director to make himself aware of
any relevant material audit information
and to establish that Ernst & Young LLP
are aware of that information.
Auditors
The Company anticipates that a
resolution to reappoint Ernst & Young
33
III. Audit
Committee
Report
If the Audit Committee is not satised
with any aspect of the proposed
nancial reporting by the Company, it
shall report its views to the Board of
Directors and in appropriate cases, in
the Annual Report.
The Audit Committee relies on
information and support from the
Company’s executive management to
enable it to carry out its responsibilities.
In addition, its terms of reference
authorise the Audit Committee to
obtain information from any employee
of the Company and to engage and
obtain advice from independent
advisers at the Company’s expense, if
the Audit Committee determines that
is necessary or appropriate.
The Audit Committee met in January
2021 to review and approve the
proposed audit plan and scope for the
audit of the Consolidated and Parent
Company Financial Statements for the
year ended 31 December 2020 and in
March 2021 to review, among other
tasks, the adequacy of the proposed
2020 Consolidated and Parent
Company Financial Statements,
proposed disclosures in the Annual
Report and the processes and
procedures by which these were
generated and audited and to review
the reporting of the Auditors on their
audit. All members attended all
meetings. In September 2021 the
Audit Committee also reviewed and
approved the Consolidated Financial
Statements included in the Company’s
Half-Year Report, along with the other
members of the Board of Directors. All
members attended. The Audit
Committee met again in December
2021 to review and approve the
proposed audit plan and scope and in
March 2022 to review the adequacy of
the proposed 2021 Consolidated and
Parent Company Financial Statements,
proposed disclosures in the 2021
Annual Report and the processes and
procedures by which these were
generated and audited and to review
the reporting of the Auditors on their
audit. All members attended all
meetings, as did representatives of the
Company’s Auditors and executive
management. In March 2022 the Audit
Committee met with the Auditors both
with and outside the presence of
executive management.
The Audit Committee of RAK
Petroleum plc (“RAK Petroleum” or the
“Company”) was established upon the
listing of the Company and now
includes three members: Ahmed Jawa,
Amir Ali Handjani and Bjørn Dale. Mr.
Jawa, the Audit Committee’s chairman,
has relevant nancial experience,
including service on the audit
committees of other publicly listed
corporate entities. None of the
members are presently involved in the
management of the Company, and at
least two of the members are
independent of the Company and its
executive management.
The Board of Directors adopted
detailed terms of reference in 2014
that set out the Audit Committee’s
areas of responsibility and authority. A
copy of those terms of reference is
available on the Company’s website.
The Audit Committee monitors the
integrity of the nancial statements of
the Company and the Group, including
its annual and half-yearly reports and
any other formal announcement
relating to its nancial performance. In
particular, the Audit Committee
reviews and challenges, if necessary:
• The consistency of, and any
changes to, signicant accounting
policies both on a year-on-year
basis and across the Company and
the Group;
• The methods used to account for
signicant or unusual transactions
where different approaches are
possible;
• Whether the Company and the
Group has followed appropriate
accounting standards and made
appropriate estimates and
judgements, taking into account
the views of the external Auditors;
• The clarity and completeness of
disclosure in the Company’s
nancial reports and the context in
which statements are made; and
• All material information presented
with the Consolidated and Parent
Company Financial Statements,
such as the business review and
the corporate governance
statements relating to the audit
and to risk management.
34
RAK Petroleum
plc
Signicant Issues in Relation
to the Consolidated and
Parent Company Financial
Statements
The signicant issues considered and
addressed by the Audit Committee in
relation to the 2021 Consolidated and
Parent Company Financial Statements
were:
• The Audit Committee reviewed
the Company’s treatment of DNO
ASA (“DNO”) as a controlled
subsidiary and its conclusion that
based on all the facts and
circumstances the Company has
de facto control over DNO, as
dened by IFRS 10. As set forth in
Notes 2 and 3 of the Consolidated
and Parent Company Financial
Statements for the year ended 31
December 2016, the decision to
account for the Group’s interest in
DNO using the equity method was
a matter of critical and signicant
judgement. Upon re-examination
of the factors that inuenced these
decisions and following discussion
with a Review Group of the
Financial Reporting Council, the
Company decided that DNO’s
nancial results should be
consolidated as a subsidiary in the
Group’s Annual Report for the year
ended 31 December 2017.
Following a further review, the
Audit Committee was satised
that this accounting treatment
adopted by the Group remains
appropriate. As required by IFRS
10, the Audit Committee will
continue to monitor the
Company’s judgement in this
regard on a regular basis.
• With respect to impairment testing
of the Company’s investments in
the Investment Entities, the Audit
Committee reviewed the reported
value of the principal assets of the
Group as part of the year-end
process. The Audit Committee
reviewed, assessed and tested
executive management’s
judgements regarding the
assessment of impairment of
assets, including oil and gas assets
and goodwill and discussed and
considered the Auditors’ views on
the issues. Following the review,
the Audit Committee was satised
that the Group had not made an
impairment adjustment to the
value of its investment in DNO and
had not made an impairment
adjustment to the value of its
investment in Mondoil Enterprises
LLC and that the assets are
otherwise appropriately reported.
• The Audit Committee also
examined and reviewed the basis
for the going concern treatment
adopted in the Consolidated and
Parent Company Financial
Statements in the 2021 Directors’
Report and concluded that the
Company’s going concern
conclusion was well supported and
appropriate.
• The Audit Committee reviewed
the audited and published nancial
statements of DNO with particular
reference to the impairment review
of the principal assets as part of
the year-end process, the revenue
recognition criteria for revenue
received from the Kurdistan region
of Iraq, the treatment of the
receivable owed to DNO by the
Kurdistan Regional Government
and DNO’s going concern
conclusion. The Company
reviewed DNO’s analysis and
conclusions regarding the above
key audit matters and presented its
own conclusions to the Audit
Committee. Although the Audit
Committee does not have access
to internal DNO documents in its
assessment of the DNO nancial
statements, it adopted procedures
in conjunction with DNO seeking
to ensure that it and the other
members of the Board of Directors
have an adequate basis on which
to full their reporting
responsibilities regarding DNO.
Shelley Watson, the Company’s
Chief Operating Ofcer and Chief
Financial Ofcer, is a member of
the DNO Board of Directors and its
audit committee, Bijan Mossavar-
Rahmani, the Company’s Executive
Chairman, is Executive Chairman
of DNO and Bjørn Dale, a member
of the Audit Committee, is
Managing Director of DNO. In that
respect, the Audit Committee
relies heavily on representations of
Ms. Watson and Messrs. Mossavar-
Rahmani and Dale and the work of
the Company’s Auditors (who have
access to certain DNO internal
nancial information) to ensure
that it has an adequate basis for
reliance on the audited nancial
statements of DNO.
Internal Audit Function
As part of its year-end review process,
the Audit Committee again assessed
whether the Company should create a
dedicated internal audit function.
Because of the nature of its business,
the principal nancial results of the
Company occur at the Investment
Entity level. To a great extent,
preparation of the Consolidated and
Parent Company Financial Statements
involves appropriate reporting of the
results of the Investment Entities,
which are subject to their own internal
controls. The incorporation of those
results into the Consolidated and
Parent Company Financial Statements
is subject to internal scrutiny as well as
annual external audit and the
Company’s Auditors review practices
and procedures at the Investment
Entities to assess reliability. Executive
management is personally involved in
the appropriate treatment of any
material transactions at the Company
level and that treatment is also subject
to annual external audit. Because there
is annual external audit of all the
matters most material to the
Consolidated and Parent Company
Financial Statements and given the
small number of employees and the
relatively small scale of operations at
the Company level, the Audit
Committee has concluded that the
current arrangement is appropriate and
a cost/benet analysis does not support
the need for a dedicated internal audit
function at this time. During 2017, the
Company updated its internal controls
processes which incorporates a level of
independent monitoring of activities
within the existing nance staff. The
Audit Committee will regularly review
this assessment. DNO has a full-time
internal auditor monitoring the
controls procedures and processes
35
within DNO and carrying out internal
audits as determined by DNO’s audit
committee and executive
management.
Assessment of the External
Audit Process
The Company’s Auditors for 2021 were
Ernst & Young LLP (London) assisted by
Ernst & Young entities resident in other
locations where the Investment Entities
are headquartered. Ernst & Young LLP
has audited the Company since 2014.
The Audit Committee met with Ernst &
Young LLP both with executive
management and outside the presence
of executive management and sought
to assure itself that:
• The audit plan was designed and
adequate to assure there are no
material misstatements in the
Consolidated and Parent Company
Financial Statements;
• Executive management has fully
cooperated with Ernst & Young
LLP in implementing the audit
plan;
• Ernst & Young LLP had received
adequate cooperation from the
relevant nancial reporting
functions of each of the
Investment Entities;
• Ernst & Young LLP has the
requisite expertise, experience,
qualications and resources to
complete the audit;
• All material accounting issues had
been resolved to the satisfaction of
Ernst & Young LLP;
• Ernst & Young LLP had the
opportunity to advise of any
deciencies in the Company’s
internal processes;
• Ernst & Young LLP was objective
and independent from executive
management of the Company and
any non-audit services provided by
Ernst & Young LLP or its network
of rms to the Company or the
Investment Entities were not such
as would compromise its
independence.
The Company paid fees of USD 1.1
million to Ernst & Young LLP and its
international afliates in 2021 for
services related to the audit period
ended 31 December 2020, further
details of which can be found in the
Notes to the Consolidated and Parent
Company Financial Statements in
Section VII.
Generally, non-audit services have been
limited to services closely connected to
the external audit or to projects that
require a detailed understanding of the
Company’s nances (e.g., accounting
matters for the listing prospectus,
taxation, company structuring). The
Audit Committee adopted a policy that
any material non-audit services to be
provided by Ernst & Young LLP or its
network of rms to the Company or
its wholly-owned subsidiaries require
the approval of the Audit Committee.
In addition, any non-audit service to be
carried out by DNO’s auditors for DNO
requires DNO to notify the Company’s
Audit Committee in advance.
The Audit Committee also conferred
separately with executive management
regarding the effectiveness and
cooperation of Ernst & Young LLP.
The Audit Committee concluded that
(i) Ernst & Young LLP is objective and
independent and has the requisite
expertise, experience, qualications
and resources, (ii) Ernst & Young
LLP’s audit plans and procedures
were adequate to assure that there
are no material misstatements in the
Consolidated and Parent Company
Financial Statements, and (iii) Ernst &
Young LLP should be reappointed as
the Company’s Auditors for 2022.
“Speak Up” Arrangements
The Audit Committee has direct
access to all the members of executive
management and has assured
executive management of their ability
to raise concerns, in condence, about
possible wrongdoing in nancial
reporting or other matters and the
Audit Committee directed the General
Counsel to assure other staff of that
opportunity.
Other Compliance Issues
The Audit Committee inquired of
the Company’s General Counsel as
to any reported matters involving
wrongdoing or compliance or risk
issues not otherwise addressed in the
Consolidated and Parent Company
Financial Statements and concluded
these matters were adequately
disclosed.
For and on behalf of the Audit
Committee
Ahmed Jamal Jawa
Chairman of the Audit Committee
31 March 2022
36
RAK Petroleum
plc
IV. Directors’
Remuneration
Report
Overview of the Year
The Remuneration Committee
decided to continue to hold
salaries of executive management
at the 2015 levels for 2022. The
Remuneration Committee did not
award any cash bonuses or other
incentive compensation to executive
management for the year 2021, as
more fully described in the attached
report.
Looking Forward
The following pages of this
Remuneration Report contain the
Company’s remuneration policy
and explain how that policy is
implemented. The remuneration
package is designed to incentivise
executive management and the
Company’s employees to drive
performance in line with the business
strategy, and to align their interests
with those of shareholders.
Directors’ Remuneration
Report
The yearly report on remuneration
has been prepared in accordance with
Part 3 of Schedule 8 to the Large and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations
2008, as amended.
Items 2-3 and 5-8 of this Directors’
Remuneration Report contain audited
information.
In addition to the members of the
Board of Directors, the Company has
also included in this remuneration
report the remuneration details of
Kevin Toner, the Managing Director
and General Counsel, Shelley Watson,
the Chief Operating Ofcer and Chief
Financial Ofcer and Lisa McPhillips,
the Chief of Staff and Deputy General
Counsel, to present a complete picture
of the remuneration provided to
executive management
1
.
The Directors’ Remuneration Policy of
RAK Petroleum plc (“RAK Petroleum”
or the “Company”) was submitted to
and approved by the shareholders for
a three-year period in a binding vote at
the 2015 Annual General Meeting held
on 25 June 2015 and was effective
from that date. It was resubmitted to
shareholders and received their binding
approval for an additional three-year
period at the 2018 Annual General
Meeting and was resubmitted to
shareholders and received their binding
approval for an additional three-year
period at the 2021 Annual General
Meeting. The Director’s Remuneration
Report for 2020 was approved by
the shareholders at the 2021 Annual
General Meeting and this Report
for 2021 will be submitted to the
shareholders for an advisory vote at the
2022 Annual General Meeting.
The Remuneration
Committee
The Board of Directors established the
Remuneration Committee in December
2014 as a preparatory and advisory
committee to ensure thorough and
independent preparation for decisions
to be taken on remuneration-related
policies and decisions.
Remuneration Philosophy
The Company’s approach is to have
a remuneration philosophy that
is sufciently exible to enable it
to pay appropriate remuneration
packages such that suitable high-
calibre individuals can be attracted
and retained. Given the international
environment in which the Company
operates, it is essential that the
approach to remuneration enables
the Company to compete within the
global oil and gas investment business.
It is a policy of the Company to offer
executive management competitive
remuneration based on current market
standards. Both cash and share-based
incentive arrangements are linked
to delivery of the Company’s key
goals. This will give the Company the
best opportunity of delivering on its
business strategy.
1
Executive management for 2021 includes Messrs. Mossavar-Rahmani and Toner, and Mmes. Watson and McPhillips. Only Mr. Mossavar-Rahmani is on the Board of Directors and is
therefore an executive Director. Mr. Toner, Mmes. Watson and McPhillips are members of executive management but do not serve on the Board of Directors. As the Executive Chairman of
the Board of Directors, Mr. Mossavar-Rahmani is the Company’s Chief Executive Ofcer.
37
1. Remuneration Committee
The Remuneration Committee comprises Bijan Mossavar-Rahmani (chairman) and Sultan Al Ghurair.
The Remuneration Committee met in March 2021 to prepare and review the Remuneration Report for 2020, as
published in the Annual Report and Accounts for 2020. Kevin Toner materially assisted the Remuneration Committee in
preparation of that Remuneration Report but he did not participate in any discussions or deliberations concerning his own
compensation.
The Remuneration Committee met in December 2021 and considered:
•
The base salaries of executive management;
•
Grants of cash bonuses or specic awards under the Long-Term Incentive Plan (the “LTIP”); and
•
Remuneration policies and practices across the Company.
At that time, the Remuneration Committee decided to continue the freeze of base salaries at 2015 levels and to withhold
the grant of any LTIP awards for 2021 in light of the Company’s share price development.
The Remuneration Committee did not award any cash bonuses to executive management for 2021 performance.
The Remuneration Committee met in March 2022 to prepare and review this Remuneration Report for 2021. Mr. Toner
materially assisted the Remuneration Committee in preparation of this Remuneration Report but he did not participate
in any discussions or deliberations concerning his own compensation. All members attended all 2021 meetings of the
Remuneration Committee.
2. Single Total Figure on Remuneration: Executive Management
The following table sets out the total remuneration for the Company’s executive management for the years ended 31
December 2021 and 31 December 2020 expressed in USD.
Executive
management
Financial
year
Base salary
(including fees)
Taxable
benets
Annual
bonus
Long-term
incentive plan
Pension
related benets Total
Fixed
remuneration
Variable
remuneration
Bijan Mossavar-Rahmani
2021 1,728,800
2
- - - -
1,728,800 1,728,800
-2020 1,660,600
3
- -
- -
1,660,600 1,660,600
-
Kevin J. Toner
2021 650,000
- - - - 650,000 650,000 -
2020 650,000
- - - - 650,000 650,000 -
Shelley M. Watson
2021 450,000
42,750 - - - 492,750 492,750 -
2020 - - - 492,750 492,750 -
450,000
42,750Lisa K. McPhillips
2021 320,833
4
24,680
- - - 345,513 345,513 -
2020 - - -
350,000
- 350,000 350,000
-Base salary (including fees) reects total amount of salary and any fees paid to or receivable in the year in respect of
qualifying services as a member of the Board of Directors or for other services (including service as Executive Chairman of
DNO ASA (“DNO”) and member of its board committees in the case for Mr. Mossavar-Rahmani). Taxable benets reect
the gross value of all taxable benets (or benets that would be taxable in the United Kingdom if the individual was
resident in the United Kingdom). Annual bonus reects total amount of bonuses so paid or receivable for the nancial
year. No awards under the LTIP were granted in the reporting period or through the date of this report and are therefore
not reported here.
The annual bonus and LTIP awards are considered as variable compensation because they vary from year-to-year and are at
the discretion of the Remuneration Committee.
2
Includes a base salary of USD 850,000 and Director’s fees of USD 50,000 and Nomination Committee fees of USD 5,000 plus USD 828,800 in connection with Mr. Mossavar-Rahmani’s service as the
Executive Chairman of DNO and member of its board committees. The increase in DNO board member fees is due to exchange rate effects.
3
Includes a base salary of USD 850,000 and Director’s fees of USD 50,000 and Nomination Committee fees of USD 5,000 plus USD 860,600 in connection with Mr. Mossavar-Rahmani’s service as the
Executive Chairman of DNO and member of its board committees.
4
Includes base salary until 1 December 2021 at which time Ms. McPhillips employment ceased.
RAK Petroleum
plc
38
Additional disclosures in respect of the single gure are shown in the table below.
2.1 Benets
The Company did not offer pension entitlements to executive management in 2020 or 2021 except as required by
employment law in the country of location of the employee. Nor did it offer benets such as health cover, car or fuel
allowance, taxable travel or relocation costs, except as set out below expressed in USD.
2021 2020
Kevin J. Toner
Health cover:
30,082 37,063
Life insurance premiums:
- -
Shelley M. Watson
Health cover:
9,232 8,111
Life insurance premiums:
2,480 1,851
Lisa K. McPhillips
Health cover:
2,466 9,664
Life insurance premiums:
- -
2.2 Annual Bonus
The Remuneration Committee awarded no cash bonuses to executive management for 2021 performance. No bonuses
were awarded in 2020.
2.3 Details of Awards Made Under the LTIP
The Company made no awards under the LTIP in 2020 and 2021 or to date in 2022.
3. Single Total Figure Remuneration: Non-Executive Directors
The following table sets out the remuneration received by the non-executive members of the Board of Directors from the
Company during the nancial year expressed in USD.
Non-executive director Financial year Board of Directors fee Total
Amir Ali Handjani
2021 50,000 50,000
2020 50,000 50,000
Ahmed J. Jawa
2021 50,000 50,000
2020 50,000 50,000
Bjørn K. Dale
2021 50,000 50,000
2020 50,000 50,000
Sultan Al Ghurair
2021 50,000 50,000
2020 50,000 50,000
As approved by shareholders at the 2021 Annual General Meeting, each member of the Board of Directors received USD
50,000 per annum.
Non-executive Directors were not paid any additional salary, bonus, LTIP, pension benets or other taxable benets during
the nancial year. Members of the Board of Directors are reimbursed, or the Company pays, for travel and overnight
housing in respect of meetings when appropriate. The Company also reimburses appropriate business expenses incurred
in carrying out the Company’s business.
39
4. Remuneration of the Executive Chairman and Non-Executive Members of the Board of
Directors Compared to Employees Generally
The percentage change in the remuneration of Mr. Mossavar-Rahmani between 2020 and 2021 compared to that of all
employees within the Company are shown below. The gures do not include DNO as DNO has its own Remuneration
Committee determining employee compensation.
2021 2020
Base salary (percent change
from 2020)
Annual cash bonus
(percent change from
2020)
Base salary (percent change
from 2019)
Annual cash bonus (percent
change from 2019)
Bijan Mossavar-Rahmani
- - -
(100) (no bonus 2020)Non-Executive Members of the Board of Directors
- - - -
Average for all employees
- - -
(100) (no bonus 2020)5. Payments Made to Past Directors
No payments were made during 2021 to past Directors.
6. Payments for Loss of Ofce
No payments were made to Directors for loss of ofce during the nancial year.
7. Scheme Interests Awarded During the Financial Year
No Scheme Interests were awarded during 2021.
8. Statement of Executive Management’s Shareholding and Share Interests
The Company does not currently operate formal shareholding guidelines.
8.1 Executive Management
Nature of interest Shares held at 29 March 2022
Bijan Mossavar-Rahmani
5
Class A Shares
Restricted Class A Shares
Class B Shares
12,801,236
63,030,824
63,030,824
(36.88 percent of votes)
Kevin J. Toner
6
Class A Shares
Restricted Class A Shares
Class B Shares
29,500
265,500
265,500
(0.15 percent of votes)
Shelley M. Watson
7
Class A Shares
Restricted Class A Shares
Class B Shares
358,214
-
-
(0.07 percent of votes)
8.2 Non-Executive Directors
Nature of interest Shares held at 29 March 2022
Amir Ali Handjani
8
Class A Shares
Restricted Class A Shares
Class
B Shares
2,500,000
-
-
(0.46 percent of votes)
Ahmed Jamal Jawa
9
Class A Shares
Restricted Class A Shares
Class
B Shares
5,000,000
-
-
(0.91 percent of votes)
Bjørn Dale
10
Class A Shares
Restricted Class A Shares
Class
B Shares
-
-
-
-
Sultan Al Ghurair
11
Class A Shares
Restricted Class A Shares
Class
B Shares
-
-
-
-
5
Shares shown for Mr. Mossavar-Rahmani are owned and controlled indirectly through RAKP Holdings Limited (Holdings). Each share in Holdings mirrors, is exchangeable into and gives the holder the right
to control the voting of a corresponding share in RAKP. In addition to shares he owns in Holdings, Mr. Mossavar-Rahmani has voting control over 12,801,236 Class A Shares, 7,198,764 Restricted Class A
Shares and 7,198,764 Class B Shares in Holdings held by BM-R Holdings LLC, a Delaware LLC 100% owned by him (BM-RHLLC). As announced on 8 February 2022, it is contemplated that BM-RHLLC will
gift 70-80% of its interests to trusts for the benet of Mr. Mossavar-Rahmani’s decendents. Mr. Mossavar-Rahmani will retain voting control over those shares through arrangements with BM-RHLLC.
6
Represents shares held by a Special Purpose Vehicle as to which Mr. Toner has a benecial ownership interest.
7
Represents shares held by a Special Purpose Vehicle as to which Ms. Watson has a benecial ownership interest.
8
Represents shares held through AAH Holding Limited, wholly-owned by Mr. Handjani.
9
Represents shares held by Starling Global Finance Ltd, of which Mr. Jawa is chairman and CEO.
10
Mr. Dale is the Managing Director of DNO. which holds 2,675,600 Class A Shares, 13,174,137 Restricted Class A Shares and 13,174,137 Class B Shares (7.71 percent of votes). Mr. Dale
disclaims ownership or control of these shares.
11
Mr. Al Ghurair is a director of the parent company of TransAsia Gas International LLC which holds 1,000,000 Class A Shares, 9,000,000 Restricted Class A Shares and 9,000,000 Class B
Shares (5.00 percent of votes). Mr. Al Ghurair disclaims ownership or control of these shares.
RAK Petroleum
plc
40
9. Relative Importance of Spend on Pay
The following table sets out the total amounts spent in 2020 and 2021 on remuneration for all employees within the
Company (including executive management), the attributable prot for each year and the distributions received by
shareholders. The gures do not include DNO as DNO has its own Remuneration Committee determining employee
compensation.
USD million
2021 2020 Percent change
Attributable prot
99.8 (131.8) 175.7
Dividends paid - -
N/A
Share buyback - -
N/A
Total Company spend on
remuneration
2.6 2.6
-
Because the Company did not pay dividends in 2020 or 2021 and did not buy back shares in 2020 or 2021, there is
no meaningful basis for the comparison. The total Company spend on remuneration represents total staff costs from
continuing operations.
10. Performance Graph
This graph shows the cumulative Total Shareholder Return of the Company from listing until March 2022 relative to shares
of DNO, Genel Energy plc and Gulf Keystone Petroleum Limited in the respective listing currencies. This group has been
chosen because it provides a relevant peer group with comparable idiosyncratic geopolitical and commodity risk, notably
in the Kurdistan region of Iraq.
41
11. Historic Remuneration of the Executive Chairman of the Board of Directors
The following table details information about the remuneration of the Executive Chairman of the Board of Directors of the
Company over the last six years. Amounts paid by DNO for Mr. Mossavar-Rahmani’s service as the Executive Chairman of
DNO and member of its board committees are included in full.
Year
Executive Chairman of the Board
of Directors
Single gure of total remuneration including
LTIP award
Annual bonus payout against maximum
(percent)
Awards vested long-term
performance awards against
maximum (percent)
2021
Bijan Mossavar-Rahmani USD 1,728,800
-
N/A
2020
Bijan Mossavar-Rahmani USD 1,660,600
-
N/A
2019
Bijan Mossavar-Rahmani USD 1,895,583
13.3 N/A
2018
Bijan Mossavar-Rahmani USD 1,745,500
-
N/A
2017
Bijan Mossavar-Rahmani USD 1,692,100
-
N/A
2016
Bijan Mossavar-Rahmani USD 2,733,633
22.0 N/A
2015
Bijan Mossavar-Rahmani USD 1,770,322
-
N/A
12. Implementation of Remuneration Policy in 2021
The Remuneration Committee’s most recent proposed Remuneration Policy was approved by the Company’s shareholders
at the 2021 Annual General Meeting by a vote with 98.9 percent of the votes cast in favour of the Remuneration Policy
and therefore was effective from June 2021. Details of the policy are set forth in Section V of the Annual Report and
Accounts.
13. Statement on Voting Regarding Remuneration at the Annual General Meeting
At the 2021 Annual General Meeting the Company’s shareholders approved the Directors’ Remuneration Report by an
advisory vote with 100.0 percent of the votes cast in favour of the Report.
Details of the shareholders’ votes on these matters at the 2022 Annual General Meeting will be included in next year’s
Directors’ Remuneration Report.
For and on behalf of the Board of Directors
Bijan Mossavar-Rahmani
Executive Chairman of the Board of Directors
31 March 2022
42
RAK Petroleum
plc
V. Directors’
Remuneration
Policy
Remuneration Policy, where the terms
of that payment were agreed before
the policy came into effect, or before
the individual became an executive
or non-executive Director of the
Company.
Maximum caps are provided to
comply with the required legislation
and should not be taken to indicate a
present intention to make payments
at that level. All monetary amounts
are shown in USD, unless indicated
otherwise.
1. Remuneration Policy:
Board of Directors
1.1. Expenses
Expenses reasonably and wholly
incurred in the performance of the
role of Director of the Company are
reimbursed or paid for directly by the
Company, as appropriate, and may
include any tax due on the expense.
Directors are entitled to broad
indemnication by the Company
pursuant to an indemnication
agreement entered into with each
Director and are covered by the
Company’s Directors and Ofcers’
Liability Insurance Policy. Directors may
receive professional advice in respect of
their duties with the Company that will
be paid for by the Company. The non-
executive Directors do not participate
in the Company’s annual bonus or
Long-Term Incentive Plan (the “LTIP”)
awards. They do not receive pension
benets. Pursuant to the Corporate
Governance Code, remuneration of
the non-executive Directors cannot be
linked to the Company’s performance
and the Company shall not grant
options to members of the Board of
Directors, other than to the Executive
Chairman. If any non-executive
Director takes on a specic assignment
for the Company in addition to the
Director’s appointment as a member
of the Board of Directors, the Board
of Directors must approve the fees of
such additional duties.
Introduction
The Directors’ Remuneration Policy
contains the information required
to be set out as the Directors’
remuneration policy for purposes of
Part 4 of Schedule 8 to the Large and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations
2008, as amended by the Large and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations
2013.
This Directors’ Remuneration Policy
was approved by the shareholders at
the 2021 Annual General Meeting of
RAK Petroleum plc (“RAK Petroleum”
or the “Company”) and therefore was
effective from June 2021.
The Directors’ Remuneration Policy
applies in respect of all executive
management appointed to the Board
of Directors (executive Directors) and
non-executive Directors.
The Remuneration Committee will
keep the policy under review to ensure
that it continues to promote the long-
term success of the Company by giving
the Company the best opportunity to
deliver on its business strategy.
It is the Remuneration Committee’s
intention that the Directors’
Remuneration Policy be put to
shareholders for approval every three
years, as required by applicable law,
unless there is a need for proposed
changes to the policy to be approved
at an earlier date. Accordingly, the
policy was put to the shareholders for
approval at the 2021 Annual General
Meeting and will next be put to the
shareholders for approval at the 2024
Annual General Meeting.
The Company aims to provide
sufcient exibility in the Directors’
Remuneration Policy for unanticipated
changes in compensation practices
and business conditions to ensure
the Remuneration Committee has
appropriate discretion to retain
and incentivise its top executives
and manage its business. The
Remuneration Committee reserves the
right to make any payments that may
be outside the terms of this Directors’
43
1. Remuneration Policy: Board of Directors
Component Purpose and link to strategy of the Company Operation Maximum opportunity Performance measures
Fees
To provide an appropriate reward to
attract and retain high-calibre individuals
with the relevant skills, knowledge and
experience.
Executive management who serve as
members of the Board of Directors
receive this fee for their service on the
Board of Directors in addition to their
base salary.
Directors receive a standard
annual fee, which is paid on a
quarterly basis.
Additional fees may also be paid
to recognise the work performed
by members of any committees
set up by the Board of Directors.
Fees are reviewed on an annual
basis but are not necessarily
increased at each review.
The remuneration of the Directors
is a matter for the entire Board of
Directors to consider and decide
upon, subject to shareholder
approval.
The maximum standard annual fee paid
to any individual is USD 150,000. The
current fee is USD 50,000.
The maximum additional fees for
committee or committee chair duty
is USD 50,000. The Company pays a
fee for the Nomination Committee
members.
Fees are set at a rate that takes into
account:
•
market practice for comparable roles;
•
the time commitment and duties
involved; and
•
the need to attract and retain the
high quality of individuals sought by
the Company.
None.
Travel fees To compensate Directors for costs of
attending Board of Directors meetings.
Directors receive payment for
their travel and accommodation
expenses when attending Board
of Directors meetings. These
payments are generally not
considered to be taxable benets.
None.
44
RAK Petroleum
plc
2. Remuneration Policy:
Executive Management
2.1 Performance Measures
(a) Annual Bonus
The performance measures for
executive management, including
executive Directors, consists of nancial
measures and business goals linked to
the Company’s strategy, which include
nancial and operational performance
measures. The business objectives are
tailored to reect each individual’s role
and responsibilities during the year. The
performance measures were chosen to
enable the Remuneration Committee
to review the Company’s performance
against the Company’s business
strategy and appropriately incentivise
and reward the executive Directors.
The Remuneration Committee sets
annual bonus targets each year.
These are stretching targets that
reect the most important areas of
strategic focus for the Company.
The factors taken into consideration
include the individual’s performance,
accomplishments and dedication of
effort, seniority and relevant experience
in the eld or industry and with the
Company’s particular assets, the
Company’s results measured by various
indicators, including net income, NAV
Discount and NAV Growth, the general
level of compensation paid to peer
executives and by peer companies, the
Company’s desire to retain, incentivise
and reward its executive management,
the individual’s travel demands and
time away from home on business and
other relevant factors.
(b) LTIP
The Remuneration Committee may
make the vesting of an LTIP award
conditional upon the satisfaction
of performance conditions. For the
purposes of recruiting or retaining
a key individual, an award may
be granted without performance
conditions.
If performance conditions are
attached to an LTIP award, these are
determined at the time of grant by
the Remuneration Committee. The
performance measures are chosen to
The Remuneration Committee retains
the exibility to introduce clawback
provisions in the LTIP in the future.
2.3 Remuneration Throughout the
Company
Differences in the Company’s
remuneration policy for executive
management from the policy for
other employees within the Company
generally reect appropriate market
rates and practices for specic
executive roles requiring individuals
with the requisite training and
experience.
align the performance of participants
with the attainment of nancial and/
or operational performance targets
over the vesting period of the award.
The Remuneration Committee sets the
targets by reference to the Company’s
strategy and business plan.
Under the LTIP rules, the Remuneration
Committee retains the discretion to
amend any performance conditions
without prior shareholder approval, if:
•
An event has occurred which
causes the Remuneration
Committee reasonably to consider
that it would be appropriate
to amend the performance
conditions;
•
The altered performance
conditions will, in the reasonable
opinion of the Remuneration
Committee, be not materially
less difcult to satisfy than the
unaltered performance conditions
would have been but for the event
in question; and
•
The Remuneration Committee shall
act fairly and reasonably in making
the alteration.
2.2 Malus and Clawback
(a) Annual Bonus
There are no malus or clawback
provisions included in the operation of
the annual bonus. The Remuneration
Committee retains the exibility to
introduce this in the future.
(b) LTIP
Under the LTIP rules, the Remuneration
Committee may determine, where
appropriate, that all or part of an
un-vested award may not vest in the
event that any of the following matters
are discovered:
•
A material misstatement of the
Company’s audited nancial
results;
•
A material breach of health and
safety regulations;
•
A material failure of risk
management; and
•
Serious reputational damage to the
Company.
45
2. Remuneration Policy: Executive Management (continued)
Component Purpose and link to strategy of the Company Operation Maximum opportunity Performance measures
Salary
To provide xed remuneration at an
attractive but balanced level, taking into
account the complexity of the role and
the skills and experience of the individual
and sufcient to attract and retain
executive management as part of the
overall compensation package.
Salary is paid on a bi-weekly or
monthly basis.
The Remuneration Committee
takes into account a number
of factors when setting salaries
including:
•
scope and difculty of the role;
•
skills and experience of the
individual;
•
salary levels for similar roles
within the international
industry; and
•
pay and conditions elsewhere
in the Company or locale.
Salaries are reviewed on an annual
basis but are not necessarily
increased at each review.
Salary increases are normally made with
reference to the average increase for the
Company’s wider employee population
and taking into account increases in
the relevant cost of living and adequate
career advancement.
The maximum opportunity is 15 percent
of base salary for each nancial year.
The Remuneration Committee retains
discretion to make higher salary increases
in certain circumstances, for example,
following a change in the scope and/
or the responsibility of the role or the
development of the individual in the role.
The Remuneration Committee will
consider the factors set out under the
“Operation” column when determining
the appropriate level of base salary within
the formal Policy maximum.
None.
Annual Bonus To incentivise and reward the
achievement of individual and business
objectives which are key to the delivery
of the Company’s business strategy.
Annual bonus awards are based
on individual and Company
performance measured over one
nancial year and may include
both a cash component and an
equity component. Targets are
reviewed annually.
The Remuneration Committee
sets targets that require
appropriate levels of performance,
taking into account internal
and external expectations of
performance.
Shortly after year-end results
are available, the Remuneration
Committee will meet to review
performance against objectives
and determine payouts that will
generally be made in cash.
No part of the cash bonus is
subject to deferral, but the
Remuneration Committee reserves
the exibility to apply deferral if
appropriate in the future.
The Remuneration Committee
will, of course, consider whether
and to what extent an executive
might be receiving an award
under the LTIP and the tax
consequences of such award
in determining the appropriate
annual bonus. There are currently
no malus or clawback provisions
in place, but the Company
reserves the right to introduce
such provisions in the future.
The maximum award opportunity is 150
percent of base salary for each nancial
year.
At least 50 percent of the
award will be assessed against
Company metrics including
nancial and operational
performance. The remainder
will be based on performance
against individual objectives.
A sliding scale of between 0
percent and 100 percent of
the maximum award is paid
dependent on the performance
level.
RAK Petroleum
plc
46
2. Remuneration Policy: Executive Management (continued)
Component Purpose and link to strategy of the Company Operation Maximum opportunity Performance measures
Long-Term
Incentive Plan
(“LTIP”)
To incentivise, retain and reward eligible
employees and align their interests
with those of the shareholders of the
Company.
Awards may be granted under
the LTIP in the form of conditional
share awards, nil-cost options
and/or forfeitable shares. Awards
will usually vest over a period of
two years, subject to achievement
of any performance conditions,
unless determined otherwise by
the Remuneration Committee.
Options may only be exercised
within ve years of the date of
grant.
Awards can be reduced or
cancelled in certain circumstances
as set out in the “Malus” section
above. There are currently no
clawback provisions in place, but
the Company reserves the right to
introduce clawback provisions in
the future.
Operation is governed by the rules
of the LTIP.
The maximum award permitted
under the LTIP is an award over shares
valued at 200 percent of base salary
in respect of a nancial year. This limit
may be increased to 300 percent if the
circumstances are deemed exceptional by
the Remuneration Committee.
Generally as above for annual
cash bonuses. However,
the Company may, for the
purposes of recruiting or
retaining a key individual, grant
an award without performance
measures.
Any performance conditions
will be measured over the
vesting period of the award.
Pension
To provide a retirement benet that will
foster loyalty and retain and incentivise
experienced executive management.
Pursuant to agreements of
employment with executive
management, the Company has
agreed to establish a suitable
deferred compensation or
pension type plan customary for
comparable size companies and
consistent with any applicable
rules.
Although the Company has yet
to establish such a pension plan,
the Remuneration Committee
may in the future provide pension
benets commensurate with the
market.
Any pension benets will be set at an
appropriate level in line with market
practice, and in no event will the annual
contributions paid by the Company
exceed 15 percent of base salary.
None.
Benets
To provide a market competitive level of
benets to executive management.
The Company presently provides
group life insurance with a death
benet equal to two times salary.
Pursuant to agreements of
employment with executive
management, the Company
has agreed to provide group
medical insurance to them and,
if ineligible, to reimburse or pay
for premiums for similar medical
coverage.
The Company may in the future
make individual and Company-
wide agreements providing
health care and other benets
commensurate with the market.
Executive management are
reimbursed for all business travel
and business expenses, which are
generally not considered to be
taxable benets.
Any additional benets will be set at
an appropriate level in line with market
practice, and in no event will the value of
the benets exceed 20 percent of base
salary for each nancial year.
The Remuneration Committee will keep
benet policy under review and may
adjust the benet levels in line with
market movements.
None.
47
3. Recruitment
The Company’s policy on the
recruitment of executive management
is to pay a fair remuneration package
for the role being undertaken and
the experience of the individual
being recruited. The Remuneration
Committee will consider all relevant
factors, which include the abilities
of the individual, his or her existing
remuneration package, market practice
and the existing arrangements for
the Company’s current executive
management.
The Remuneration Committee will
determine that any arrangements
offered are in the best interests of the
Company and shareholders, and will
endeavour to pay no more than is
necessary.
The Remuneration Committee intends
that the components of remuneration
set out in the policy tables for executive
management, and the approach to
those components as set out in the
policy tables, will be equally applicable
to new recruits, i.e., salary, annual
bonus, LTIP awards, pension and
benets. However, the Remuneration
Committee acknowledges that
additional exibility may be required
to ensure the Company is in the best
position to recruit the best candidate
for any vacant roles.
3.1 Flexibility
The salary and compensation package
designed for a new recruit may be
higher or lower than that earned by
existing executive management.
Remuneration will normally not
exceed that set out in the policy table
above. However, the Remuneration
Committee reserves discretion to
provide a sign-on payment or benets
in addition to those set out in the
policy table (or mentioned in this
section) where the Remuneration
Committee considers it reasonable and
necessary to do so.
To ensure that the Company
can compete with its peers, the
Remuneration Committee considers
it important that the recruitment
account of any uncertainties over the
likely vesting of the forfeited award
to ensure that the Company does
not, in the view of the Remuneration
Committee, pay in excess of what is
reasonable or necessary.
4. Payments for Loss of Ofce
Any compensation payable in the event
that the employment of a member of
executive management is terminated
will be determined in accordance
with the terms of the service contract
between the Company and the
individual, as well as the relevant rules
of the LTIP and of this Remuneration
Policy.
The Remuneration Committee will
consider a variety of factors when
considering leaving arrangements for
a member of executive management
and may exercise any discretions the
Remuneration Committee has in this
regard, including (but not limited to)
individual and business performance
during the ofce, the reason for
leaving and any other relevant
circumstances (e.g., ill health).
In addition to any payment that the
Remuneration Committee may decide
to make, the Remuneration Committee
reserves discretion as it considers
appropriate to:
•
Pay an annual bonus for the year
•
Continue providing any benets
•
Provide outplacement services.
Non-executive members of the
Board of Directors do not have any
notice periods prior to termination
of service and are not entitled to any
compensation on termination.
policy has sufcient exibility in
order to attract and appropriately
remunerate the high-performing
individuals that the Company requires
to achieve its strategy. Accordingly,
the Remuneration Committee reserves
the right to provide a one-off bonus
of up to 200 percent of base salary if
this is required to secure an external
appointment (separate from the annual
bonus described in the policy table) in
addition to any buy-out of forfeited
awards.
This exibility will only be used when
the Remuneration Committee believes
it is essential to recruit and motivate a
particular candidate.
3.2 Buy-out Arrangements
To facilitate recruitment, the
Remuneration Committee retains the
discretion to compensate new hires
for incentive or other awards forfeited
by the recruit in joining the Company.
The Remuneration Committee will
use its discretion in setting any such
compensation, which will be decided
on a case-by-case basis and likely on an
estimated like-for-like basis.
Compensation for awards forfeited
may take the form of a bonus payment
or a share award. For the avoidance
of doubt, the maximum amounts of
compensation contained in the policy
table will not apply to such awards.
The Company has not placed a
maximum value on the compensation
that can be paid under this section,
as it does not believe it would be
in shareholders’ interests to set any
expectations for prospective candidates
regarding such awards.
In deciding the appropriate type and
quantum of compensation to replace
existing awards, the Remuneration
Committee will take into account all
relevant factors, including the type of
award being forfeited, the likelihood
of any performance measures attached
to the forfeited award being met
and the proportion of the vesting
period remaining. The Remuneration
Committee will appropriately discount
the compensation payable to take
RAK Petroleum
plc
48
4. Payments for Loss of Ofce
(continued)
4.1 LTIP Awards
The treatment of any outstanding LTIP award is governed by the LTIP rules. An award will lapse upon the termination of a
participant’s employment with the Company other than by reason of:
•
Death;
•
Ill-health or disability;
•
The company by which an award holder is employed ceasing to be a Group company;
•
The transfer of the undertaking or part of the undertaking in which the award holder is employed to a
•
Termination by a Group company without cause.
The Remuneration Committee may also decide following a termination of employment that the participant’s awards
shall not lapse. The Remuneration Committee will consider a variety of factors when deciding whether to exercise this
discretion, including (but not limited to) individual and business performance during the vesting period, the reason for
leaving and any other relevant circumstances.
In the event that an award does not lapse, it will vest in the normal course unless the Remuneration Committee exercises
its discretion to determine that the award shall vest on an earlier date. Such awards will vest pro-rata according to the
period of service in relation to the vesting period, subject to the Remuneration Committee’s discretion. In addition, an
award which is subject to performance conditions will only vest if and to the extent that the Remuneration Committee
determines that any performance conditions and any other terms imposed on the vesting of the award have been satised
or should be deemed satised (in whole or in part).
5. Service Contracts and Letters of Appointment
The key employment terms and conditions of the service contracts and letters of appointment of executive management
that could impact on their remuneration or loss of ofce payments are set out below.
The service contract of each of Mr. Toner and Ms. Watson provides:
•
Six months’ notice is required by either the Company or the individual to terminate the employment; and
•
If the employment is terminated without cause as dened in the agreement, the individual is entitled to receive six
The service contract of Mr. Toner further provides that if such termination occurs in connection with or within two years
of a change of control as dened in the agreement, the individual is entitled to 24 months’ compensation, including any
accrued performance compensation.
Each service contract may also be terminated immediately and with no liability to make payment in certain circumstances,
such as unremedied gross negligence, conviction of offenses involving moral turpitude or consistent unexcused absences
from work.
The Executive Chairman of the Board of Director’s service contract requires six months’ notice by either the Company or
Mr. Mossavar-Rahmani to terminate the employment.
Executive management service contracts are available for inspection at the Company’s registered ofce.
49
1
The base salary of the Executive Chairman is USD 850,000, the illustrative LTIP awards are 200 percent of the base salary with two thirds vesting over the rst year equalling USD 1.13 million, the
Directors fees are USD 50,000 per year and the maximum and target total benets are estimated at 35 percent of base salary. The maximum and target annual bonuses are at 150 percent and 75 percent
of base salary respectively depending on performance. The multi-year LTIP performance related bonus could be granted in full at the time of award or vest over time.
2
The base salary of the Managing Director and General Counsel is USD 650,000, the illustrative LTIP awards are 200 percent of the base salary with two thirds vesting over the rst year equalling USD
867,000 and the maximum and target total benets are estimated at 35 percent of base salary. The minimum total benet is estimated based on the existing life insurance premium and health cover of
the Managing Director and the 35 percent limit on potential benets including pension. The maximum and target annual bonuses are at 150 percent and 75 percent of base salary respectively depending
on performance. The multi-year LTIP performance related bonus could be granted in full at the time of award or vest over time.
3
The base salary of the Chief Operating Ofcer and Chief Financial Ofcer is USD 450,000, the illustrative LTIP awards are 200 percent of the base salary with two thirds vesting over the rst year equalling
USD 600,000 and the maximum and target total benets are estimated at 35 percent of base salary. The minimum total benet is based on the existing superannuation, life insurance and health cover
premiums of the Chief Operating Ofcer and Chief Financial Ofcer. The maximum and target annual bonuses are at 150 percent and 75 percent of base salary respectively depending on performance.
The multi-year LTIP performance related bonus could be granted in full at the time of award or vest over time.
6. Illustration of the Remuneration Policy
The bar charts below show the levels of remuneration that each member of executive management could earn over the
coming year under the Remuneration Policy.
Bijan Mossavar-Rahmani (Executive Chairman of the Board of Directors)
1
Kevin J. Toner (Managing Director and General Counsel)
2
Shelley M. Watson (Chief Operating Ofcer and Chief Financial Ofcer)
3
RAK Petroleum
plc
50
7. Consideration of Shareholder Views
The Remuneration Committee will take into account the results of the shareholder vote on remuneration matters when
making future remuneration decisions. The Remuneration Committee remains mindful of shareholder views when
evaluating and setting ongoing remuneration strategy.
8. Consideration of Employment Conditions Within the Company
When determining remuneration levels for its executive Directors, the Board of Directors considers the pay and
employment conditions of employees across the Company. The Remuneration Committee will be mindful of average
salary increases awarded across the Company when reviewing the remuneration packages of the executive Directors. This
remuneration is limited to remuneration to be received from the Company and its wholly-owned subsidiaries and is not
intended to affect remuneration received from the Investment Entities. In making determinations under the policy, the
Remuneration Committee may take into account remuneration received from Investment Entities.
The Company has not undertaken any specic consultation with employees relating to executive remuneration when
preparing the Remuneration Policy. No remuneration comparison measurements were used.
9. Minor Changes
The Remuneration Committee may make, without the need for shareholder approval, minor amendments to the
Remuneration Policy for regulatory, exchange control, tax or administrative purposes or to take account of changes in
legislation.
For and on behalf of the Remuneration Committee
Bijan Mossavar-Rahmani
Chairman of the Remuneration Committee
31 March 2022
51
VI. Statement
of Directors’
Responsibili
-
ties
and explained in the Consolidated
and Parent Company Financial
Statements.
The Board of Directors is responsible
for keeping proper accounting records
that are sufcient to show and explain
the Group’s transactions and disclose
with reasonable accuracy at any time
the nancial position of the Group
and enable them to ensure that the
Consolidated and Parent Company
Financial Statements comply with the
Companies Act 2006.
The Board of Directors is also
responsible for safeguarding the assets
of the Group and hence for taking
reasonable steps for the prevention
and detection of fraud and other
irregularities.
Board of Directors’
Responsibility Statement
We conrm that to the best of our
knowledge:
•
The Consolidated and Parent
•
The Strategic Report, which is
For and on behalf of the Board of
Directors
Bijan Mossavar-Rahmani
Executive Chairman of the
Board of Directors
31 March 2022
The Board of Directors is responsible
for preparing the Annual Report, the
Directors’ Remuneration Report and
the Consolidated and Parent Company
Financial Statements in accordance with
applicable law and regulations.
Company law requires the Board of
Directors to prepare Consolidated and
Parent Company Financial Statements
for each nancial year. Under that
law, the Board of Directors has elected
to prepare the Consolidated and
Parent Company Financial Statements
in accordance with UK adopted
International Accounting Standards
(“IAS”) and under International
Financial Reporting Standards (“IFRSs”)
as adopted by the European Union.
Under Company law the Board of
Directors must not approve the
accounts unless they are satised that
these give a true and fair view of the
state of affairs of the Group and the
Company and of the prot or loss of
the Group and the Company for that
period.
In preparing the Consolidated and Parent
Company Financial Statements, IAS 1
requires that the Board of Directors:
•
Properly select and apply
•
Make judgements and estimates
•
Present information, including
information;
•
Provide additional disclosures
performance;
•
Prepare the Consolidated and
•
State whether IFRSs in conformity
with the UK adopted IAS and IFRSs
adopted by the European Union
have been followed, subject to
any material departures disclosed
RAK Petroleum
plc
52
VII. Consolidated and Parent Company
Financial Statements
At 31 December 2021
Independent Auditors’ Report to the Members of RAK Petroleum plc
Opinion
In our opinion:
• RAK Petroleum plc’s (“RAK Petroleum” or the “Company” or the “Parent Company”) group nancial statements and
Company nancial statements (the “Consolidated and Parent Company Financial Statements”) give a true and fair
view of the state of the Group’s and of the Company’s affairs at 31 December 2021 and of the Group’s prot for the
year then ended;
• the Consolidated Financial Statements have been properly prepared in accordance with UK adopted International
Accounting Standards and International Financial Reporting Standards (“IFRSs”) as adopted by the European Union;
• the Parent Company Financial Statements have been properly prepared in accordance with UK adopted International
Accounting Standards as applied in accordance with section 408 of the Companies Act 2006; and
• the Consolidated and Parent Company Financial Statements have been prepared in accordance with the requirements
of the Companies Act 2006.
We have audited the Consolidated and Parent Company Financial Statements of RAK Petroleum and its subsidiaries
(the “Group”) for the year ended 31 December 2021, which comprise:
Group
Parent Company
Consolidated Statement of Financial Position at 31
December 2021
Parent Company Statement of Financial Position at 31 December
2021
Consolidated Statement of Comprehensive Income for
the year then ended
Parent Company Statement of Cash Flows for the year then ended
Consolidated Statement of Cash Flows for the year then
ended
Parent Company Statement of Changes in Equity for the year then
ended
Consolidated Statement of Changes in Equity for the
year then ended
Related Notes 1 to 29 to the Parent Company Financial Statements
including a summary of signicant accounting policies
Related Notes 1 to 29 to the Consolidated Financial
Statements, including a summary of signicant
accounting policies
The nancial reporting framework that has been applied in their preparation is applicable law and UK adopted
International Accounting Standards and IFRSs as adopted by the European Union and, as regards the Parent Company
Financial Statements, as applied in accordance with Section 408 of the Companies Act 2006.
Basis of Opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under those standards are further described in the Auditors’ responsibilities for the audit of the
Consolidated and Parent Company Financial Statements section of our Auditors’ Report below. We are independent of
the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the
Consolidated and Parent Company Financial Statements in the United Kingdom, including the Financial Reporting
Council’s (“FRC”) Ethical Standard as applied to listed entities, and we have fullled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our opinion.
53
Conclusions Relating to Going Concern
In auditing the Consolidated and Parent Company Financial Statements, we have concluded that the Board of Directors’
use of the going concern basis of accounting in the preparation of the Consolidated and Parent Company Financial
Statements is appropriate. Our evaluation of the Board of Directors’ assessment of the Group and of the Company’s ability
to continue to adopt the going concern basis of accounting included:
Going concern
modelling
•
We gained an understanding of the approach taken by management to model cash ows and to measure covenants over the forecast
period for the assessments made for the RAK Sub-Group (being RAK Petroleum, its wholly-owned subsidiaries and equity investment in
Foxtrot International LLC (“Foxtrot International”)) and the DNO Sub-Group.
•
We tested the mathematical integrity and methodology of this modelling including, on sample basis, the cash ows of underlying oil and
gas assets.
•
We challenged, including using our knowledge of the Group from other audit procedures, whether the activities reected in the cash ows
were complete, including the oil and gas assets modelled, nancing arrangements and related covenants, general and administrative costs
and taxes.
•
We conrmed the starting cash position to the Company’s books and records, and other audit procedures performed.
Oil and gas prices
•
For the DNO Sub-Group assessment we compared the oil prices modelled by management over the going concern period against recent
externally sourced information, including consensus prices from banks/brokers as well as forward curves.
Federal Supreme Court
of Iraq ruling
•
We draw attention to Notes 3.2 and 29 of the Consolidated and Parent Company Financial Statements, which describe considerations
relating to this ruling in February 2022 by the Federal Supreme Court of Iraq.
•
We reviewed management’s assessment of the ruling and potential implications for DNO, challenging whether this could have a material
impact on the going concern assessment.
•
We have reviewed external commentary as well as external statements and reporting by DNO’s peers operating in Kurdistan for evidence
that this ruling may have material impact on the going concern assessment.
•
We considered resilience of the DNO forecasts to possible scenarios where this ruling has a negative impact on DNO’s operations in
Kurdistan.
DNO cash receipts
from oil sales in the
Kurdistan region of Iraq
(“Kurdistan”)
•
We assessed the appropriateness, including quantum and timing, of forecast cash receipts from oil sales in Kurdistan under the related
production agreement, the terms of the KRG’s ongoing settlement of the remaining outstanding receivable from prior periods and the
history of cash remittances.
Hydrocarbon
production volumes
and cost assumptions
•
We gained an understanding of assumptions used in the forecasts, assessing these against assumptions used for impairment testing
purposes, budgets and our understanding of the business.
Financing arrangements
and covenants
•
We agreed the terms of nancing arrangements modelled to contractual terms and our audit work on related facilities.
•
We determined which covenants were most sensitive to key assumptions used in the forecasts.
Downside sensitivities
•
We evaluated downside scenario testing performed by management in order to test the resilience of the business both from a liquidity
perspective and its ability to meet covenants under nancing arrangements in place.
•
This included the impact of stress testing on key assumptions, particularly oil price assumptions for the DNO Sub-Group.
•
We evaluated potential mitigating actions identied by management and whether these were realistic and within management’s control
were a signicant reduction in oil prices to occur. This included consideration of actual mitigations actioned in response to the drop in oil
price in 2020.
•
We performed an additional assessment to determine how resilient the DNO Sub-Groups liquidity and covenants were to a signicant
delay in settlement of receivables relating to oil sales in Kurdistan.
Climate change risks
and Covid-19
•
We assessed whether management had appropriately considered the potential impacts of risks relating to climate change and Covid-19
on the forecasts and related disclosures.
Disclosures
•
We assessed the appropriateness of related disclosures in the nancial statements and elsewhere in the Annual Report.
We performed full scope audit procedures over the going concern assessments made for the RAK Sub-Group and the
DNO Sub-Group. For our procedures on the DNO Sub-Group we had assistance from one component team.
In forming our conclusion, we noted the signicant liquidity currently on hand in the DNO Group, the material increases in
oil and gas prices in the rst quarter of 2022 as compared to management’s forecasts and the range of mitigations that
are available to management (and that were demonstrated as actionable in 2020 when oil prices fell signicantly). We also
note the levels of liquidity available in the remainder of the RAK Sub-Group and the history of dividends from Foxtrot
International.
Based on the work we have performed, we have not identied any material uncertainties relating to events or conditions
that, individually or collectively, may cast signicant doubt on the Group or the Company’s ability to continue as a going
concern over a period of 15 months (to 30 June 2023) from when the Consolidated and Parent Company Financial
Statements are authorised for issue. Going concern has also been determined to be a key audit matter.
Our responsibilities and the responsibilities of the Board of Directors with respect to going concern are described in the
relevant sections of this Annual Report. However, because not all future events or conditions can be predicted, this
statement is not a guarantee as to the Group’s ability to continue as a going concern.
RAK Petroleum
plc
54
Overview of Our Audit Approach
Audit scope
•
We performed an audit of the complete nancial information of two components (RAK Petroleum and its wholly owned subsidiaries and
the DNO Sub-Group) and audit procedures on specic balances for a further component (the investment in Foxtrot International).
•
The components where we performed full or specic audit procedures accounted for 100 percent of earnings before interest, tax,
depreciation and amortisation (“EBITDA”), revenue and total assets.
Key audit matters
•
Estimation of oil and gas reserves and resources being a key assumption for impairment tests and the calculation of depreciation,
depletion and amortisation (“DD&A”).
•
Valuation of North Sea assets (being oil and gas assets, exploration assets and goodwill) for impairment testing.
•
Assessment of going concern (as above).
Materiality
•
Overall Group materiality of USD 18.6 million which represents 3 percent of EBITDA.
An Overview of the Scope of the Company and Group Audits
Tailoring the Scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our
audit scope for each component within the Group. Taken together, this enables us to form an opinion on the
Consolidated Financial Statements. We take into account size, risk prole, the organisation of the Group and changes in
the business environment, when assessing the level of work to be performed at each component.
In assessing the risk of material misstatement to the Group’s Consolidated and Parent Company Financial Statements, and
to ensure we had adequate quantitative coverage of signicant accounts in the Consolidated and Parent Company
Financial Statements, we selected all three reporting components of the Group, being RAK Petroleum and its wholly
owned subsidiaries, the DNO Sub-Group and the investment in Foxtrot International, covering entities within the United
Kingdom, Norway, Kurdistan and Côte d'Ivoire, which represent the principal business units within the Group.
Of these three components selected, we performed an audit of the complete nancial information of two components
being, RAK Petroleum and its wholly owned subsidiaries and the DNO Sub-Group (“full scope components”) which were
selected based on their size or risk characteristics. For the investment in Foxtrot International (“specic scope
component”), we performed audit procedures on specic accounts within that component that we considered had the
potential for the greatest impact on the signicant accounts in the Consolidated Financial Statements either because of
the size of these accounts or their risk prole.
The reporting components where we performed full or specic scope audit procedures accounted for 100 percent (2020:
100 percent) of the Group’s EBITDA, 100 percent (2020: 100 percent) of the Group’s Revenue and 100 percent (2020:
100 percent) of the Group’s Total assets. For the current year, the full scope components contributed 95 percent (2020: 99
percent) of the Group’s EBITDA, 100 percent (2020: 100 percent) of the Group’s Revenue and 97 percent (2020: 97
percent) of the Group’s Total assets. The specic scope component contributed 5 percent (2020: 1 percent) of the Group’s
EBITDA, 0 percent (2020: 0 percent) of the Group’s Revenue and 3 percent (2020: 3 percent) of the Group’s Total assets.
The audit scope of these components may not have included testing of all signicant accounts of the component but will
have contributed to the coverage of signicant accounts tested for the Group.
Changes from the Prior Year
There are no scoping changes compared to the prior year.
Involvement with Component Teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at
each of the components by us, as the Group’s primary audit engagement team (the “Primary Team”), or by component
auditors from other EY global network rms operating under our instruction. The DNO Sub-Group is audited by a
component team (EY Norway), with the Primary Team auditing RAK Petroleum and its wholly owned subsidiaries. The
specic scope component, being the investment in Foxtrot International, is audited by a combination of a component
team (EY Côte d'Ivoire) and the Primary Team. For components audited by component teams, we determined the
appropriate level of involvement to enable us to determine that sufcient audit evidence had been obtained as a basis for
our opinion on the Group as a whole.
The Senior Statutory Auditor visited EY Norway to meet with the component team and also met with DNO management
in March 2022. In response to travel restrictions during 2021 and early 2022 as a result of COVID-19 the Primary Team,
including the Senior Statutory Auditor, increased the frequency of interaction with component teams, particularly with the
DNO Sub-Group component due to its signicance. These interactions with component teams were principally via video
meetings. These interactions involved discussing the audit approach with component teams and any issues arising from
55
the audit and conclusions reached on all signicant matters. In addition, using EY’s audit software, the Primary Team
directly accessed the audit working papers of the DNO audit team, remotely reviewing all areas signicant to the audit and
retaining copies of more important workpapers. Observations and questions arising from this review were then discussed
and resolved with the component team auditor. Similar approaches were undertaken by the primary audit team of the
DNO component for audit components included in the DNO Sub-Group consolidation. We were responsible for the scope
and direction of the audit process and audit procedures on principal areas of judgement and estimation impacting the
DNO Sub-Group audit were performed directly by the primary audit team of the DNO component with oversight from the
Primary Team. This, together with the additional procedures performed at Group level, gave us appropriate evidence for
our opinion on the Group’s Consolidated and Parent Company Financial Statements.
Climate Change
There has been increasing interest from stakeholders as to how climate change will impact companies. The potential
impact of climate related risks on the Group are explained on page 11 in the principal risks and uncertainties, which form
part of the “Other information”, rather than the audited Consolidated and Parent Company Financial Statements, the
most signicant considered to be that from regulatory and climate policy risk. Our procedures on these disclosures
therefore consisted solely of considering whether they are materially inconsistent with the Consolidated and Parent
Company Financial Statements or our knowledge obtained in the course of the audit or otherwise appear to be materially
misstated.
As explained in Note 3, governmental and societal responses to climate change risks are still developing, and are
interdependent, and consequently nancial statements cannot capture all possible future outcomes as these are not yet
known. The degree of certainty of these changes may also mean that they cannot be taken into account when
determining asset and liability valuations and the timing of future cash ows under the requirements of UK adopted
international accounting standards. In Note 12 to the Consolidated and Parent Company Financial Statements a
supplementary sensitivity disclosure of the impact of reasonably possible changes in key assumptions has been provided
and signicant judgements and estimates relating to climate change have been described in Note 3.
Our audit effort in considering climate change was focused on ensuring that the effects of material climate risks disclosed
on page 13 have been appropriately reected in estimates of asset values for impairment testing purposes and associated
disclosures. Details of our procedures and ndings on the valuation of North Sea assets are included in the related key
audit matter below. We also challenged the Board of Directors’ considerations of climate change in their assessment of
going concern and associated disclosures.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most signicance in our audit of the
Consolidated and Parent Company Financial Statements of the current period and include the most signicant assessed
risks of material misstatement (whether or not due to fraud) that we identied. These matters included those which had
the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the Consolidated and Parent Company
Financial Statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
Estimation of oil and gas reserves and resources being a key assumption for impairment tests and the calculation of depreciation,
depletion and amortisation (“DD&A”).
The inappropriate estimation, classication and application of reserves and resources quantities may materially impact the valuation of oil and gas
assets as part of impairment testing (including of goodwill) as well as the calculation of DD&A.
The estimation of oil and gas reserves and resources is a signicant area of judgement due to the technical uncertainty in assessing and classifying
related quantities and, in the case of the Tawke production sharing contract (“PSC”), complexities in the contractual arrangements dictating the
calculation of DNO’s entitlement. As such there is a higher risk of management bias in these estimates.
The charge for DD&A for 2021 was USD 206 million (2020: USD 361 million). The carrying value of tangible oil and gas assets is USD 1,263 million
(31 December 2020: USD 1,156 million) and of goodwill is USD 311 million (31 December 2020: USD 385 million).
Refer to Accounting policies (pages 67 to 79) of the Consolidated and Parent Company Financial Statements.
RAK Petroleum
plc
56
Our audit response to the Risk
Our judgement is that the level of risk remains consistent with the prior year. We performed procedures over this risk area in one component with
direct oversight from the Primary Team. This covered 100 percent of the aggregate risk amount.
Reserves and resources
estimation process
•
We gained an understanding of DNO’s process for estimating reserves and resources quantities.
•
We assessed management’s assumptions used in the estimation, including commercial assumptions, to ensure that they are based on
supportable evidence, corroborating these to other audit procedures as relevant.
•
We assessed the accuracy of the prior year’s reserves and resources estimate by inquiry of management’s internal specialists and
corroboration of explanations for movements in the year.
•
For the Tawke PSC we prepared an independent recalculation of net entitlement reserves based on the terms of this PSC.
•
We assessed the competence, capabilities and objectivity of management’s internal specialists involved in the estimation.
External Specialists
engaged by
management
•
We assessed the competence, capabilities and objectivity of DeGolyer & MacNaughton (“D&M”) who were engaged by DNO
management to prepare an independent estimate of reserves and resources in Kurdistan, including the Tawke license, at 31 December
2021.
•
We assessed the competence, capabilities and objectivity of GCA who were engaged by DNO management to audit the estimate of
North Sea reserves and resources quantities at 31 December 2021.
•
We had discussions directly with D&M and GCA personnel involved in the engagements to understand the scope of their engagement,
the work performed and their conclusions drawn.
•
We compared the estimates of D&M and GCA to the estimates prepared by management, assessing any variations for audit implications.
Use of reserves and
resources in the
nancial statements
•
We conrmed that the reserves and resources quantities have been applied appropriately in impairment calculations performed at 31
December 2021, including those relating to North Sea assets and the recoverability of goodwill carried by the Group.
•
We conrmed that reserves estimates have been used accurately and prospectively in DD&A calculations.
Key observations communicated to the Audit Committee
•
We conclude that the estimations of reserves and resources, which have been reassessed at 31 December 2021, have been determined on a reasonable basis to be used
in year-end impairment tests and prospectively in the unit-of-production-based calculation of DD&A.
Key audit matter
Valuation of North Sea assets (being oil and gas assets, exploration assets and goodwill)
The North Sea assets were acquired in early 2019 and were initially recorded at fair value at acquisition date. The estimate of the recoverable value
of these assets is subject to estimation and judgement around a number of assumptions, including future plans for the assets, reserves and resources
quantities, future operating and capital expenditure, oil and gas prices and applicable discount rates.
Within these estimates and related assumptions there is a risk of management bias, particularly given the relatively recent acquisition date and
impairments taken to date.
The aggregate carrying value of North Sea intangible assets and property, plant and equipment (“PP&E”) at 31 December 2021 is USD 935 million
(31 December 2020: USD 985 million).
Refer to Accounting policies (pages 67 to 79) and Note 12 of the Consolidated and Parent Company Financial Statements.
Our audit response to the risk
Our judgement is that the level of risk remains consistent with the prior year. We performed procedures over this risk area in one component with
direct oversight from the Primary Team. This covered 100 percent of the aggregate risk amount.
Valuation methodology
adopted for oil and gas
assets
•
We gained an understanding of the methodology that DNO applied in valuing oil and gas assets, assessing this against usual industry
practice.
•
We tested the integrity of valuation models used for mechanical and mathematical accuracy through recalculation.
Key assumptions
applied in estimating
value
•
We assessed key assumptions applied including the future production proles, future oil and gas price assumptions and discount rates
applied. In order to address the potential risk of management bias, we sought to compare management’s assumptions to information
sourced independently from that provided by management, as reected below.
•
With respect to estimates of oil and gas reserves and resources and related production proles we:
o Compared reserves and resources quantities and production proles to external operator data and to quantities veried by GCA
o Evaluated the appropriateness of the risking applied by DNO to different classication categories of reserves and resources based on their
•
We compared oil and gas price assumptions with external benchmarks.
•
With the assistance of EY Valuation specialists we determined the reasonableness of the discount rates applied, including comparison of
underlying components in their calculation to external benchmarks as applicable.
•
We assessed the consistency of cost proles with those used in the estimation of oil and gas reserves and resources.
•
We evaluated the treatment of taxation included in post-tax valuation models.
Climate change related
considerations
•
We assessed how management had considered the potential effects of climate change relates risks in estimating recoverable value,
particularly with respect to carbon related taxes and future capital expenditure.
•
We challenged management around what sensitivities should appropriately be included in the impairment disclosure. We then assessed
the sensitivity included with respect to scenarios around future oil and gas prices from the International Energy Agency.
Assessment of
management’s
specialists
•
We assessed the competence, capabilities and objectivity of GCA who were engaged by DNO management to report on North Sea
reserves and resources quantities at 31 December 2021.
57
Impairment charges or
reversals
•
For any calculated impairments we evaluated the allocation of the impairment to the cash generating units assets, including to goodwill
•
We conrmed the appropriateness of the recording of any calculated impairment charge in the Consolidated Financial Statements
•
We challenged management around the completeness of impairment reversals recognised in the year for assets with impairments taken
in prior periods.
Additional
considerations relating
to impairment testing
•
We evaluated the appropriateness of the cash-generating-units identied by management against our understanding of the operations
of, and interdependencies between, the oil and gas assets.
•
We conrmed that the determination of the carrying amounts of each cash-generating-unit were appropriate, including assessment of
treatment of taxation.
Disclosures
•
We assessed the appropriateness and completeness of related disclosures in the Consolidated Financial Statements, including
impairment sensitivity disclosures.
Key observations communicated to the Audit Committee
•
We conclude that the key assumptions used in the valuation of oil and gas assets for impairment tests at year-end, are appropriate.
•
We conclude that the impairment charges and reversals recorded in the year are appropriate.
•
We conclude that the related disclosures in the Consolidated Financial Statements are appropriate.
In the prior year, our Auditors’ Report included a key audit matter in relation to recoverability of outstanding receivables
due from the KRG. Whilst this remains an area of audit focus, this is no longer considered to be a key audit matter in the
current year as this receivable has continued to be settled and has reduced during the year.
Our Application of Materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identied
misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to
inuence the economic decisions of the users of the Consolidated and Parent Company Financial Statements. Materiality
provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be USD 18.6 million (2020: USD 9.1 million), which is 3 percent of EBITDA
(2020: 3 percent of EBITDA). We believe that this basis uses the most relevant performance measure for the stakeholders
of the Group and is therefore an appropriate basis for materiality. The increase in materiality from the prior year is primarily
due to the improved performance in 2021 particularly as a result of increases in oil prices.
We determined materiality for the Company to be USD 6.7 million (2020: USD 6.7 million), which is 1 percent of the
equity of the Company (2020: 1 percent).
During the course of our audit, we reassessed initial materiality and increased this based on actual EBITDA realised in
2021.
Performance Materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our
judgement was that performance materiality is appropriate to be set at 50 percent (2020: 50 percent) of our planning
materiality, namely USD 9.25 million (2020: USD 4.8 million). We have set performance materiality at this percentage after
consideration of the level of misstatements in the prior year and our risk assessment.
Audit work at component locations for the purpose of obtaining audit coverage over signicant nancial statement
accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each
component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the
risk of misstatement at that component. In the current year, the performance materiality allocated to DNO was USD 8.8
million (2020: USD 4.5 million).
Reporting Threshold
An amount below which identied misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of USD 0.8
million (2020: USD 0.5 million), which is set at approximately 5 percent of planning materiality, as well as differences
below that threshold that, in our view, warranted reporting on qualitative grounds.
RAK Petroleum
plc
58
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in
light of other relevant qualitative considerations in forming our opinion.
Other Information
The other information comprises the information included in the Annual Report set out on pages 2 to 51, other than the
Consolidated and Parent Company Financial Statements and our Auditors’ Report thereon. The Board of Directors are
responsible for the other information contained within the Annual Report.
Our opinion on the Consolidated and Parent Company Financial Statements does not cover the other information and,
except to the extent otherwise explicitly stated in this Auditors’ Report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the Consolidated and Parent Company Financial Statements or our knowledge obtained in the course of
the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a material misstatement in the Consolidated and
Parent Company Financial Statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on Other Matters Prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the nancial year for which the
Consolidated and Parent Company Financial Statements are prepared is consistent with the Consolidated and Parent
Company Financial Statements; and
• the Strategic Report and Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on Which we are Required to Report by Exception
In the light of the knowledge and understanding of the Group and the Company and its environment obtained in the
course of the audit, we have not identied material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Parent Company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of members of the Board of Directors’ remuneration specied by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ Responsibility Statement set out on page 51, the Board of Directors is responsible
for the preparation of the Consolidated and Parent Company Financial Statements and for being satised that they give a
true and fair view, and for such internal control as the Board of Directors determine is necessary to enable the preparation
of Consolidated and Parent Company Financial Statements that are free from material misstatement, whether due to
fraud or error.
59
In preparing the Consolidated and Parent Company Financial Statements, the Board of Directors is responsible for
assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless the Board of Directors either intend to liquidate
the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ Responsibilities for the Audit of the Consolidated and Parent Company Financial
Statements
Our objectives are to obtain reasonable assurance about whether the Consolidated and Parent Company Financial
Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report
that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
inuence the economic decisions of users taken on the basis of these Consolidated and Parent Company Financial
Statements.
Explanation as to What Extent the Audit was Considered Capable of Detecting Irregularities,
Including Fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with
governance of the Company and management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and
determined that the most signicant are those related to the nancial reporting framework (UK adopted International
Accounting Standards and IFRS as adopted by the European Union), the Companies Act 2006, the Norwegian Code
of Practice for corporate governance, relevant tax, health, safety and environmental regulations in the jurisdictions in
which the Group does business (principally Norway, Kurdistan, the United Kingdom and Côte d'Ivoire).
• We understood how the Group is complying with those frameworks by making enquiries of management, those
responsible for legal and compliance procedures and the Company secretary and considering the results of similar
enquiries in the components of the Group, most signicantly DNO. We corroborated our enquiries through our review
of Board of Directors’ meeting minutes and papers provided to the Audit Committee and observation in Audit
Committee meetings and consideration of the results of our audit procedures across the Group.
• We assessed the susceptibility of the Consolidated and Parent Company Financial Statements to material
misstatement, including how fraud might occur by meeting with management to understand where it considered
there was a susceptibility to fraud. We considered the programmes and controls that the Group has established to
address risks identied, or that otherwise prevent, deter and detect fraud; and how senior management monitors
those programmes and controls, including those operating at the DNO Group level. Where the risk was considered to
be higher, we performed audit procedures to address each identied fraud risk, including with respect to the key audit
matters relating to reserves and resources and impairment noted above.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and
regulations. Our procedures involved journal entry testing, enquiries of legal counsel, Group management, subsidiary
management at all full and specic scope components; and focused testing, including the procedures referred to in
the key audit matters section above.
• Specic enquiries were made with the component teams to conrm any non-compliance with laws and regulations
and this was reported through their audit deliverables based on the procedures detailed in the previous paragraph.
We considered the impact on our audit of any identied instance of non-compliance with laws and regulations
identied.
A further description of our responsibilities for the audit of the Consolidated and Parent Company Financial Statements is
located on the Financial Reporting Council’s website at http://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our Auditors’ Report.
60
RAK Petroleum
plc
Eu
ropean Single Electronic Format (“ESEF”)
Opinion
As part of our audit of the nancial statements of RAK Petroleum we have performed an assurance engagement to obtain
reasonable assurance whether the Consolidated and Parent Company Financial Statements included in the Annual Report,
with the le name xxxx, has been prepared, in all material respects, in compliance with the requirements of the
Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (“ESEF Regulation”) and
regulation given with legal basis in Section 5-5 of the Norwegian Securities
T
rading Act, which includes requirements
related to the preparation of the Annual Report in XHTML format and iXBRL tagging of the Consolidated and Parent
Company Financial Statements.
In our opinion, the Consolidated and Parent Company Financial Statements included in the Annual Report have been
prepared, in all material respects, in compliance with the ESEF Regulation.
Management’s responsibilities
Management is responsible for the preparation of an Annual Report and iXBRL tagging of the Consolidated and Parent
Company Financial Statements that complies with the ESEF Regulation. This responsibility comprises an adequate process
and such internal control as management determines is necessary to enable the preparation of an Annual Report and
iXBRL tagging of the Consolidated and Parent Company Financial Statements that is compliant with the ESEF Regulation.
Auditor’s responsibilities
Our responsibility is to express an opinion on whethe
r
, in all material respects, the Consolidated and Parent CompanyFinancial Statements included in the Annual Report have been prepared in accordance with the ESEF Regulation based on
the evidence we have obtained. We conducted our engagement in accordance with the International Standard for
Assurance Engagements (ISAE) 3000 – “Assurance engagements other than audits or reviews of historical nancial
information”. The standard requires us to plan and perform procedures to obtain reasonable assurance that the
Consolidated and Parent Company Financial Statements included in the Annual Report have been prepared in accordance
with the ESEF Regulation.
As part of our work, we performed procedures to obtain an understanding of the Company
’
s processes for preparing itsAnnual Report in XHTML format. We evaluated the completeness and accuracy of the iXBRL tagging and assessed
management
’
s use of judgement. Our work comprised reconciliation of the iXBRL tagged data with the auditedConsolidated and Parent Company Financial Statements in human-readable format. We believe that the evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Use of Our Auditors Report
This report is made solely to the Company
’
s members, as a body
, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company
’
s members those matters we are required to state to them in an Auditors’ Report and for no other purpose.
T
o the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company
’
s members as a bod
y
, for our audit work, for this report, or for the opinions we have formed. Daniel
T
rotman (Senior Statutory Auditor)
For and on behalf of Ernst &
Y
oung LLP
, Statutory AuditorLondon
31 March 2022
61
Consolidated Statement of Comprehensive Income
For the Year Ended 31 December 2021
USD million
Notes 2021
2020Revenues
5 1,004.1 614.9
Cost of goods sold
6 (443.1 ) (590.0 )
Gross prot 561.0 24.9
Share of prot of a Joint Venture 16.0 0.9
14
Other operating income 3.7 -
General and administrative expenses
7 (33.7 ) (12.7 )
Impairment of oil and gas assets, exploration assets and goodwill
12
(80.1 ) (276.0 )
Reversal of impairment of investment in Joint Venture
14 - 3.0
Exploration costs expensed
8 (132.3 ) (55.9 )
Prot/(loss) from operating activities 334.6 (315.7 )
Financial income
9 26.2 19.9
Financial expenses
9 (126.7 ) (131.5 )
Prot/(loss) before income tax 234.0 (427.3 )
Income tax expenses 10 (16.3 ) 139.8
Net prot/(loss) 217.7 (287.5 )
Other comprehensive income/(loss)
Currency translation differences
(12.5 ) (3.6 )
Other comprehensive income/(loss) that may be reclassied to prot or loss in subsequent
periods (12.5 ) (3.6 )
Other comprehensive income/(loss) that will not be reclassied to prot or loss in
subsequent periods
- - -
Total other comprehensive income/(loss), net of tax
(12.5 ) (3.6 )
Total comprehensive income/(loss), net of tax 205.2 (291.1 )
Net prot/(loss) attributable to:
Equity holders of the parent 105.4 (130.1 )
Non-controlling interest 112.3 (157.4 )
Net prot/(loss) 217.7 (287.5 )
Comprehensive income/(loss) attributable to:
Equity holders of the parent 99.8 (131.8 )
Non-controlling interest 105.4 (159.3 )
Total comprehensive income/(loss), net of tax 205.2 (291.1 )
Earnings per share attributable to the equity holders of the parent during the year
Earnings per share, basic 0.356 (0.439 )
11
Earnings per share, diluted 0.356 (0.439 )
The attached Notes 1 to 29 form part of these Consolidated and Parent Company Financial Statements.
RAK Petroleum
plc
62
Consolidated Statement of Financial Position
At 31 December 2021
USD million
Notes 31 December 2021
31 December 2020Assets
Non-current assets
Deferred income tax assets 29.3 47.4
10
Intangible assets
12 543.7 693.7
Property, plant and equipment
12 1,284.9 1,174.1
Investment in Joint Venture 87.6 76.8
14
Non-current receivables
16 19.4 182.4
Total non-current assets 1,964.9 2,174.4
Current assets
Inventories
6 35.8 41.9
Trade and other receivables 484.2 239.7
16
Tax receivables
10 21.1 63.1
Cash and cash equivalents
17 772.2 502.2
Total current assets 1,313.3 847.0
Total assets 3,278.2 3,021.3
Equity and liabilities
Equity
Share capital 5.1 5.1
18
Share premium
19 0.7 0.7
Treasury shares
20
(22.4 ) (22.4 )
Foreign currency translation reserves
20
(34.8 ) (29.2 )
Other reserves 813.5 813.5
20
Retained earnings 35.0 (70.6 )
Attributable to equity holders of the parent 797.0 697.3
Attributable to non-controlling interest
13 552.0 458.6
Total equity 1,349.0 1,155.9
Non-current liabilities
Deferred income tax liabilities 267.3 178.8
10
Interest-bearing liabilities 873.4 934.2
21
Lease liabilities 12.5 13.9
22
Provisions for other liabilities and charges 22 390.0 440.2
Total non-current liabilities 1,543.2 1,567.1
Current liabilities
Current interest-bearing liabilities - 2.0
21
Trade and other payables 232.7 180.5
24
Income taxes payable 10 33.1 -
Current lease liabilities 15.7 3.8
22
Provisions for other liabilities and charges 22 104.4 112.0
Total current liabilities 385.9 298.3
Total liabilities 1,929.1 1,865.4
Total equity and liabilities 3,278.2 3,021.3
The Consolidated and Parent Company Financial Statements in Section VII were authorised for issue by the Board of
Directors on 29 March 2022.
For and on behalf of the Board of Directors
Bijan Mossavar-Rahmani
Executive Chairman of the Board of Director
s
31 March 2022
The attached Notes 1 to 29 form part of these Consolidated and Parent Company Financial Statements.
63
Consolidated Statement of Cash Flows
For the Year Ended 31 December 2021
USD million
Notes 2021
2020
(restated)
Operating Activities
Prot/(loss) before income tax 233.9 (427.3 )
Adjustments to add/(deduct) non-cash items:
Previously capitalised exploration and evaluation expenses 54.1 17.5
12
Depreciation of property, plant and equipment 206.0 361.4
12
Impairment loss of oil and gas assets, exploration assets and goodwill 80.1 276.0
12
Share of (prot)/loss of a Joint Venture
14
(16.0 ) (0.9 )
Reversal of impairment of investment in Joint Venture
14 - (3.0 )
Amortisation of borrowing issue costs 9.4 7.6
Accretion expenses 17.7 17.0
Interest expense 74.2 87.3
Interest income
(1.7 ) (5.3 )
Other 1.0 1.0
Changes in working capital and provisions:
- (Increase)/decrease in inventories
6 5.0 (13.7 )
- (Increase)/decrease in trade and other receivables
16 (99.8 ) 41.7
- Increase/(decrease) in trade and other payables
24 55.2 (109.0 )
- Increase/(decrease) in provisions for other liabilities and charges 3.8 (2.7 )
22
Cash generated from operations 622.9 247.6
Tax refund during the period 174.7 236.3
10
Interest received
9 1.7 2.7
Interest
paid
9 (73.0 ) (85.7 )
Payments for decommissioning
22 (86.2 ) (30.7 )
Net cash from/(used in) operating activities 640.1 370.2
Investing Activities
Purchases of intangible assets
12
(86.8 ) (62.8 )
Purchases of tangible assets
12
(193.8 ) (162.2 )
Proceeds from licence transactions 4.7 -
Equity injection into Joint Venture
14
(15.7 ) (4.4 )
Dividends received from Joint Venture 20.8 17.3
14
Net cash from/(used in) investing activities
(270.7 ) (212.1 )
Financing Activities
Proceeds from borrowings 400.0 152.3
21
Repayment of borrowings
21
(461.0 ) (302.6 )
Payment of debt issue costs
21
(15.6 ) -
Acquisition of non-controlling interest without change of control 20 - (17.8 )
Dividend paid to non-controlling interest (NCI)
(12.4 ) -
Payment of lease liabilities
(8.6 ) (3.4 )
Net cash from/(used in) nancing activities
(97.6 ) (171.5 )
Net increase/(decrease) in cash and cash equivalents
17 271.8 (13.3 )
Cash and cash equivalents at beginning of the period 502.3 515.9
17
Exchange rate losses on cash and cash equivalents
17
(2.0 ) -
Cash and cash equivalents at end of the period 772.1 502.3
Of which restricted cash 15.8 15.4
17
In the prior year, cash outows relating to Purchases of intangible assets were presented net of exploration write-downs.
This presentation has been amended in 2021 and the comparative cash ow statement corrected, with the non-cash
effects of exploration write-downs being reected as an adjustment to Net cash from operating activities. As a result,
previously capitalised exploration and evaluation expenses has increased by USD 17.1 m (USD 0.4 m as previously reported)
and Net cash from operating activities has also increased by this amount (USD 353.1 m as previously reported). In addition,
cash outows relating to Purchases of intangible assets increased by USD 17.1 m (USD 45.7 m as previously reported) and
Net cash used in investing activities increased by USD 17.1 m (USD 195.0 m as previously reported).
The attached Notes 1 to 29 form part of these Consolidated and Parent Company Financial Statements.
RAK Petroleum
plc
64
Consolidated Statement of Changes in Equity
For the Year Ended 31 December 2021
USD million
Share
capital
Share
premium
Treasury
shares
Other
reserves
Foreign
currency
translation
reserve
Retained
earnings Total
Non-controlling
interest
Total
equity
Balance at 1 January 2021 5.1 0.7 (22.4 ) 813.5 (29.2 ) (70.6 ) 697.3 458.8 1,155.9
Prot/(loss) for the year - - - - - 105.4 105.4 112.3 217.7
Other comprehensive
income/(loss) for the year - - - - (5.6 ) -
(5.6 ) (6.9 ) (12.5 )
Total comprehensive
income/(loss) for the year - - - - 99.8 105.4 205.2
(5.6 ) 105.4
Transactions with owners,
recognised directly as equity;
Payment of dividend to
non-controlling interest
(12.4 ) (12.4 )
Balance at 31 December 2021 5.1 0.7 (22.4 ) 813.5 (34.8 ) 35.0 797.0 552.0 1,349.10
Consolidated Statement of Changes in Equity
For the Year Ended 31 December 2020
USD million
Share
capital
Share
premium
Treasury
shares
Other
reserves
Foreign
currency
translation
reserve
Retained
earnings Total
Non-controlling
interest
Total
equity
Balance at 1 January 2020 5.1 0.7 (22.1 ) 813.5 (15.5 ) 48.8 830.5 634.3 1,464.8
Reclassication of reserves - - - - (12.0 ) 12.0 - - -
Prot/(loss) for the year - - - - - (130.1 )
(130.1 ) (157.4 ) (287.5 )
Other comprehensive
income/(loss) for the year - - - - (1.6 ) (0.1 )
(1.7 ) (1.9 ) (3.6 )
Total comprehensive
income/(loss) for the year - - - -
(1.6 )
(130.2 ) (131.8 ) (159.3 ) (291.1 )
Transactions with owners,
recognised directly as equity;
Acquisition of non-controlling
interest without change of control
(Note 20)
(0.3 )
(0.2 ) (1.0 ) (1.5 ) (16.3 ) (17.8 )
Balance at 31 December 2020 5.1 0.7 (22.4 ) 813.5 (29.2 ) (70.6 ) 697.3 458.6 1,155.9
The attached Notes 1 to 29 form part of these Consolidated and Parent Company Financial Statements.
65
Parent Company Statement of Financial Position
At 31 December 2021
USD million Notes
2021
2020Assets
Non-current assets
Investment in subsidiaries
25 670.1 670.1
Total non-current assets
670.1 670.1
Current assets
Other receivables
16 0.5 0.2
Cash and cash equivalents
4.2 3.5
Total current assets
4.6 3.8
Total assets
674.7 673.8
Equity and liabilities
Equity
Share capital
18 5.1 5.1
Share premium
19 0.7 0.7
Other reserves
20 637.3 637.3
Retained earnings
31.4
28.6
Total equity
674.4 671.6
Non-current liabilities
Employees’ end of service benets
0.1 0.1
Total non-current liabilities
0.1 0.1
Current liabilities
Trade and other payables
24 0.2 0.1
Current interest-bearing liabilities
21 - 2.0
Total current liabilities
0.2 2.1
Total liabilities
0.3 2.2
Total equity and liabilities
674.7 673.8
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the
Company prot and loss account. The prot for the Company for the year was USD 2.8 million (USD 5.5 million loss for
2020).
The attached Notes 1 to 29 form part of these Consolidated and Parent Company Financial Statements.
RAK Petroleum
plc
66
Parent Company Statement of Cash Flows
For the Year Ended 31 December 2021
USD million Notes
2021
2020Operating activities
Prot/(loss) before income tax
2.8 (5.5)
Less dividend income
(5.0) -
Operating cash ow before working capital changes
(2.2) (5.5)
(Increase)/decrease in trade and other receivables
(0.2) 0.6
Increase/(decrease) in trade and other payables
0.1 (0.5)
Cash used in operations
(2.3) (0.5)
Dividend received
5.0 -
Net cash from/(used in) operating activities
2.7 (5.4)
Financing activities
Proceeds obtained from/repaid to subsidiary
21
- (0.5)
Repayment of borrowings
21 (2.0) (12.3)
Net cash from/(used in) nancing activities
(2.0) (12.8)
Net increase/(decrease) in cash and cash equivalents
0.7 (18.1)
Cash and cash equivalents at beginning of the period
3.5 21.7
Cash and cash equivalents at end of the period
4.2 3.5
Parent Company Statement of Changes in Equity
For the Year Ended 31 December 2021
USD million
Share
capital
Share
premium Other reserves
Accumulated
losses Total
Balance at 1 January 2021
5.0 0.7 637.3 28.6 671.6
Prot/(loss) for the year
- - - 2.8 2.8
Total comprehensive prot/(loss) for the year
- - - 2.8 2.8
Balance at 31 December 2021
5.0 0.7 637.3 31.4 674.4
Parent Company Statement of Changes in Equity
For the Year Ended 31 December 2020
USD million
Share
capital
Share
premium Other reserves
Accumulated
losses Total
Balance at 1 January 2020
5.0 0.7 637.3 34.2 677.2
Prot/(loss) for the year
- - - (5.5) (5.5)
Total comprehensive prot/(loss) for the year
- - - (5.5) (5.5)
Balance at 31 December 2020
5.0 0.7 637.3 28.6 671.6
The attached Notes 1 to 29 form part of these Consolidated and Parent Company Financial Statements.
67
Basis of Preparation
The Consolidated Financial Statements
of the Group are prepared in
accordance with UK adopted
International Accounting Standards
(“IAS”) and International Financial
Reporting Standards (“IFRSs”) as
adopted by the European Union as
they apply to annual accounting
periods beginning on or after 1
January 2021. The Parent Company
Financial Statements are prepared
in accordance with UK adopted IAS
in conformity with the requirements
of the Companies Act as applied in
accordance with section 408 of the
Companies Act 2006 (“Companies
Act”).
The Consolidated Financial Statements
are prepared under the historical
cost convention with the following
exceptions: investments in equity
instruments classied as nancial
investments at fair value through other
comprehensive income are recognised
at fair value.
As permitted by IAS 1 Presentation of
Financial Statements and in conformity
with industry practice, the expenses
in the consolidated statements of
comprehensive income are presented
as a combination of nature and
function as this gives the most relevant
and reliable presentation for the
Group.
Due to rounding, the gures in one or
more rows or columns included in the
nancial statements and notes may
not add up to the subtotals or totals of
that row or column.
The preparation of nancial statements
in conformity with IFRSs requires
the use of certain critical accounting
estimates. It also requires management
to exercise its judgement in the process
of applying the Group’s accounting
policies. The areas involving a higher
degree of judgement or complexity, or
areas where assumptions and estimates
are signicant to the Consolidated or
Parent Company Financial Statements,
are disclosed in Note 3.
1. Corporate Information
or the “Company”) is incorporated as
a public limited company organised
and existing under the laws of England
and Wales pursuant to the United
Kingdom (“UK”) Companies Act. The
Company was incorporated on 17 June
2013 and the Company’s registration
number is 08572925. The registered
ofce of the Company is Highdown
House, Yeoman Way, Worthing, West
Sussex BN99 3HH, UK.
The Company is an energy investment
company that currently owns two
major assets:
•
A block of 438,379,418 shares in
DNO ASA (“DNO”) representing
44.94 percent of the total
DNO shares outstanding at 31
December 2020 (2020: 44.94
percent). DNO and its subsidiaries
(the “DNO Group”) is included
in the Consolidated Financial
Statements of the Group as a
subsidiary for the year ended 31
December 2021; and
•
100 percent ownership of Mondoil
Enterprises, LLC (“Mondoil
Enterprises”). Through this
investment in Mondoil Enterprises,
the Group holds a one-half
stake in Mondoil Côte d’Ivoire
LLC (“Mondoil Côte d’Ivoire”)
which in turn holds a two-thirds
ownership in Foxtrot International
LDC (“Foxtrot International”), a
privately-held oil and gas company
active in Côte d’Ivoire. Mondoil
Côte d’Ivoire is included in the
consolidated accounts of the
Group as a Joint Venture for the
year ended 31 December 2021.
The Company has its Class A Shares
listed on the Oslo Børs.
2. Summary of Signicant
Accounting Policies
T
he principal accounting policies
applied in the preparation of these
Consolidated and Parent Company
Financial Statements are set out below.
These policies have been consistently
applied to all the years presented,
unless otherwise stated.
Notes to the
Consolidated
and Parent
Company
Financial
Statements
At 31 December 2021
68
RAK Petroleum
plc
Going Concern
The Consolidated and Parent Company
Financial Statements have been
prepared on a going concern basis.
Taking account of the Group’s present
position and principal risks, the
Board of Directors has a reasonable
expectation that the Group and the
Company will be able to continue in
operation and meet their liabilities as
they fall due for the period at least
12 months following approval of the
Consolidated and Parent Company
Financial Statements. In forming this
conclusion, the Board of Directors
considered the 15-month period to
June 2023.
The Company acts as a holding
company and currently holds interests
in two oil and gas companies (the
“Investment Entities”): DNO and
Foxtrot International. At 29 March
2022, the Company indirectly owned
44.94 percent of the total outstanding
shares of DNO and indirectly owned
33.33 percent of Foxtrot International.
The Company and its wholly-owned
subsidiaries have no direct production
or expenditure in oil and gas assets. All
production and expenditure in oil and
gas assets is carried out through the
Investment Entities, DNO and Foxtrot
International. DNO is a Norwegian
exploration and production company
listed on the Oslo Børs (Oslo Stock
Exchange). The Company is one
of many shareholders and has no
obligation to fund DNO’s activities and
expenditures. DNO has in place debt
facilities and would be expected to
be able to access funds if necessary
through the usual suite of capital
raising options available to any listed
company. Foxtrot International is a
privately-held company with two
shareholders responsible for funding
any expenditure requirements not
covered by revenue generated in
its operations. Foxtrot International
sends monthly dividend payments
from revenue generated from the
sale of gas, oil and condensate and
sends monthly cash calls to fund
anticipated expenditure. Foxtrot is
accounted for as a Joint Venture using
the equity method of accounting.
DNO is accounted for as a subsidiary
due to the application of IFRS 10
regarding de-facto control, even
though the Company is treated equally
to other DNO shareholders and has no
obligation to fund DNO’s expenditures.
Reecting that the DNO Group is only
consolidated as a result of de-facto
control, in assessing the Group’s going
concern the Board of Directors made
separate consideration of the DNO
Group and the Company, its wholly-
owned subsidiaries and investment in
Foxtrot International.
Company, wholly-owned subsidiaries
and investment in Foxtrot International
The Board of Directors conducted
a review for the period up to end
June 2023 for the cash ow of
the Company, its wholly-owned
subsidiaries and investment in Foxtrot
International.
In making its determination, the Board
of Directors considered (i) the approved
budget for 2022 expenditures at
Foxtrot International and expectations
of expenditures over the remainder
of the forecast period, (ii) forecasted
cash ows from Foxtrot International,
(iii) the timing and amount of the
Company’s existing and potential
obligations to repay outstanding
indebtedness, (iv) forecasted general
and administrative expenses for the
Company and its wholly-owned
subsidiaries and (vi) the likelihood
of DNO dividends. In this regard,
the Company benets from Foxtrot
International cash ows that are not
substantially dependent upon world oil
prices.
The underlying assumptions were
stress tested and reviewed in the
context of the Group’s liquidity and
the principal risks of the regions and
industry in which it operates and
with regard to the risks set out in
the Principal Risks section above. No
dividends are assumed from DNO in
the base case or stress testing analysis.
Reduced dividend revenue from Foxtrot
International was analysed at a level
of 25 percent, 50 percent and 100
percent reduction and opportunities
for the reduction of expenditure were
considered.
The Board of Directors noted that
the liquidity of the Company, wholly-
owned subsidiaries and investment in
Foxtrot International is not reduced
to nil unless there is an extreme, and
highly unlikely, reduction in dividend
income from Foxtrot International
throughout the period to June
2023, with no mitigations being
implemented.
DNO Group
The Board of Directors noted that
for the purposes of the DNO Annual
Report and Accounts published on
17 March 2022, the DNO Board
of Directors concluded after their
own analysis that the going concern
basis of preparation was warranted
for DNO and took note of (i) DNO’s
exceptionally low reported lifting
costs in Kurdistan, (ii) nancing
arrangements that DNO has in place
(iii) DNO’s substantial proven and
probable producing oil reserves under
existing arrangements that permit cash
ow generation covering the forecast
period, (iv) the signicant improvement
in oil and gas prices, (v) the build-
up of DNO’s cash balance and (vi)
DNO’s ability to reduce investment
expenditure. The Board of Directors
noted that the period covered for
DNO’s assessment was to 31 December
2022. This period has subsequently
been extended for the purposes of the
Company’s going concern assessment.
For the Consolidated Financial
Statements of the Group, the going
concern assessment for the DNO
Group was reviewed in detail by the
Board of Directors for the period up
to end June 2023. A base case Brent
oil price of USD 65 per barrel was
assumed. Stress testing of the cash
ows was carried out at varying Brent
oil price assumptions (USD 45 per
barrel and USD 85 pence per therm)
without modelling the benets of
identied mitigation actions. The bond
covenants and reserves-based lending
covenants were also reviewed with
forecast minimum cash, equity and
EBITDAX (earnings before interest,
tax, depreciation, amortisation and
2. Summary of Signicant
Accounting Policies (continued)
69
exploration expense) compared to the
covenant limits throughout the going
concern time period under the base
case and stress test cases. The EBITDAX
covenant is most sensitive to a severe
reduction in oil prices but this covenant
is not breached in the above cases,
without requiring mitigating actions.
In reviewing the DNO assessment of
going concern the Board of Directors
continued to monitor the uncertainty
caused by the Covid-19 pandemic
and its effect on the global economy,
while also noting the gradual easing
of restrictions since the reporting date.
The Board of Directors also noted the
consideration of the possible future
impacts of climate-change initiatives.
In addition, the Board of Directors
assessed the 15 February 2022 ruling
by the Federal Supreme Court of Iraq
(“FSCI”) on the Kurdistan Regional
Government’s (“KRG”’s) constitutional
rights and powers as regards oil and
gas as further detailed under Critical
Accounting Judgements and Estimates,
Risks Associated with Operating in
Kurdistan on page 91. It is currently not
clear how this ruling will be followed
up. To date there has been no effect
on operations but any development
will be closely monitored. In assessing
the effect on going concern, the Board
of Directors considered the potential
effect of a signicant interruption in
the settlement of receivables from
the KRG. Were such an interruption
to arise, the Board of Directors would
expect DNO to reassess the levels of
capital investment at the Tawke and
Baeshiqa licences as it did during
the initial stages of the Covid-19
pandemic.
Based on its assessment of this analysis,
the Board of Directors has a reasonable
expectation that the DNO Group will
be able to continue in operation and
manage its liabilities as these fall due
over the forecast period to June 2023.
The Board of Directors noted DNO’s
current cash balance when reaching its
going concern conclusion.
2. Summary of Signicant
Accounting Policies (continued)
the acquiree over the fair value of the
identifiable net assets acquired.
Subsidiaries are fully consolidated
from the date of acquisition or
incorporation, being the date on
which the Group obtains control, and
continue to be consolidated until the
date when such control ceases. The
nancial statements of the subsidiaries
are prepared for the same reporting
period as the Group, using consistent
accounting policies.
The Group recognises any non-
controlling interest in the acquiree
on an acquisition-by-acquisition
basis at the non-controlling interest’s
proportionate share of the recognised
amounts of the acquiree’s identifiable
net assets.
If the business combination is achieved
in stages, the acquisition date carrying
value of the acquirer’s previously
held equity interest in the acquiree
is re-measured to fair value at the
acquisition date; any gains or losses
arising from such re-measurement are
recognised in profit or loss.
Prot or loss and each component of
Other Comprehensive Income (“OCI”)
are attributed to the equity holders of
the parent of the Group and to the
non-controlling interests, even if this
results in the non-controlling interests
having a decit balance. When
necessary, adjustments are made to the
nancial statements of subsidiaries to
bring their accounting policies into line
with the Group’s accounting policies.
All intra-group assets and liabilities,
equity, income, expenses and cash
ows relating to transactions between
members of the Group are eliminated
on consolidation for the controlling
interest share.
Transactions with non-controlling
interests that do not result in loss of
control are accounted for as equity
transactions – that is, as transactions
with the owners in their capacity as
owners. The difference between fair
value of any consideration paid and the
Conclusion for the Group and
Company
Based on the assessment described
above, the Board of Directors has a
reasonable expectation that the Group
and the Company will be able to
continue in operation and meet their
liabilities for a period of at least 12
months, having assessed forecasts for
the 15-month period to June 2023.
New Standards Adopted by the
Group
There were no standards that have
been adopted by the Group for the rst
time for the nancial year beginning
on or after 1 January 2021 that had a
material impact on the Group.
Group Accounting and
Consolidation Principles
Investments in Subsidiaries
A subsidiary is an entity over which
the Group has control. Control is
achieved when the Group is exposed,
or has rights, to variable returns from
its involvement with the investee and
has the ability to affect those returns
through its power over the investee.
Specically, the Group controls an
investee if, and only if, the Group has:
•
Power over the investee (i.e.,
existing rights that give it the
current ability to direct the relevant
activities of the investee);
•
Exposure, or rights, to variable
returns from its involvement with
the investee; and
•
The ability to use its power over
the investee to affect its returns.
Acquisition of subsidiaries is accounted
for using the acquisition method. The
cost of an acquisition is measured as
the aggregate of the consideration
transferred, measured at acquisition
date fair value. Goodwill is recognised
on acquisition of subsidiaries and
it represents the excess of the
consideration transferred, the amount
of any non-controlling interest in the
acquiree and the acquisition-date fair
value of any previous equity interest in
70
RAK Petroleum
plc
relevant share acquired of the carrying
value of net assets of the subsidiary is
recorded in equity. Gains or losses on
disposals to non-controlling interests
are also recorded in equity.
If the Group loses control over a
subsidiary, it derecognises the related
assets (including goodwill), liabilities,
non-controlling interest and other
components of equity, while any
resultant gain or loss is recognised in
prot or loss. Any investment retained
is recognised at fair value.
In the Parent Company Financial
Statements, investments in subsidiaries
are held at cost less impairment. Cost
is the fair value of consideration given.
Investments in subsidiaries are subject
to the same impairment assessment
as investments in Associates and Joint
Ventures as explained below.
Joint Ventures
A Joint Venture is a type of joint
arrangement whereby the parties that
have joint control of the arrangement
have rights to the net assets of the
Joint Venture. Joint control is the
contractually agreed sharing of control
of an arrangement, which exists only
when decisions about the relevant
activities require unanimous consent of
the parties sharing control.
The considerations made in
determining signicant inuence
or joint control are similar to those
necessary to determine control over
subsidiaries.
The Group’s investments in Joint
Ventures are accounted for using
the equity method. Under the equity
method, the investment in a Joint
Venture is initially recognised at cost.
The carrying amount of the investment
is adjusted to recognise changes in the
Group’s share of net assets of the Joint
Venture since the acquisition date.
Goodwill relating to the Joint Venture
is included in the carrying amount
of the investment and is neither
amortised nor individually tested for
impairment. The income statement
reects the Group’s share of the results
of operations of the Joint Venture.
On acquisition of the investment, any
difference between the cost of the
investment and the Group’s share
of the net fair value of the investee’s
identiable assets and liabilities is
accounted for as:
•
Goodwill relating to a Joint Venture
and is included in the carrying
amount of the investment. Such
goodwill is not amortised; and
•
Any excess of the Group’s share of
the net fair value of the investee’s
identiable assets and liabilities
over the cost of the investment
(“negative goodwill”) is included
as income in the determination
of the entity’s share of the Joint
Venture’s prot or loss in the
period in which the investment is
acquired.
Appropriate adjustments to the
Group’s share of the Joint Venture’s
prot or loss after acquisition are made
in order to account, for example, for
depreciation of the depreciable assets
(and related deferred tax, if any) based
on their fair values at the acquisition
date.
Any change in OCI of those investees
is presented as part of the Group’s
OCI. In addition, when there has been
a change recognised directly in the
equity of the Joint Venture, the Group
recognises its share of any changes,
when applicable, in the statement of
changes in equity.
The aggregate of the Group’s share
of prot or loss of a Joint Venture
represents prot or loss after tax
and non-controlling interests in the
subsidiaries of the Joint Venture.
The nancial statements of the Joint
Venture are prepared for the same
reporting period as the Group. When
necessary, adjustments are made to
bring the accounting policies in line
with those of the Group (IFRS).
The impact of reciprocal interests
between the Group and its investees is
eliminated before the Group accounts
for its share; the Group also reduces its
equity and investment balance by its
effective interest in its own shares.
After application of the equity method,
the Group evaluates whether there are
any potential impairment indicators as
per IFRS 9. If there is an indication that
the Group’s interests in a Joint Venture
may be impaired, an impairment test
as per IAS 36 is conducted. The entire
carrying amount of the investment
in the Joint Venture is compared to
the recoverable amount, which is the
higher of value-in-use or fair value
less cost of disposal. Value-in-use
is calculated by the present value
of the Group’s share of the Joint
Venture’s future cash ows, including
any proceeds from future disposals.
If the carrying amount exceeds the
recoverable amount, the excess is
recorded as impairment in the income
statement.
If in a subsequent period, the amount
of impairment loss decreases, and the
decrease can be related objectively
to an event occurring after the
impairment was recognised, the
previously recognised impairment loss
should be reversed through prot
or loss. The reversal of a previous
impairment loss is recognised to the
extent that the recoverable amount of
the investment subsequently increases;
however the maximal impairment
reversal is limited to what that carrying
amount would have been (net of
amortisation or depreciation) had no
impairment loss been recognised for
the asset in prior years.
The most recent detailed calculation
made in a preceding period of the
recoverable amount of a Group’s
interests in a Joint Venture may be
used in the impairment test of that
investment in the current period,
provided that (i) the most recent
recoverable amount calculation
resulted in an amount that exceeded
the carrying amount of the investment
by a substantial margin, and (ii) based
on an analysis of events that have
occurred and circumstances that
2. Summary of Signicant
Accounting Policies (continued)
71
have changed since the most recent
recoverable amount calculation, the
likelihood that a current recoverable
amount determination would be less
than the current carrying amount of
the investment is remote.
Interest in Jointly Controlled
Operations (Assets)
A joint arrangement is present
when the Company (or one of its
subsidiaries) holds a long-term interest
which is jointly controlled by the
Company (or one of its subsidiaries)
and one or more other parties under
a contractual arrangement in which
decisions about the relevant activities
require the unanimous consent of
the parties sharing control. Such joint
arrangements are classied as either
joint operations or joint ventures.
Under IFRS 11
Joint Arrangements
, a joint operation is a joint arrangement
whereby the parties that have joint
control of the arrangement have rights
to the assets and obligations for the
liabilities. Oil and gas licences held by
the Group which are within the scope
of IFRS 11 have been classied as joint
operations.
The Group recognises its investments in
joint operations by reporting its share
of related revenues, expenses, assets,
liabilities and cash ows under the
respective items in the Consolidated
Financial Statements.
For those licences that are not deemed
to be joint arrangements pursuant
to the denition of IFRS 11, either
because unanimous consent is not
required among all parties involved,
or no single group of parties has
joint control over the activity, the
Group recognises its share of related
expenses, assets, liabilities and cash
ows under the respective items in
the
Consolidated Financial Statements in
accordance with applicable IFRSs. In
determining whether each separate
arrangement related to the Group’s
joint operations is within or outside
the scope of IFRS 11, the Group
considers the terms of relevant licence
agreements, governmental concessions
and other legal arrangements
effectively measured. In the exploration
phase, the Group normally recognises
licence swaps based on historical
cost basis, as the fair value is often
difcult to measure. If the transaction
is determined to be a business
combination, the requirements of IFRS
3 apply.
Business Combinations
In accordance with IFRS 3
Business
Combinations
, an acquisition is
considered a business combination,
when the acquired asset or groups
of assets constitute a business (i.e.,
an integrated set of operations and
assets conducted and managed for the
purpose of providing a return to the
investors).
Acquired businesses are included in
the nancial statements from the
transaction date. The transaction
date is dened as the date on which
the Group achieves control over the
nancial and operating assets. This
date may differ from the actual date
on which the assets are transferred.
For accounting purposes, business
combinations are accounted for
using the acquisition method. The
cost of an acquisition is measured as
the aggregate of the consideration
transferred, measured at acquisition
date fair value. Acquisition related
costs are expensed as incurred,
unless the acquisition is related to an
acquisition of an Associate or Joint
Venture, in which case such costs are
added to the initial investment cost.
Acquisition cost equals the fair value
of the assets used as consideration,
including contingent consideration,
equity instruments issued and liabilities
assumed in connection with the
transfer of control. Acquisition cost
is measured against the fair value
of the acquired assets and assumed
liabilities. Identiable intangible assets
are included in connection with
acquisitions if they can be separated
from other assets or meet the legal
contractual criteria. If the acquisition
cost at the time of the acquisition
exceeds the fair value of the acquired
net assets (when the acquiring entity
impacting how and by whom each
arrangement is controlled.
Licence acquisitions
For acquisition of oil and gas licences,
individual assessment is made whether
the acquisition should be treated
as a business combination or as
an asset purchase. The conclusion
may materially affect the nancial
statements both in the transaction
period and in future periods. Generally,
the purchase of a licence in the
development or production phase is
regarded as a business combination,
while the purchase of a licence in the
exploration phase is regarded as an
asset purchase.
Farm-in and Farm-out
A farm-in or farm-out of an oil and
gas licence takes place when the
owner of the working interest (the
“farmor”) transfers all or a portion
of its working interest to another
party (the “farmee”) in return for an
agreed upon consideration and/or
action, such as conducting subsurface
studies, drilling wells or developing the
asset. Any cash consideration received
directly from the farmee is credited
against costs previously capitalised in
relation to the whole interest with any
excess accounted for by the farmor
as a gain on disposal. The farmee
capitalises or expenses its costs as
incurred according to the accounting
method it is using. There are no
accruals for future commitments in
farm-in/farm-out agreements in the
exploration and evaluation phase
and no prot or loss recognised by
the farmor. In the development or
production phase a farm-in/farm-
out agreement will be treated as a
transaction recorded at fair value as
represented by the costs carried by the
farmee. Any gain or loss arising from
the farm-in/farm-out is recognised
in the statement of comprehensive
income.
Licence swaps
Licence swaps are calculated at the fair
value of the asset being exchanged,
unless the transaction lacks commercial
substance, or neither the fair value
of the asset received, nor the fair
value of the asset divested, can be
2. Summary of Signicant
Accounting Policies (continued)
72
RAK Petroleum
plc
achieves control of the transferring
entity), goodwill arises. If the fair value
of the acquired net assets exceeds
the acquisition cost on the acquisition
date, the excess amount is taken to
prot or loss immediately.
Goodwill is allocated to the cash-
generating units or groups of cash-
generating units that are expected to
benet from synergy effects of the
acquisition. The allocation of goodwill
may vary depending on the basis of its
initial recognition.
The goodwill that is recognised by
the DNO Group is related to technical
goodwill, and is recognised due to
the requirement to recognise deferred
tax for the difference between the
assigned fair values and the related
tax base. The fair values of the DNO
Group’s licences in the North Sea
are based on cash ows after tax.
This is because these licences are
sold only on an after-tax basis. The
purchaser is therefore not entitled to
a tax deduction for the consideration
paid above the seller’s tax values. In
accordance with IAS 12, a provision is
made for deferred tax corresponding
to the tax rate multiplied by the
difference between the fair values of
the acquired assets and the transferred
tax depreciation basis (i.e., tax values).
The offsetting entry to this deferred
tax is goodwill. Hence, goodwill
arises as a technical effect of deferred
tax. Technical goodwill is tested for
impairment separately for each
cash-generating-unit which give rise
to the technical goodwill. A cash-
generating-unit may be an individual
oil and/or gas eld, or a group of oil
elds that are connected to the same
infrastructure/production facilities, or a
licence.
If the initial accounting for a
business combination is incomplete
by the end of the reporting period
in which the combination occurs,
the Group as acquirer reports in its
Consolidated Financial Statements
provisional amounts for the items for
which the accounting is incomplete.
During the measurement period, the
Group will retrospectively adjust the
provisional amounts recognised at
the acquisition date to reect new
information obtained about facts
and circumstances that existed as of
the acquisition date which, if known,
would have affected the measurement
of the amounts recognised as of
that date. During the measurement
period, the acquirer shall also recognise
additional assets or liabilities if new
information is obtained about facts
and circumstances that existed as of
the acquisition date which, if known,
would have resulted in the recognition
of those assets and liabilities as of
that date. The measurement period
ends as soon as the acquirer receives
the information it was seeking about
facts and circumstances that existed as
of the acquisition date or learns that
more information is not obtainable.
However, the measurement period
shall not exceed one year from the
acquisition date.
Pre-existing contractual relationships
between acquirer and acquiree
are recognised separately from the
business combination.
For an acquisition of a group of assets
that does not constitute a business,
all acquired assets and liabilities will
be identied and the cost of the
transaction is allocated to the assets
acquired and liabilities assumed based
on their relative fair values at the date
of purchase. No goodwill arises on the
transaction. For acquisition of oil and
gas licences, individual assessment is
made whether the acquisition should
be treated as a business combination
or as an asset purchase. Generally,
purchases of licences in a development
or production phase will be regarded
as a business combination, while
purchases of licences in the exploration
phase will be regarded as an asset
purchase.
Segment Reporting
Operating segments are reported in
a manner consistent with the internal
reporting provided to the chief
operating decision-maker. The Chief
Operating Decision Maker, who is
responsible for allocating resources and
assessing performance of the operating
segments, has been identied as the
Executive Chairman of the Board of
Directors.
Executive management monitors
the operating results of its operating
segments separately for the
purpose of making decisions about
resource allocation and performance
assessment. Segment nancial
performance is evaluated based on
the income statements, nancial
position as well as through other
key performance indicators. Transfer
pricing between the segments and
companies is set using the arm’s-
length principle in a manner similar to
transactions with third parties.
Foreign Currency Translation
and Transactions
Functional Currency
Items included in the nancial
statements of each of the Group’s
entities are measured using the
currency of the primary economic
environment in which the entity
operates (the “functional currency”).
The Consolidated and Parent Company
Financial Statements are presented
in USD, which is the Company’s
presentation currency.
Transactions and Balances
Transactions in foreign currencies are
recorded in the functional currency
at the rate ruling at the date of the
transaction. Monetary assets and
liabilities denominated in foreign
currencies are retranslated at the rate
of exchange ruling at the reporting
date. All differences are taken to prot
or loss. Foreign exchange gains or
losses resulting from changes in the
fair value of non-monetary nancial
assets classied as equity instruments
are recognised directly in other
comprehensive income.
At the reporting date, the assets and
liabilities of Group companies with
functional currencies other than USD
are translated into USD at the rate
of exchange ruling at the reporting
date and their income statements are
translated at the weighted average
exchange rates for the year or each
month. Equity is translated at historical
rates. The differences arising on the
translation are taken directly to the
2. Summary of Signicant
Accounting Policies (continued)
73
consolidated statement of other
comprehensive income. On disposal
of an entity, the deferred cumulative
foreign currency translation differences
recognised in equity relating to that
entity are recognised in prot or loss.
Goodwill and fair value adjustments
arising on the acquisition of a foreign
entity are treated as assets and
liabilities of the foreign entity and
translated at the closing rate. Exchange
differences arising are recognised in
other comprehensive income.
Classication in the Statement
of Financial Position
Current assets and current liabilities
include items due less than a year from
the statement of nancial position
date, and if longer, items related to the
operating cycle. The current portion of
non-current liabilities is included under
current liabilities. Investments in shares
held for trading are classied as current
assets, while strategic investments are
classied as non-current assets. Other
assets and liabilities are classied as
non-current assets and non-current
liabilities.
Fair Value
Financial instruments such as
investments in equity instruments
are measured at fair value at each
balance sheet date. Fair value is the
price that would be received to sell an
asset or paid to transfer a liability in an
orderly transaction between market
participants at the measurement date.
The fair value of an asset or a liability is
measured using the assumptions that
market participants would use when
pricing the asset or liability, assuming
that market participants act in their
economic best interest. All assets
and liabilities for which fair value is
measured or disclosed in the nancial
statements are categorised within
the fair value hierarchy, described as
follows:
•
Level 1 — Quoted market prices in
active markets for identical assets
or liabilities
•
Level 2 — Valuation techniques
prot. Assets held for sale are reported
at the lower of the carrying amount
and the fair value, less selling costs.
Exploration and Development Cost
for Oil and Gas Assets
Capitalised exploration expenditures
are classied as intangible assets and
reclassied to tangible assets (i.e.,
PP&E) at the start of the development.
For accounting purposes, an oil and
gas eld is considered to enter the
development phase when the technical
feasibility and commercial viability of
extracting oil and gas from the eld
are demonstrable, normally at the
time of concept selection. All costs
of developing commercial oil and gas
elds are capitalised, including indirect
costs. Capitalised development costs
are classied as tangible assets (i.e.,
PP&E). Pre-development expenditures
up until development project sanction
in general do not meet the criteria
for capitalisation and are expensed as
incurred.
Acquired licence rights are recognised
as intangible assets at the time of
acquisition. Acquired licence rights
related to elds in the exploration
phase remain as intangible assets
when the related elds enter the
development or production phase.
Oil and Gas Assets in Production
Capitalised costs for oil and gas assets
are depreciated using the unit-of-
production method. The rate of
depreciation is equal to the ratio of oil
and gas production for the period over
the estimated remaining proven and
probable reserves at the beginning of
the period. The future development
expenditures necessary to bring those
reserves into production are included
in the basis for depreciation and are
estimated by the management based
on current period-end un-escalated
price levels. The reserve basis used for
depreciation purposes is updated at
least once a year. Any changes in the
reserves affecting unit-of-production
calculations are reected prospectively.
Borrowing Cost
General and specic borrowing costs
directly attributable to the acquisition,
construction or production of
for which the lowest level input
that is signicant to the fair
value measurement is directly or
indirectly observable
•
Level 3 — Valuation techniques
for which the lowest level input
that is signicant to the fair value
measurement is unobservable
Investments in equity instruments,
where available, are measured
at quoted market prices at the
measurement date.
Property, Plant and Equipment
General
Property, Plant and Equipment
(“PP&E”) acquired by the Group
are recognised at historical cost and
adjusted for depreciation, depletion
and amortisation (“DD&A”) and
impairment charges. The carrying
amount of the PP&E in the statement
of nancial position represents the
cost less accumulated DD&A and
accumulated impairment charges.
The unit-of-production method is
used in the depreciation of oil and gas
assets. The rate of depreciation is equal
to the ratio of oil and gas production
for the period over the estimated
remaining proven and probable
reserves.
Other xed assets in use (excluding
oil and gas properties) are generally
depreciated on a straight-line basis at
rates varying from three to seven years.
Expected useful lives are reviewed at
each statement of nancial position
date and, where there are changes
in estimates, depreciation periods are
changed accordingly.
Ordinary repairs and maintenance
costs, dened as day-to-day servicing
costs, are charged to prot or loss
during the nancial period in which
they are incurred. The cost of major
workovers is included in the asset’s
carrying amount when it is likely that
the Group will derive future nancial
benets exceeding the originally
assessed standard performance of the
existing asset. Gains and losses on
disposals are determined by comparing
the disposal proceeds with the carrying
amount and are included in operating
2. Summary of Signicant
Accounting Policies (continued)
74
RAK Petroleum
plc
qualifying assets (such as PP&E assets),
which are assets that necessarily take
a substantial period of time to make
ready for their intended use or sale,
are capitalised and added to the cost
of those assets until such time as the
assets are substantially ready for their
intended use or sale. Borrowing costs
consist of interest and other costs that
the Group incurs in connection with
the borrowing of funds.
All other borrowing costs are expensed
and recognised in prot or loss in the
period in which they are incurred.
The capitalisation of borrowing costs is
recorded based on the average interest
rate for the Group in the period. The
capitalised borrowing costs cannot
exceed the actual borrowing costs in
each period.
Component Cost Accounting/
Decomposition
The Group allocates the amount
initially recognised in respect of an
item of PP&E to its signicant parts
and depreciates separately each such
part over its useful life. The Group
has identied the oil and gas eld
(or group of oil and gas elds) or
licence level as the lowest level at
which separate cash ows can be
identied. This means that there is
no decomposition beyond the licence
level. A plan for development is
usually dened for each eld taking
into consideration exploration wells,
production wells and inll wells.
Leases
The Group assesses at contract
inception whether a contract is, or
contains, a lease. That is, if the contract
conveys the right to control the use of
an identied asset for a period of time
in exchange for consideration.
The Group applies a single recognition
and measurement approach for all
leases, except for short-term leases
(12 months or less) and leases of low-
value assets. Short-term leases and
leases of low value assets have not
been reected in the balance sheet but
expensed or capitalised as incurred,
depending on the activity in which the
leased asset is used.
At the commencement date of a
lease, the Group recognises a liability
to make lease payments and an asset
representing the right to use the
underlying asset (right-of-use (“RoU”)
asset) during the lease term.
The RoU assets are measured to cost,
less any accumulated depreciation and
impairment losses, and adjusted for
any re-measurement of lease liabilities.
The RoU assets are depreciated linearly
over the lifetime of the related lease
contract.
Lease liabilities are measured at the
present value of lease payments
to be made over the lease term.
In calculating the present value of
lease payments, the Group uses
the implicit interest rate and if not
readily determinable, its incremental
borrowing rate at the lease
commencement date.
Extension options are included in
the lease liability when, based on
management’s judgement, it is
reasonably certain that an extension
will be exercised.
When an entity, as the operator of
a licence, is considered to have the
primary responsibility for the full lease
payments (e.g., a rig lease where
the lease agreement is entered into
in the entity’s name as the operator
of the licence at the initial signing),
the lease liability may be recognised
on a gross basis rather than on the
entity’s working interest share. The
entity then derecognises a portion of
the RoU asset corresponding to the
non-operator’s interests in the licence
(presented under receivables).
In the consolidated statements of
comprehensive income, operating lease
costs, relating to contracts containing a
lease, are replaced by depreciation and
interest expense.
In the consolidated cash ow, lease
payments related to lease liabilities
recognised in accordance with IFRS
16, are presented as cash ow used in
nancing activities.
The Group’s RoU assets mainly relate to
ofce rent, rig leases and equipment.
The Group also leases equipment with
contract terms of one to three years
but has elected to apply the practical
expedient on low value assets and
does not recognise lease liabilities or
RoU assets and the leases are instead
expensed when the costs are incurred.
Intangible Assets
General
Intangible assets are stated at cost,
less accumulated amortisation and
accumulated impairment charges.
Intangible assets include acquisition
costs for oil and gas licences,
expenditures on the exploration for
oil and gas resources, goodwill and
other intangible assets. Goodwill
is not depreciated. The useful lives
of intangible assets are assessed as
either nite or innite. Amortisation
of intangible assets is based on the
expected useful economic lives and
assessed for impairment whenever
there is an indication that the
intangible asset might be impaired.
The impairment review of intangible
assets with innite lives is undertaken
annually or more often if indicators
exist.
Exploration and Evaluation
Assets
The Group uses the successful efforts
method to account for its exploration
and evaluation assets. All exploration
costs (including purchase of seismic,
geological and geophysical costs and
general and administrative costs),
except for acquisition costs of licences
and drilling costs of exploration wells,
are expensed as incurred. Acquisition
costs of licences and drilling costs
of exploration wells are temporarily
capitalised pending the determination
of oil and gas resources. These costs
include directly attributable employee
remuneration, materials and fuel
used, rig costs and payments to
contractors. Continued capitalisation of
such costs is assessed for impairment
at each reporting date. The main
criterion is that there must be plans
for future activity in the licence
or that a development decision is
2. Summary of Signicant
Accounting Policies (continued)
75
expected in the near future. If reserves
or resources are not found, or if
discoveries are assessed not technically
or commercially recoverable, the costs
of exploration wells and licences are
expensed.
Impairment/Reversal of
Impairment of Non-nancial
Assets
PP&E, Intangible Assets and
Investments in Associates or Joint
Ventures are reviewed for impairment
whenever events or changes in
circumstances indicate that the
carrying amount of an asset may not
be recoverable. Goodwill is assessed at
least annually for impairment.
Indications of impairment may include
a decline in the price of oil and gas,
changes in future investments or
changes in reserve estimates. For the
purposes of assessing impairment,
assets are grouped at the lowest
levels for which there are separable
identiable cash inows, known as a
cash-generating unit. For oil and gas
assets, a cash-generating-unit may be
an individual oil and/or gas eld, or
a group of oil and gas elds that are
connected to the same infrastructure/
production facilities, or a licence.
An impairment loss is recognised
when the carrying amount exceeds
the recoverable amount of an asset.
The recoverable amount is the higher
of the asset’s fair value less costs of
disposal and its value-in-use. The value-
in-use is determined by reference to
discounted future cash ows expected
to be generated by the asset.
In assessing value-in-use, the estimated
future cash ows are discounted to
their present value using a pre-tax
discount rate that reects current
market assessments of the time value
of money and the risks specic to
the asset. In determining fair value
less costs of disposal, recent market
transactions are taken into account. If
no such transactions can be identied,
an appropriate valuation model is used.
These calculations are corroborated
impairment of technical goodwill
is expected on a recurring basis,
unless there are positive changes in
underlying assumptions that more
than offset the production from the
cash-generating-unit (or groups of
cash-generating-units). Impairment is
recognised if the recoverable amount
of the cash-generating-unit (or groups
of cash-generating-units) to which the
technical goodwill is related is less than
the carrying amount. Impairment of
goodwill cannot be reversed in future
periods.
When performing the impairment test
for technical goodwill, deferred tax
recognised in relation to the acquired
assets in a business combination
reduces the net carrying value
prior to the impairment charges.
When deferred tax from the initial
recognition decreases, more goodwill
is exposed for impairment. After
initial recognition, depreciation of
values calculated in the purchase price
allocations from business combinations
will result in decreased deferred tax
liability.
Financial Instruments
A nancial instrument is any contract
that gives rise to a nancial asset of
one entity and a nancial liability or
equity instrument of another entity.
Financial instruments are initially
recognised at fair value. After initial
recognition the measurement and
accounting treatment depend on the
type of instrument and classication.
Financial instruments that are not
derivatives consist of trade receivables
and other receivables, cash and cash
equivalents, loans, trade payables and
other payables.
Financial assets
Financial assets are classied at
initial recognition, and subsequently
measured at:
•
Amortised cost;
•
Fair value through other
comprehensive income
(“FVTOCI”); and
•
Fair value through prot or loss
(“FVTPL”).
by valuation multiples, quoted share
prices for publicly traded companies or
other available fair value indicators.
Goodwill is tested as part of the cash-
generating-unit.
When performing the impairment test
for technical goodwill, deferred tax
recognised in relation to the acquired
licences reduces the net carrying value
prior to the impairment charges.
Except for goodwill, a previously
recognised impairment loss is reversed
through prot or loss only if there has
been a change in the estimates used
to determine the recoverable amount.
It is not reversed to an amount that
would be higher than if no impairment
loss had been recognised. After such
a reversal, the depreciation charge is
adjusted in future periods to allocate
the asset’s revised carrying amount,
less any residual value, on a systematic
basis over its remaining useful life.
Impairment of Technical Goodwill
Although not an IFRS term, “technical
goodwill” is commonly used in the
oil and gas industry to describe a
category of goodwill arising as an
offsetting amount to deferred tax
recognised in business combinations.
DNO has recognised a signicant
technical goodwill arising from
business combinations. There are
no specic IFRS guidelines about
the allocation of technical goodwill,
and the DNO Group has therefore
applied the general guidelines for
allocating goodwill for the purpose
of impairment testing. In general,
technical goodwill is allocated to a
cash-generating-unit or group of cash-
generating-units that give rise to the
technical goodwill, while any residual
goodwill may be allocated across all
cash-generating-units based on facts
and circumstances in the business
combination.
Technical goodwill is subject to
impairment testing annually or
whenever there is an indicator that
the cash-generating-unit (or groups
of cash-generating-units) to which
it is allocated is impaired. Moreover,
goodwill is not depreciated and hence,
2. Summary of Signicant
Accounting Policies (continued)
76
RAK Petroleum
plc
Financial Assets at Amortised Cost
Financial assets are measured at
amortised cost if both of the following
conditions are met:
•
The nancial asset is held within a
business model with the objective
to hold nancial assets in order to
collect contractual cash ows; and
•
The contractual terms of the
nancial asset give rise on
specied dates to cash ows that
are solely payments of principal
and interest on the principal
amount outstanding.
Financial assets at amortised cost are
subsequently measured using the
effective interest rate (EIR) method
and are subject to impairment. Gains
and losses are recognised in prot or
loss when the asset is derecognised,
modied or impaired. The Group’s
nancial assets at amortised cost
include trade and other receivables.
Financial Assets Designated at FVTOCI
Upon initial recognition, equity
investments can be irrevocably
classied as equity instruments
designated at FVTOCI. Gains and
losses on these nancial assets are
not recycled to prot or loss at
later periods. Equity instruments
designated at FVTOCI are not subject
to impairment assessment.
Financial Assets Designated at FVTPL
Financial assets designated at FVTPL
include nancial assets held for
trading, nancial assets designated
upon initial recognition at FVTPL or
nancial assets mandatorily required
to be measured at fair value. Financial
assets designated at FVTPL are carried
in the statements of nancial position
at fair value with net changes in fair
value recognised in prot or loss.
Dividends on listed equity investments
are also recognised as other income
in prot or loss when the right of
payment has been established. The
Group does not have signicant assets
designated at FVTPL.
Impairment of Financial Assets
An allowance is recognised for
expected credit losses (“ECL”s) for all
debt instruments not held at FVTPL.
ECLs are based on the difference
between the contractual cash ows
due in accordance with the contract
and all the cash ows that are
expected to be received, discounted
at an approximation of the original
effective interest rate.
ECLs are recognised in two stages. For
credit exposures with no signicant
increase in credit risk since initial
recognition, ECLs are provided for
credit losses that result from default
events that are possible within the next
12 months. For credit exposures with
signicant increase in credit risk since
initial recognition, a loss allowance
is provided for credit losses expected
over the remaining life of the exposure,
irrespective of the timing of the
default.
For trade receivables a simplied
approach is applied in calculating ECLs.
Changes in credit risk are not tracked
but instead a loss allowance based on
lifetime ECLs at each reporting date is
recognised.
Expected credit losses are based on a
multifactor and holistic analysis and
will depend on historical experience
with the customers adjusted for
forward-looking factors specic to
the customers and the economic
environment.
Financial assets are assessed with
regards to default when contractual
payments are past the established
payment due date and there is internal
or external information indicating
that the Group is unlikely to receive
the outstanding contractual amounts
in full. A nancial asset is written
off when there is no reasonable
expectation of recovering the
contractual cash ows.
Derecognition of Financial Assets
and Liabilities
A nancial asset is derecognised when:
•
The Group no longer has the right
to receive cash ows from the
asset;
•
The Group retains the right to
receive cash ows from the asset
but has assumed an obligation to
pay them in full without material
delay to a third party under a pass-
through arrangement; or
•
The Group has transferred its
rights to receive cash ows
from the asset and either has
transferred substantially all the
risks and rewards of the asset
or has neither transferred nor
retained substantially all the risks
and rewards of the asset but has
transferred control of the asset.
A nancial liability is derecognised
when the obligation under the liability is
discharged, cancelled or expires. A bond
loan is derecognised when it is repaid.
Financial Liabilities
Financial liabilities are classied at
initial recognition as nancial liabilities
at FVTPL, loans and borrowings or
payables.
All nancial liabilities are recognised
initially at fair value and, in the case of
loans/borrowings and payables, net of
directly attributable transaction costs.
The Group’s nancial liabilities include
trade and other payables and loans.
The subsequent measurement of
nancial liabilities depends on the
classication. No nancial liabilities
have been designated at FVTPL.
Interest-bearing loans are after initial
recognition measured at amortised
cost using the effective interest
rate method. Gains and losses are
recognised in prot or loss when the
liabilities are derecognised as well as
through the amortisation process.
Amortised cost is calculated by taking
into account any discount or premium
on acquisition and fees or costs that
are an integral part of the effective
interest rate. The amortisation cost
is included as nance expense in the
statements of comprehensive income.
This applies mainly to bond loans (see
Note 21).
2. Summary of Signicant
Accounting Policies (continued)
77
Exchange and Modication of Debt
Instruments
An exchange between an existing
borrower and lender of debt
instruments with substantially
different terms is accounted for as an
extinguishment of the original nancial
liability and the recognition of a new
nancial liability. Similarly, a substantial
modication of the terms of an existing
nancial liability or a part of it (whether
or not attributable to the nancial
difculty of the debtor) is accounted
for as an extinguishment of the original
nancial liability and the recognition of
a new nancial liability.
If an exchange of debt instruments or
modication of terms is accounted for
as an extinguishment, any costs or fees
incurred are recognised as part of the
gain or loss on the extinguishment. If
the exchange or modication is not
accounted for as an extinguishment,
any costs or fees incurred adjust the
carrying amount of the liability and are
amortised over the remaining term of
the modied liability.
Cash and Cash Equivalents
For purposes of the consolidated
statement of cash ows, cash and cash
equivalents consist of cash in hand,
bank balances and short-term deposits
with an original maturity of three
months or less.
Share Capital/Equity
Ordinary Shares
Ordinary shares are classied as equity.
Preference Shares
In determining whether a preference
share is a nancial liability or an equity
instrument, the Group assesses the
particular rights attached to the share
to determine whether it exhibits
the fundamental characteristics of a
nancial liability. Preference shares
which are mandatorily redeemable or
redeemable at the holders’ option are
classied as liabilities. Preference shares
which are redeemable only at the
issuer’s option or not redeemable are
classied as equity.
Incremental costs directly attributable
to the issue of new ordinary shares
2. Summary of Signicant
Accounting Policies (continued)
estimated selling price in the ordinary
course of business, less the estimated
costs of completion and estimated
selling expenses.
Revenue Recognition
Oil and Gas Revenue
Revenues presented in the statement
of comprehensive income consist
of Revenue from contracts with
customers and Other revenues. The
split is disclosed in Note 5.
Revenue from contracts with
customers is recognised when the
customer obtains control of the oil and
gas, which normally will be when title
passes at point of delivery.
A liability (overlift) arises when the
Group sells more than its share of
the production. Similarly, an asset
(underlift) arises when the sale is
less than the Group’s share of the
production. The overlift/underlift
balances are valued at production
cost including depreciation (the
sales method). The movements in
overlift/underlift are presented as an
adjustment to Cost of goods sold.
Tariff Income
Tariff income from processing of oil
and gas in the North Sea is recognised
as earned in line with underlying
agreements.
Service Income
Revenues from services are recognised
by the Company when the service has
been performed.
Dividend Income
Dividend income is recognised by the
Company when the right to receive
payment is established.
Other Revenues
Other revenues are recognised when
the goods or services are delivered and
risk and control are transferred.
Revenue Recognition in Kurdistan
DNO generates revenues in the
Kurdistan region of Iraq (“Kurdistan”)
through the sale of oil produced
or options are shown in equity as a
deduction from the proceeds, net of
any tax effects.
Treasury Shares
The Company’s own equity instruments
that are reacquired (“treasury shares”)
by the Company or subsidiaries are
recognised at cost and deducted from
equity. No gain or loss is recognised
in prot or loss of the purchase, sale,
issue or cancellation of the Group’s
own equity instruments. Any difference
between the carrying amount and the
consideration, if reissued, is recognised
in equity.
Dividend
Liability to pay a dividend is recognised
when the distribution is authorised
by the shareholders. A corresponding
amount is recognised directly in equity.
Financial Income and Expenses
Financial income comprises interest
income, dividend income, gains on the
disposal of nancial investments and
changes in the fair value of nancial
assets measured at fair value through
prot or loss and other nancial
income. Interest income is recognised
as it accrues in prot or loss using the
effective interest method. Dividend
income is recognised in prot or loss
on the date that the Company’s or
the Group’s right to receive payment
is established, which in the case of
quoted securities is the ex-dividend
date.
Financial expenses comprise interest
expenses on borrowings, unwinding
of the discount on provisions, changes
in the fair value of nancial assets
measured at fair value to prot or
loss, impairment losses recognised
on nancial assets, foreign exchange
losses, losses on nancial assets
recognised in prot or loss and other
nancial expenses.
Foreign exchange gains or losses from
nancial instruments are reported as
nancial income or nancial expenses.
Inventories
Inventories, other than inventories of
oil, are valued at the lower of cost and
net realisable value. Cost is determined
by the rst-in, rst-out (“FIFO”)
method. Net realisable value is the
78
RAK Petroleum
plc
from the Tawke licence and which is
exported by pipeline through Turkey
by the KRG. The title is considered
to have passed on delivery of oil to
the export pipeline at Fish Khabur. In
addition, pursuant to a receivables
settlement agreement with the KRG
in August 2017, DNO is entitled to
production overrides representing
three percent of gross Tawke licence
revenues until 31 July 2022. The DNO
Group recognises revenue in Kurdistan
in line with the invoiced oil sales and
overrides following monthly deliveries
to the KRG.
The production sharing contracts
(”PSC”s) held by the Group are
considered to be within the scope of
the standard and sale of oil and gas
to customers is recognised as Revenue
from contracts with customers. Based
on business practice, the KRG is
responsible for exporting oil produced
in Kurdistan and it is assessed that
DNO has a customer relationship with
the KRG. It is considered that the
contracts with customers contain a
single performance obligation which is
considered to be delivery of produced
oil and gas to the customer.
The price for oil deliveries to the KRG is
based on Brent prices with adjustments
for oil quality and transportation fees.
Production Sharing Contracts
A PSC is an agreement between a
contractor and a host government,
whereby the contractor bears all of
the risk and costs for exploration,
development and production in return
for a stipulated share of production.
The contractor recovers the sum of its
investment and operating costs from a
percentage of production (“cost oil”).
In addition, the contractor is entitled to
receive a share of production in excess
of cost oil (“prot oil”). The sum of
cost oil attributable to the contractor`s
share of costs and share of prot oil
represents the contractor`s entitlement
under a PSC. The sum of royalties and
the government’s share of prot oil,
including that of a governmentally
controlled enterprise, represents the
government take under a PSC.
2. Summary of Signicant
Accounting Policies (continued)
DNO presents its operations governed
by PSCs according to the sales method
and the Group only recognises its
sales as revenue after deduction of
government take.
Current and Deferred Income Tax
Tax income/(expense) consists of taxes
receivable/(payable) and changes in
deferred taxes. Taxes payable/receivable
are based on the amounts receivable
from or payable to the tax authorities.
Deferred tax liability is calculated on all
taxable temporary differences unless
there is a recognition exception.
Deferred tax assets and deferred tax
liabilities are recognised irrespective
of when the differences are reversed.
They are recognised at their nominal
value and classied as non-current
assets/liabilities in the statement of
nancial position. Taxes payable and
deferred tax are recognised directly in
the equity to the extent that they relate
to items charged directly to equity.
A deferred tax asset is recognised
only to the extent that it is probable
that the future taxable income will be
available against which the asset can
be utilised. Unrecognised deferred tax
assets are re-assessed at each reporting
date and are recognised to the extent
that it has become probable that
future taxable prots will allow the
deferred tax asset to be recovered.
Deferred tax assets and deferred tax
liabilities are offset in the statements
of nancial position if there is a legal
right to settle current tax amounts on a
net basis and the deferred tax amounts
are levied by the same taxing authority
on the same entity or different entities
that intend to realise the asset and
settle the liability at the same time.
Some PSCs provide that the corporate
income tax to which the contractor
is subject is deemed to have been
paid to the government as part
of the payment of prot oil to the
government or its representatives.
For accounting purposes, if such
notional income tax is to be classied
as income tax in accordance with
the IAS 12, the Group would present
this as an income tax expense with a
corresponding increase in revenues.
This is an accounting presentation issue
with no net impact on the statement
of comprehensive income statement.
Furthermore, it would be assessed
whether any deferred tax asset or
liability is required to be recognised
equal to the difference between
book values and the tax values of
the qualifying assets and liabilities,
multiplied by the applicable tax rate.
The current income tax charge is
calculated on the basis of the tax
laws enacted or substantively enacted
at the balance sheet date in the
countries where the Company and
its subsidiaries operate and generate
taxable income.
Management periodically evaluates
positions taken in tax returns with
respect to situations in which
applicable tax regulation is subject to
interpretation. It establishes provisions
where appropriate on the basis of
amounts expected to be paid to the
tax authorities.
Employee Benets
Pensions
The Group’s pension obligations in
Norway and Australia are limited to
certain dened contribution plans
which are paid to pension insurance
plans/superannuation funds and
charged to prot or loss in the period
in which they are incurred. Once the
contributions are paid there are no
further obligations.
Bonus Plans
The Group recognises the expected
cost of employee bonus payments
when, and only when, the Group has a
present legal or constructive obligation
to make such payment as a result of
past events and a reliable estimate of
the obligation can be made.
Provisions and Contingent
Liabilities
Provisions
A provision is recognised when the
Group has a present obligation (legal
or constructive) as a result of a past
event, it is likely that an outow of
resources will be required to settle the
obligation and a reliable estimate can
be made of the obligation amount.
79
When the Group expects some or all
of a provision to be reimbursed, for
example under an insurance contract,
the reimbursement is recognised
as a separate asset, but only if the
reimbursement is virtually certain. The
expense related to any provision is
presented in prot or loss, net of any
reimbursement (if recognised in the
same period). Provisions are reviewed
at each statement of nancial position
date and adjusted to reect the current
best estimate.
The amount of the provision is the
present value of the risk-adjusted
expenditures expected to be required
to settle the obligation, determined
using the estimated risk-free interest
rate and a credit margin as the
discount rate. Where discounting
is used, the carrying amount of the
provision increases in each period to
reect the unwinding of the discount
by the passage of time. This increase is
recognised as other nancial expenses.
Contingent liabilities are not recognised
but are disclosed unless the possibility of
an outow of resources is remote.
Asset Retirement Obligations
(Decommissioning)
Provisions for decommissioning
liabilities for oil and gas production
facilities are initially recognised at the
present value of the estimated future
expenditure determined in accordance
with local conditions and requirements.
A corresponding tangible xed asset
(included in PP&E) of an amount
equivalent to the provision is also
recognised initially. This is subsequently
depreciated as part of the capital costs
of the production and transportation
facilities.
The asset retirement obligation
provisions and the discount rates
are reviewed at each balance sheet
date. The discount rates used in the
calculation of the present value of
the asset retirement obligation is a
pre-tax risk-free discount rate with
the addition of a credit margin. The
risk-free rate used has a maturity date
3. Critical Accounting
Judgements and Estimates
The preparation of nancial
statements in conformity with IFRSs
requires management to make
judgements and estimates that
affect the application of policies
and reported amounts of assets and
liabilities, the disclosure of contingent
assets and liabilities at the date of the
nancial statements and the reported
amounts of revenues and expenses
during the reporting periods.
Estimates and judgements are
continually evaluated and are based
on historical experience and other
factors, including expectations of
future events that are believed to be
reasonable under the circumstances.
3.1 Critical Judgements
in Applying the Group’s
Accounting Policies
Control Over DNO
The Group accounts for its
shareholding in DNO as a subsidiary.
This is a matter of signicant
judgement and is therefore subject to
uncertainty and challenge. In making
this judgement, the Group evaluated
whether its existing rights, in the form
of less than the majority of the voting
rights, give it the current ability to
direct the activities that signicantly
affect the investment returns of DNO.
In making that judgement, the Group
took into account that (i) the Group’s
year-end 2021 shareholding of 44.94
percent in DNO is by far the largest,
with the next 19 largest shareholders
holding approximately 16 percent
of the shares in aggregate and the
remaining shareholdings are dispersed,
(ii) the Company’s Executive Chairman
is also the DNO Executive Chairman,
and (iii) the relevant activities are
directed by the DNO Board of Directors
and three of the ve members of
the DNO Board of Directors are
independent from the Group.
Prior to 2017, the Group had
concluded that there were barriers
that would prevent the Group from
exercising its voting rights in such
a manner as to attempt to exercise
control over DNO or assert that it has
that is expected to coincide with the
time the removal will be affected and
denominated in the same currency
as the expected future expenditures.
According to International Financial
Reporting Interpretations Committee
("IFRIC") 1 Changes in Existing
Decommissioning, Restoration and
Similar Liabilities, changes in the
measurement of the asset retirement
obligation resulting from a change in
the timing or amount of the outow
of resources embodying economic
benets required to settle the
obligation, or a change in the discount
rate, are added to or deducted from
the cost of the related asset. Changes
in the estimated asset retirement
obligation provisions will impact the
cost of the related asset retirement
in the period in which the estimate is
revised.
Earnings Per Share
The calculation of basic earnings per
share is based on the prot attributable
to ordinary shareholders of the parent
using the weighted average number
of shares outstanding during the year
after deduction of the average number
of treasury shares held over the period.
The calculation of diluted earnings per
share is consistent with the calculation
of basic earnings per share, while
giving effect to all dilutive potential
ordinary shares that were outstanding
during the period.
Related Parties
Parties are related if one party has the
ability to directly, jointly or indirectly
control the other party or exercise
signicant inuence over the party
in making nancial and operating
decisions. Management is also
considered to be a related party.
Transactions between related parties
are transfers of resources, services or
obligations, regardless of whether
a price is charged. All transactions
between related parties are recorded at
market value.
New Standards not yet Adopted
There are no standards and
interpretations issued but not yet
effective expected to have a signcant
impact on the Group.
2. Summary of Signicant
Accounting Policies (continued)
80
RAK Petroleum
plc
the ability to control DNO and the
Group’s voting rights therefore did
not provide the practical ability to
direct the activities of DNO. While this
represented a signicant judgement,
the Group was also cognisant of the
requirements of IFRS 10, which states
that if it is not clear that an investor
has power, the investor does not
control the investee. Accordingly, the
Group previously concluded that it
did not control DNO and therefore
historically accounted for DNO as an
Associate.
Upon re-examination of the factors
that inuence that decision following
discussion with a Review Group of
the UK’s Financial Reporting Council
(“FRC”) during 2017, the Group
determined in 2017 to account for
DNO on a consolidated basis rather
than utilising the equity method of
accounting that it had applied in prior
years. The share of prot attributable
to the Company’s shareholders is not
materially affected by this change
in accounting method, however the
presentation and statement of nancial
position is affected. This treatment was
reafrmed for the period ending 31
December 2021.
DNO’s nancial statements are
reported in its various public lings,
including its Annual Report and
Accounts for 2021, which is available
at www.dno.no.
As required by IFRS 10, the Group
monitors its judgement in this area on
a continuous basis.
Notional Corporate Income Tax/
Deferred Tax Liability in Kurdistan
Under the terms of the PSCs in
Kurdistan, DNO is not required to
pay any corporate income taxes.
The share of prot oil of which the
government is entitled to is deemed
to include a portion representing the
notional corporate income tax paid
by the government on behalf of the
contractors. Current and deferred
taxation for accounting purposes
arising from such notional corporate
3. Critical Accounting
Judgements and Estimates
(continued)
income tax is not recognised for
Kurdistan, as there is uncertainty
related to the tax laws of Kurdistan
and there is currently no well-
established tax regime for international
oil companies. As such, it has not
been possible to measure reliably
such notional corporate income tax
paid on behalf of DNO and it is the
judgement of management that until a
well-established tax regime is in place,
the Group will not record a deferred
tax liability. This is an accounting
presentational matter and there is no
corporate income tax required to be
paid. For further details, see Note 10.
Climate Considerations in
Impairment Assessment
Climate change and transition to a
lower carbon economy is considered
in preparing the Consolidated
and Parent Company Financial
Statements, most signicantly
in relation to the impairment
assessments and related disclosures.
In estimating the recoverable values
of the Group’s non-current assets,
including oil and gas assets, certain
climate considerations are factored
into the Group’s estimation of
cash ows that are applied in the
calculation of recoverable amount.
This includes factoring in current
legislation in Norway and the UK
(e.g., environmental taxes/fees)
and estimation of future levels of
environmental taxes. An energy
transition is likely to impact the future
oil and gas prices which in turn may
affect the recoverable amount of the
oil and gas assets. Indirectly, climate
considerations are also assessed in the
forecasting of oil and gas prices where
supply and demand are considered. A
signicant reduction in the Company’s
oil and gas price assumptions would
result in impairments on certain
production and development assets
including intangible assets that are
subject to impairment assessment
under IAS 36, but an opposite revision
in the price assumptions would lead
to limited impairment reversals as
most of the impairments recognised
were related to impairment of
goodwill which cannot be reversed
under IFRS.
In preparing sensitivity analysis (for
disclosure purposes) of the oil and gas
assets against the scenarios from the
International Energy Agency (“IEA”),
the Company has applied the Stated
Policies Scenario and Sustainable
Development Scenario as published
by the IEA as part of the World Energy
Outlook (“WEO”) reports. These
scenarios are commonly applied by
peer companies and the Company
believes are useful to investors and
other stakeholders in assessing
portfolio resilience across companies
in the industry. For more details, see
Note 12.
Measurement of Fair Values
Fair value is the price that would
be received to sell an asset or paid
to transfer a liability in an orderly
transaction between market
participants at the measurement date
(IFRS 13 Fair Value Measurement). The
fair value of an asset or a liability is
measured using the assumptions that
market participants would use when
pricing the asset or liability, including
assumptions about risk, assuming
that market participants act in their
economic best interest. There are
situations when the Group is required
to measure fair values of non-nancial
assets and liabilities, for example
when investing in equity instruments,
in a business combination including
allocation of purchase price or when
the Group measures the recoverable
amount of an asset at fair value less
costs to sell in an impairment testing
situation.
Fair value measurement of a non-
nancial asset takes into account a
market participant’s ability to generate
economic benets by using the asset
in its highest and best use or by selling
it to another market participant that
would use the asset in its highest and
best use.
The Group uses valuation techniques
that are appropriate in the
circumstances and for which sufcient
data are available to measure fair
value. The fair value of oil and gas
81
assets is normally based on discounted cash ow models (income approach) where the determination of different
inputs in the model requires signicant judgement from management.
When determining the fair value of exploration and appraisal assets (“E&A assets”) as well as development and
production assets (“D&P assets”) for acquisition accounting and subsequent impairment testing purposes, the Group
has included future cash ows from risked contingent resources. The Group is of the view that this generally reects
the industry valuation practice of some market participants, although the extent of risking these remains judgemental.
Accounting for Exploration Costs
The Group’s accounting policy is to temporarily capitalise drilling expenditures related to exploration wells, pending
an evaluation of potential oil and gas discoveries. If resources are not discovered, or if recovery of the resources is not
considered technically or commercially viable, the costs of the exploration wells are expensed in the income statement.
Decisions as to whether an exploration well should remain capitalised or expensed during the period may have a
material effect on the nancial results for the period.
Asset Retirement Obligation
IAS 37 does not address whether an entity’s own credit risk should be considered a risk specic to a liability when
determining a risk-adjusted discount rate. The Group determined that predominant practice among Norwegian peer
companies is to include own credit risk and therefore has increased the (previously risk-free) asset retirement obligation
discount rate accordingly. The Group has not changed this practice in the current year.
3.2 Critical Accounting Estimates
Accounting estimates are employed in the Consolidated and Parent Company Financial Statements to determine
reported amounts as detailed below. Although these estimates are based on management’s best knowledge of
historical experience, current events and actions, actual results may differ from these estimates. The estimates and
the underlying assumptions are reviewed on an ongoing basis. Changes in estimates will be recognised when new
estimates are available and at least at every statement of nancial position date.
Estimates
The key sources of estimation uncertainty for the Group are:
Key sources of estimation uncertainty Main impact on accounting estimates
Oil and Gas Price DD&A, goodwill impairment, PP&E impairment, E&A assets impairment, investment
in Joint Venture impairment, deferred tax asset recognised
Risks associated with operating in Kurdistan Goodwill impairment, PP&E impairment, E&A assets impairment, revenue
recognition, and measurement of trade receivables
Reserves and resources estimates DD&A, goodwill impairment, PP&E impairment, E&A assets impairment, investment
in Joint Venture impairment, share of prot in Joint Venture, deferred tax asset
recognised
Contingencies, provisions and litigations Asset retirement obligation
Estimation of Future Cash Flows from Operations
The Group has signicant investments in Foxtrot International and DNO, including goodwill. Changes in the
circumstances or expectations of future performance of an individual asset or a group of assets may be an indicator
that the asset is impaired, requiring the carrying amount to be written down to its recoverable amount. Management
must determine whether there are circumstances indicating a possible impairment of the investments or of goodwill
and conduct an annual goodwill impairment test. The estimation of the recoverable amount for the underlying oil and
gas assets includes assessments of expected future cash ows and future market conditions, including entitlement
production, oil and gas prices, cost proles, country risk factors, discount rate and the date of expiration of the licences.
3. Critical Accounting Judgements and Estimates (continued)
82
RAK Petroleum
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Impairments are reversed if conditions
for impairment are no longer present
(except for goodwill). Evaluating
whether an asset is impaired or if
an impairment should be reversed
requires a high degree of estimation.
Refer to Note 12, 13 and 14 for
further details.
Risks Associated with Operating in
Kurdistan
DNO has interests in two licenses
in Kurdistan through PSCs and has
based its entitlement calculations on
the terms of these PSCs. In 2012, the
Federal Government of Iraq (“FGI”)
challenged the constitutional validity
of the Kurdistan Regional Oil and
Gas Law No. 27/2007 (“KOGL”)
and the right of the KRG to export
oil independently of the FGI. The
Company notes from public reports
that on 15 February 2022, the Federal
Supreme Court of Iraq (“FSCI”)
ruled on this matter along with
another related matter dating back
to 2019. Reportedly, the FSCI found
amongst other things that the KOGL
is unconstitutional, that the KRG is
to hand over all oil production from
areas located in the Kurdistan region
of Iraq to the FGI and that the FGI has
the right to pursue the nullity of the
oil contracts concluded by the KRG.
DNO was not a party to the legal
proceedings, and it is unclear how the
KRG and the FGI will follow up on the
ruling. At present, normal operations
are maintained at the Tawke and
Baeshiqa licences.
Historically, as a result of the
disagreements between the FGI and
the KRG, economic conditions in
Kurdistan and limited available export
channels, DNO has faced constraints
in fully monetising the oil it produces
in Kurdistan. There is no guarantee
that oil and gas can be exported
in sufcient quantities or at prices
required to sustain its operations and
investment plans or that the DNO
Group will promptly receive its full
entitlement payments for the oil and
gas it delivers for export. Export sales
have not always followed the PSC
terms and there has been uncertainty
related to receipt of payments.
The DNO Group has accumulated
a receivable against the KRG after
certain 2019 and 2020 entitlement
and override payments to the DNO
Group and other Kurdistan based
oil exporters were withheld early in
2020 by the KRG in connection with
the Covid-19 pandemic. Entitlement
payments were resumed in March
2020 and override payments were
resumed in early 2021. In December
2020, a plan was put in place by
the KRG to pay the international oil
companies operating in Kurdistan
50 percent of incremental revenue
in any month in which Brent prices
exceed USD 50 per barrel towards
the arrears for 2019 and 2020. In
May 2021, the KRG informed the
international oil companies of revised
terms reducing the payment of the
arrears to 20 percent of incremental
revenue in any month in which
Brent prices exceed USD 50 per
barrel. The KRG also advised that all
international oil company invoices,
including towards the arrears, will be
settled within 60 days of receipt. DNO
expects at a minimum to recover the
full nominal value of the withheld
receivables, and DNO continues to
work to improve the terms of recovery
of the arrears, including but not
limited to interest payments. During
2021, the outstanding arrears were
reduced from USD 259.0 million at
the start of the year to USD 169.1
million at year-end. See Notes 16 and
27 for further details on estimates
and judgement on recoverability.
Management monitors developments
and continuously ensures that the
revenue recognition criteria in IFRS 15
are met.
Reserves and Resources Estimates
Reserves and contingent resources
volumes have been estimated and
classied in accordance with the
rules and guidelines of the Petroleum
Resource Management System
framework as approved by the
Society of Petroleum Engineers and
in the case of DNO are in conformity
with requirements from the Oslo
Børs for the reporting of reserves
and resources. All estimates of oil
and gas reserves and resources
involve uncertainty. The DNO
Group’s estimates are based on
internal assessment where DNO is
the operator in a licence and based
on information received from the
operators where DNO is partner in
a licence. In addition, international
petroleum consultants DeGolyer and
MacNaughton have carried out an
independent assessment of the Tawke
licence (containing the Tawke and
Peshkabir elds) and the Baeshiqa
licence (containing the Baeshiqa
and Zartik structures) in Kurdistan.
International petroleum consultants
Gaffney, Cline & Associates have
carried out an independent audit of
the DNO Group’s licences in Norway
and the United Kingdom. The DNO
Group has internally assessed their
remaining assets (Yemen Block 47
contingent resources). Independent
assessment of Foxtrot International’s
elds has been carried out by
Gaffney, Cline & Associates in 2016
with internal updates by Foxtrot
International since that time.
Important factors that could cause
actual results to differ from the
estimates include, but are not
limited to: technical, geological
and geotechnical conditions;
economic and market conditions;
oil and gas prices; changes in
government regulations; political
developments; interest rates; and
currency exchange rates. Specic
parameters of uncertainty related to
the eld/reservoir include, but are
not limited to: reservoir pressure and
porosity; recovery factors; water cut
development; production decline
rates; gas/oil ratios; and oil properties.
Analogy to similar elds and reservoirs
has been applied when production
history and information are limited
and/or the eld/reservoir has a
complex structure. The uncertainty
span is larger for elds/reservoirs
3. Critical Accounting
Judgements and Estimates
(continued)
83
with limited eld information and
production history compared to elds/
reservoirs with longer production
history. The contractors’ entitlement
to annual production is determined
based on the PSCs and is subject to
audit and conrmation by the relevant
government authority in each country
of operation.
Future development costs (both
committed and uncommitted) are
estimated using assumptions as to the
number of wells required to produce
the commercial reserves, the cost of
such wells and associated production
facilities and other capital costs.
Changes in commodity prices and
cost may impact economic cut-
off and remaining reserves, which
may change the timing of assumed
decommissioning activities. Future
changes to estimated reserves
can also have a material effect on
depreciation, impairment of oil and
gas elds and operating results.
The Group may also not be able to
commercially develop its contingent
resources that are used in impairment
assessments or acquisition accounting
where the fair value approach is
applied.
Contingencies, Provisions and
Litigations
By their nature, contingencies will
only be resolved when one or more
uncertain future event occurs or
fails to occur. The assessment of the
existence and potential quantum
of contingencies inherently involves
the exercise of signicant judgement
and the use of estimates regarding
the outcome of future events.
Management uses its judgement to
evaluate certain provisions and legal
disputes in order to ensure the correct
accounting treatment. This includes
the assessment of future asset
retirement obligations, any provisions
or contingent payments.
3. Critical Accounting
Judgements and Estimates
(continued)
Asset retirement obligations
The Group has recognised
signicant provisions relating to the
decommissioning of oil and gas
assets at the end of the production
period. Obligations associated
with decommissioning assets are
recognised at present value of
future expenditures on the date they
incur. At the initial recognition of
an obligation, the estimated cost is
capitalised as PP&E and depreciated
over the useful life of the asset
(typically by unit-of-production).
It is difcult to estimate the costs
for decommissioning at initial
recognition as these estimates are
based on currently applicable laws
and regulations and technology.
Decommissioning activities will often
take place in the distant future,
and the technology, regulatory
requirements and related costs may
change. The energy transition may
bring forward the decommissioning
activities and thereby increase
the present value of associated
decommissioning provisions.
Based on analysis of various scenarios,
management does not expect any
reasonable change in the expected
timeframe to have a material effect
on the Group’s decommissioning
provisions, assuming cost estimates
(i.e., cash ows) remain unchanged.
The estimates cover expected removal
concepts based on known technology
and, in the case of offshore
decommissioning, estimated costs of
maritime operations, hiring of heavy-
lift barges and drilling rigs. As a result,
the initial recognition of the liability
and the capitalised cost associated
with decommissioning obligations,
and the subsequent adjustment of
these balance sheet items, involve the
application of signicant estimation.
Based on the described uncertainty,
there may be signicant adjustments
in estimates of liabilities that can
affect future nancial results.
RAK Petroleum
plc
84
Executive management monitors the operating results of its business segments separately for the purpose of making
decisions about resource allocation, investment decisions and performance assessment (the Executive Chairman of
the Board of Directors acts as the Chief Operating Decision Maker). Segment performance is evaluated based on the
prot or loss including share price and is measured consistently with the net prot or loss in the Consolidated Financial
Statements.
Operating and Reportable Segments
For management purposes, the Group is organised into two operating segments that are also reportable segments:
•
DNO (Subsidiary)
•
Foxtrot International (Joint Venture with interest held through Mondoil Enterprises’ 50 percent ownership of
Mondoil Côte d’Ivoire)
“Others” are reconciling items including head-ofce general and administrative transactions and balances that do not
constitute separate operating segments.
The following tables include revenue, net prot and other segment information for the years ended 31 December 2021
and 2020. Assets and liabilities information regarding business segments is presented at 31 December 2021 and 2020.
USD million
DNO
Mondoil
Côte d’Ivoire Others Eliminations Total
Year ended 31 December 2021:
Comprehensive Income Information:
External sales 1,004.1 - - - 1,004.1
Cost of goods sold (443.1) - - - (443.1)
Gross prot 561.0 - - - 561.0
Share of prot of a Joint Venture - 16.0 - - 16.0
Other operating income 0.5 3.3 (0.1) 3.7
Administrative expenses (5.6) 0.1 (33.7)
(28.2)
-Impairment reversal/(impairment) of oil and gas assets,
exploration assets and goodwill - - (80.1)
(80.1)
-Exploration costs expensed (132.3) - - - (132.3)
Segment operating result 320.9 16.0 (2.3) - 334.6
Net nance costs (incl. interest) (100.7) - 0.1 - (100.6)
Tax income/(expense) (16.3) - - - (16.3)
Net prot/(loss) 203.9 16.0 (2.2) - 217.7
Financial Position Information:
Capital expenditures
Non-current assets* 1,670.4 87.6 223.1 (16.2) 1,964.9
Current assets 1,277.3 - 36.1 (0.1) 1,313.3
Total segment assets 2,947.8 87.6 259.2 (16.3) 3,278.2
Total segment liabilities 1,929.0 - 0.3 (0.1) 1,929.1
Other Segment Information:
Sale of petroleum products** 1,004.1 - - - 1,004.1
Lifting costs (184.2) - - - (184.2)
Lifting costs/boe net production 5.3 - - - 5.3
Amortisation and depreciation (206.0) - - - (206.0)
* DNO non-current assets are split USD 679.8 million from Kurdistan and USD 964.1 million from the North Sea with USD 26.6 million unallocated or eliminated.
**DNO revenue is split USD 594.3 million from Kurdistan and USD 409.8 million from the North Sea.
4. Segment Information
85
USD million
DNO
Mondoil
Côte d’Ivoire Others Eliminations Total
Year ended 31 December 2020:
Comprehensive Income Information:
External sales 614.9 - - - 614.9
Cost of goods sold (590.0) - - - (590.0)
Gross prot 24.9 - - - 24.9
Share of prot of a Joint Venture - 0.9 - - 0.9
Other operating income - - 0.6 (0.6) -
Administrative expenses (5.8) 0.6 (12.7)
(7.5)
-Impairment reversal/(impairment) of oil and gas assets,
exploration assets and goodwill - - (276.0)
(276.0)
-Reversal of impairment of investment in Joint Venture - 3.0 - - 3.0
Impairment goodwill - - - - -
Exploration costs expensed (55.9) - - - (55.9)
Segment operating result (314.5) 3.9 (5.2) - (315.7)
Net nance costs (incl. interest) (111.2) - (0.4) - (111.6)
Tax income/(expense) 139.8 - - - 139.8
Net prot/(loss) (285.9) 3.9 (5.6) - (287.5)
Financial Position Information:
Capital expenditures 207.9 - - - 207.9
Non-current assets* 1,887.1 76.8 223.1 (12.6) 2,174.4
Current assets 821.6 - 25.3 - 847.0
Total segment assets 2,708.7 76.8 248.4 (12.6) 3,021.3
Total segment liabilities 1,863.0 - 2.2 - 1,865.4
Other Segment Information:
Sale of petroleum products** 608.9 - - - 608.9
Lifting costs (181.1) - - - (181.1)
Lifting costs/boe net production 4 .9 - - - 4 .9
Amortisation and depreciation (361.4) - - - (361.4)
* DNO non-current assets are split USD 830.5 million from Kurdistan and USD 1,031.6 million from the North Sea with USD 25.0 million unallocated or eliminated.
**DNO revenue is split USD 369.1 million from Kurdistan and USD 245.8 million from the North Sea.
During 2021, oil production from Kurdistan was delivered to the KRG for export by pipeline through Turkey. Country-
by-country reporting for companies in extractive industries in line with the Norwegian Accounting Act is available on
the DNO website for DNO’s licences.
5. Revenues
USD million
2021
2020
Sale of oil
828.1 566.6
Sale of gas
151.3 27.5
Sale of natural gas liquids (“NGL”)
21.3 14.8
Tariff income
3.4 6.0
Total revenues from contracts with customers
1,004.1 614.9
USD million
2021
2020
Sale of oil (bopd)
36,583 48,139
Sale of gas (boepd)
4,344 4,548
Sale of natural gas liquids (NGL) (boepd)
1,244 1,695
Total sales volume (boepd)
42,171 54,382
4. Segment Information
(continued)
RAK Petroleum
plc
86
In 2021, sale of oil from Kurdistan was USD 594.3 million and in the North Sea USD 233.8 million. Sale of gas was USD
151.3 million, sale of NGL was USD 21.3 million and tariff income was USD 3.4 million, all entirely from the North Sea.
Tariff and transportation income consist of charges paid by other companies for the use of infrastructure in which the
DNO Group has an ownership interest in the North Sea.
In 2020, sale of oil from Kurdistan was USD 369.1 million and in the North Sea USD 197.5 million. Sale of gas was USD
27.5 million, sale of NGL was USD 14.8 million and tariff income was USD 6.0 million, all entirely from the North Sea.
6. Cost of Goods Sold/Inventory
USD million
2021
2020
Lifting costs
(184.2) (181.1)
Tariff and transportation expenses
(34.5) (36.2)
Production cost based on produced
volumes
(218.8) (217.3)
Movement in overlift/underlift
(18.3) (11.3)
Production cost based on sold volumes
(237.0) (228.6)
Depreciation, depletion and amortisation
(206.0) (361.4)
Total cost of goods sold
(443.1) (590.0)
Lifting costs consist of expenses related to the production of oil and gas, including operation and maintenance of
installations, well intervention activities and insurances. Tariff and transportation expenses consist of charges incurred
by the DNO Group in the North Sea for the use of infrastructure owned by other companies.
USD million
2021
2020
Spare parts and drilling equipment
35.8 41.9
Total inventory
35.8 41.9
Total inventory of USD 35.8 million at year-end 2021 was related to Kurdistan (USD 18.8 million) and the North Sea
(USD 17.0 million).
Total inventory of USD 41.9 million at year-end 2020 was related to Kurdistan (USD 22.1 million) and the North Sea
(USD 9.8 million).
7. General and Administrative Expenses
USD million
2021
2020
Salaries, bonuses, etc
(58.7) (44.6)
Employers payroll tax expenses
(5.4) (5.2)
Pensions
(3.8) (3.7)
Other personnel costs
(4.2) (1.1)
Other general and administrative expenses
(45.2) (41.5)
Reclassication of salaries and social expenses to lifting
costs and exploration costs/PP&E and intangible assets
95.5 86.0
Other operating expenses
(12.0) (2.7)
Total general and administrative expenses
(33.7) (12.7)
Salaries and social expenses directly attributable to licence activities are reclassified to lifting costs and exploration costs,
or tangible assets and capitalised exploration. Other operating expenses in 2021 were mainly related to provisions in
Oman and Yemen, see Note 23.
General and administrative expenses of the Company were USD 5.6 million in 2021 (2020: USD 5.7 million).
5. Revenues
(continued)
87
Company - Average Number of People Employed
2021
2020
Average number of people employed (including executive Directors):
Management
4 4
Administration
3 3
Total average headcount
7 7
Group - Average Number of People Employed
2020
2019
Average number of people employed (including executive Directors):
Management 12 14
Other (administration, operations etc)
1,322 1,250
Total average headcount
1,334 1,264
Auditors’ Remuneration
During the year the Company and DNO obtained the following services from the Company’s auditors, Ernst & Young LLP,
DNO’s auditors, Ernst & Young AS, and their associates:
USD million
2021
2020
Audit of Company
(1.10) (1.18)
Audit of Subsidiaries
(0.88) (0.75)
Total audit
(1.98) (1.93)
Tax advisory services - DNO
(0.10) (0.05)
Other advisory services - DNO
-
(0.01)
Total non-audit
(0.10) (0.06)
Total auditors’ remuneration
(2.08) (1.99)
8. Exploration Expenses
USD million
2021
2020
G&G and eld surveys
(19.1) (16.1)
Seismic costs
(37.6) (2.9)
Exploration costs capitalised in previous years, subsequently expensed
(13.4) (0.4)
Exploration costs capitalised during the year, subsequently expensed
(40.7) (17.1)
Other exploration costs expensed
(21.5) (19.5)
Total exploration expenses
(132.3) (55.9)
Total exploration expenses of USD 132.3 million incurred by DNO in 2021 were related to activities in the North Sea,
including expensing of exploration wells previously capitalised and seismic purchase. Total exploration expenses of USD
55.9 million incurred by DNO in 2020 were mainly related to exploration activities in the North Sea, including expensing of
exploration wells previously capitalised. The Company incurred no exploration expenses directly.
9. Financial Income and Financial Expenses
USD million
2021
2020
Interest income
1.9 5.5
Other nancial income
24.3
-
Exchange rate gain, realised items
-
14.4
Total nancial income
26.2
19.9
USD million
2021
2020
Interest expenses
(74.2)
(87.8)
Currency exchange loss recognised in the income statement (net)
(5.8)
-
Other nancial expenses
(46.8) (43.7)
Total nancial expenses
(126.7) (131.5)
Net nancial income/(expenses)
(100.6) (111.6)
7. General and Administrative Expenses
(continued)
RAK Petroleum
plc
88
Other nancial expenses are almost entirely related to DNO and mainly comprise DNO’s bonds and loans fees including
amortisation of borrowing issue costs and bond repurchase premiums (USD 9.4 million in 2021, USD 7.3 million in 2020,
see Note 21), time value effects of discounting receivables (in 2021 entirely reversing the effects recognised in 2020 of
USD 16.0 million, see Note 16, and shown in nancial income) and accretion expenses (unwinding of discount) related to
asset retirement obligations and lease liabilities (USD 17.7 million in 2021, USD 17.0 million in 2020, see Note 22). Interest
expenses include USD 0.03 million of interest on the loan with Mashreq during 2021 and USD 0.5 million during 2020.
The remainder relates to interest paid by DNO on its bonds and loans.
10. Income Tax
USD million
2021
2020
Tax income/(expense)
Changes in deferred taxes
(115.2) 11.1
Income tax receivable/(payable)
98.9 128.8
Total tax income/(expense)
(16.3) 139.8
USD million
31 December 2021
31 December 2020
Income tax receivable/(payable)
Tax receivables (current)
21.1 63.1
Income tax payable
(33.1)
-
Net income tax receivable/(payable)
(11.9) 63.1
USD million
2021
2020
Reconciliation of the year’s income tax
Prot/(loss) before income tax
234.0 (427.3)
Expected income tax according to nominal tax rate in Norway, 22 percent (22 percent in 2020)
(52.4) 83.6
Expected income tax according to nominal tax rate in Norway, 56 percent (56 percent in 2020)
24.3 182.5
Expected income tax according to nominal tax rate outside Norway
7.4 19.0
Taxes paid in kind under PSCs
- -
Tax effect of Joint Venture results, reported net of tax
-
0.2
Tax effect of expenses that are not deductible in determining taxable prot
-
(0.3)
Tax effect of income not subject to tax
-
0.1
Foreign exchange variations between functional and tax currency
(4.5) (19.9)
Adjustment of previous years
0.2 0.8
Adjustment of deferred tax assets not recognised
(31.0) (17.2)
Change in previous years
-
0.4
Other items (including other permanent differences)
35.3 (110.5)
Change in tax rate
4.6 0.4
Tax loss carried forward (utilised)
-
0.7
Tax income/(expense)
(16.3) 139.8
Taxes charged to equity
- -
Expected income tax in the Norwegian special petroleum tax regime (56 percent basis) and the expected income tax
related to activities outside Norway is positive as the petroleum activities in Norway and the UK generated a loss before
tax. Other items above consist mainly of permanent differences on impairment of goodwill, which is not tax deductible,
and permanent differences on tax exempt prots/(losses) from upstream activities outside of Norway carried out by the
DNO Group’s Norwegian subsidiaries.
9. Financial Income and Financial Expenses
(continued)
89
USD million
2021
2020
Tax effects on temporary differences relate to the following items:
Tangible assets (351.5) (267.4)
Intangible assets (including capitalised exploration expenses) (168.0) (197.9)
Abandonment retirement obligation provision 266.6 313.2
Other temporary differences (8.1) (5.2)
Non-deductible interest carried forward 29.4 11.5
Tax losses carried forward 155.5 170.3
Deferred tax assets/(liabilities)
(76.0) 24.4
Valuation allowance (162.0)
(155.8)
Deferred tax assets/(liabilities)
(238.0) (131.4)
Recognised deferred tax assets
29.3 47.4
Recognised deferred tax liabilities
(267.3) (178.8)
Under the terms of the PSCs in Kurdistan, DNO’s subsidiary DNO Iraq AS is not required to pay any corporate income
taxes. The share of prot oil which the government is entitled to is deemed to include a portion representing the
notional corporate income tax paid by the government on behalf of the contractors. Current and deferred taxation
arising from such notional corporate income tax is not calculated for Kurdistan, as there is uncertainty related to the
tax laws of Kurdistan and there is currently no well-established tax regime for international oil companies. As such, it
has not been possible to reliably measure such notional corporate income taxes deemed to have been paid on behalf
of DNO. This is an accounting presentational issue and there is no tax required to be paid by DNO. For accounting
purposes, if such notional corporate income tax was to be classied as income tax in accordance with the IAS 12, it
would result in a gross up of revenues with a corresponding income tax expense with no net impact on the statement
of comprehensive income. Furthermore, it would be assessed whether any deferred tax asset or liability is required to
be recognised equal to the difference between book values and the tax values of the qualifying assets and liabilities,
multiplied by the applicable tax rate.
DNO Norge AS, a wholly-owned subsidiary of DNO which carries out the DNO Group’s activities on the Norwegian
Continental Shelf (“NCS”), is subject to the provisions of the Norwegian Petroleum Taxation Act. Revenues from
activities on the NCS are liable to ordinary corporate tax and special petroleum tax. From 1 January 2019, the general
corporate tax rate is 22 percent with additional special petroleum tax at a rate of 56 percent. In the UK the ordinary tax
rate is 19 percent with an additional special petroleum tax rate of 21 percent for the UK Continental Shelf (“UKCS”). In
the UK, the ordinary tax rate will increase to 25 percent from April 2023. This has not had any impact on the deferred
taxes as deferred tax asset has not been recognised on the carried forward losses in the ordinary tax regime in the UK.
During 2020, the Norwegian Parliament approved certain time limited changes to the taxation of oil and gas
companies operating on the NCS with effect from the income year 2020. The changes comprised of immediate
expensing of investments in the special petroleum tax regime, increased uplift on capital investments from 20.8 percent
over four years to 24.0 percent in the rst year and cash refund of tax value of losses incurred in the income years 2020
and 2021. The temporary changes, other than the cash refund of tax losses, will also apply to investment where the
Plan for Development and Operation (“PDO”) is delivered by 31 December 2022 and approved by 31 December 2023.
During 2021, the Norwegian Government proposed certain changes to the taxation of oil and gas companies operating
on the NCS with effect from 2022. Under the proposals the companies will be able to expense the investments
immediately in the special petroleum tax regime and receive a cash refund of the tax value of all losses in the special
petroleum tax regime. The uplift on investments is proposed to be discontinued. The ordinary corporate tax will be
deductible in the special petroleum tax regime and to maintain a combined marginal tax rate of 78 percent, the special
petroleum tax rate is increased to 71.8 percent. Losses in the corporate tax basis will not be eligible for refund but can
be carried forward. Moreover, the tax value of unused uplift and carried forward losses as of year-end 2021 will be paid
out. Provisions under the temporary changes extending beyond 2021 will not be impacted. As of the date of issuing
this report, the proposal has not been approved by the Norwegian Parliament and may be subject to adjustments. If the
proposal is approved, limited impact is estimated on DNO’s asset values.
The tax income/(expense), tax receivable/(payable) and recognised deferred tax assets/(liabilities) relate to activity on the
NCS and the UKCS. Current tax receivable of USD 21.1 million relates to tax refund of decommissioning spend on the
UKCS for 2021. Current income tax payable of USD 33.1 million relates to repayment of tax refunds in Norway that
10. Income Tax
(continued)
RAK Petroleum
plc
90
exceeded the tax value of actual losses for 2021. During 2021, DNO received total tax refunds of USD 159.4 million
in Norway in relation to tax losses incurred in 2020 and estimated tax losses for 2021 and USD 15.3 million in the UK
in relation to decommissioning spend for 2020. The refund of tax losses on the NCS incurred in 2021 is paid out in
six installments every two months with the rst three installments received during the second half of 2021. As the tax
value of actual tax loss incurred for 2021 is lower than what has already been received in tax refunds during 2021,
DNO will repay the difference over the remaining three installments during the rst half of 2022. The decommissioning
tax refund on the UKCS for 2021 of USD 21.1 million is expected during the third quarter of 2022.
A deferred tax asset has been recognised on petroleum activities in Norway and the UK in relation to carry forward
losses and temporary differences as it has been considered probable that taxable prots or tax refunds will be
available to utilise these deferred tax assets. A valuation allowance was recognised relating to carried forward losses
in Norway (ordinary tax regime) and the UK due to the uncertainty regarding future taxable prots. The main net
deferred tax assets recognised in the Group are in the UK and were recognised based on decommissioning expenditure
to be incurred in the future which can be carried back to past protable years. The Group has decommissioning
deductible temporary differences and unused tax losses in the UK for which no deferred tax asset is recognised. Such
unrecognised deferred tax assets amount to USD 21.9 million (2020: USD 19.0 million).
There are no tax consequences attached to items recorded in other comprehensive income.
From 2013, prots from foreign oil activities are no longer taxable in Norway in accordance with the General Tax Act,
section 2-39. Further, from 2013, foreign exploration expenses are no longer tax deductible. Under these rules only
certain nancial income and expenses are taxable in Norway. Permanent tax differences related to this are included in
the table above.
Reconciliation of change in deferred tax assets/(liabilities)
USD million
31 December 2021
31 December 2020
Tax effects on temporary differences relate to the following items:
Net deferred tax assets/(liabilities) at 1 January
(131.4) (153.9)
Change in deferred taxes in the income statement
(115.2) 11.1
Prior period adjustment -
0.8
Reclassication to tax receivable - 1.6
Currency and other movements
8.6 9.0
Net deferred tax assets/(liabilities) at 31 December
(238.0) (131.4)
Reconciliation of change in tax receivable/(payable)
USD million
31 December 2021
31 December 2020
Tax effects on temporary differences relate to the following items:
Tax receivable/(payable) at 1 January
63.1 164.5
Tax receivable/(payable) in the income statement
98.9 128.8
Tax receivable/(payable) related to transactions posted directly to balance sheet
3.7
-Tax payment/(refund) (174.7) (236.3)
Prior period adjustment
-
(2.4)
Reclassication from deferred tax asset
-
(1.6)
Currency and other movements
(3.0) 10.0
Tax receivable/(payable) at 31 December
(11.9) 63.1
10. Income Tax
(continued)
91
Basic earnings per share amounts are calculated by dividing net prot or loss for the period by the weighted average
number of Class A and Restricted Class A Shares outstanding during the period. Diluted earnings per share are calculated
by adjusting the weighted average number of Class A Shares and Restricted Class A Shares outstanding assuming
conversion of all potentially dilutive Class A Shares. Currently, there are no potentially dilutive Class A Shares.
The information necessary to calculate basic and diluted earnings per share is as follows:
USD million
2021
2020
Group
Earnings: 105.4 (130.1)
Adjustment on dilution of prot
- -
Prot/(loss) for the year adjusted for the effect of dilution
105.4 (130.1)
No. of Shares:
312,131,372 312,131,372
Adjustment for the Company’s shares held by a subsidiary (treasury shares)
(15,849,737) (15,849,737)
Weighted average number of Class A Shares and Restricted Class A Shares adjusted for the
effect of dilution
296,281,635 296,281,635
Earnings/(loss) per share (in USD)
Basic 0.356 (0.439)
Diluted 0.356 (0.439)
12. Property Plant and Equipment/Other Intangible Assets
Depreciation, depletion and amortisation (“DD&A”) is charged to cost of goods sold in the statement of comprehensive
income.
Property, Plant and Equipment
USD million
Development
assets
Production
assets
Total
oil & gas assets
Other
PP&E RoU Total
At 1 January 2021
Accumulated costs
152.0 3,037.0 3,189.0 13.7
22.9 3,225.6
Accumulated impairments
(42.1) (358.6) (400.7) (0.1)
- (400.8)
Accumulated depreciation
-
(1,632.3) (1,632.3) (11.7)
(6.7) (1,650.6)
Net book amount
109.9 1,046.1 1,155.9 2.0
16.2 1,174.1
Period ended 31 December 2021
Opening net book amount
109.9 1,046.1 1,155.9 2.0
16.2 1,174.1
Translation differences
(3.0) (15.8) (18.8)
-
(1.7) (20.6)
Additions* 206.2 0.2
15.5
190.614.6 221.0
Transfers** 125.7 4.0 129.7
- -
129.7Disposals accumulated costs
-
(440.4) (440.4)
- (2.6) (443.0)
Disposals accumulated depreciation/
impairments
-
440.4 440.4
-2.6 443.0
Depreciation of RoU recognised against
Asset retirement obligations
- - - -
(4.6) (4.6)
Impairments (11.6)
-
(11.6)- - (11.6)
Depreciation charges
-
(198.2) (198.2) (1.1)
(3.9) (203.2)
Closing net book amount
248.2 1,015.2 1,263.3 1.0
20.6 1,284.9
At 31 December 2021
Accumulated costs
290.3 2,785.1 3,075.4 13.9
34.6 3,123.9
Accumulated impairments
(42.1) (89.6) (131.7) (0.1)
- (131.8)
Accumulated depreciation
-
(1,680.4) (1,680.4) (12.8)
(14.1) (1,707.2)
Net book amount
248.2 1,015.2 1,263.3 1.0
20.6 1,284.9
Depreciation method UoP*** 2-7 years linear
*Includes changes in estimate of asset retirement (see Note 22)
**Transfers from exploration phase (intangible assets) to development phase (tangible assets) relate to reclassication of the book value of the Baeshiqa licence following
KRG approval of the rst phase development plan and reclassication of the book value of the Iris/Hades (PL644) licence following concept selection.
***Unit of Production.
11. Earnings/(Loss) Per Share
RAK Petroleum
plc
92
Intangible Assets
USD million
Licence
interest
Exploration
assets
Goodwill Other
Total
At 1 January 2021
Accumulated costs
97.1 389.2 857.4 14.3
1,358.0
Accumulated impairments/exploration
write-offs
(7.7) (108.3) (472.3)
- (588.3)
Accumulated depreciation
(66.4)
- -
(9.5) (75.9)
Net book amount
23.0 280.9 385.1 4.7
693.7
Period ended 31 December 2021
Opening net book amount
23.0 280.9 385.1 4.7
693.7
Translation differences
-
(9.6) (5.3) 0.2 (14.7)
Additions 1.0 85.3
-
0.486.7
Additions through licence acquisition*
-
35.2
- -
35.2
Transfers**
-
(125.7)- - (125.7)
Disposals accumulated cost
-
(6.0)
-
(0.3)
(6.3)
Disposals accumulated depreciation/
impairments
- - - - -
Write-off of exploration costs
capitalised in previous years
(1.1) (53.0)
- - (54.1)
Impairments
- -
(68.5)- (68.5)
Depreciation charges
(1.8) - -
(1.0)
(2.8)
Closing net book amount
21.2 207.1 311.3 4.0
543.7
At 31 December 2021
Accumulated costs
98.1 368.4 839.9 14.6
1,321.0
Accumulated impairments/exploration
write-offs
(8.7) (161.3) (528.6)
- (698.6)
Accumulated depreciation
(68.2)
- -
(10.5)
(78.7)
Net book amount
21.2
207.1 311.3 4.0
543.7
Depreciation method UoP 3-7 years linear
*Additions through licence acquisition relate to DNO’s acquisition of ExxonMobil’s remaining 32 percent interest in the Baeshiqa licence, approved by the KRG in August 2021. As consideration, DNO
has covered ExxonMobil’s share of exploration costs since January 2019 up to KRG’s approval of the acquisition in August 2021 and the seller will receive payment of USD 15.0 million. Following the
KRG’s approval of the acquisition, DNO’s payments for ExxonMobil’s share of the exploration costs was transferred to intangible assets, previously presented under Trade and other receivables.
**Transfers from exploration phase (intangible assets) to development phase (tangible assets) relate to reclassication of the book value of the Baeshiqa licence following KRG approval of the rst
phase development plan, and reclassication of the book value of the Iris/Hades (PL644) licence following concept selection from intangible assets to tangible assets.
For pledges over the North Sea oil and gas assets, see Note 21.
12. Property Plant and Equipment/Other Intangible Assets
(continued)
93
Property, Plant and Equipment
USD million
Development
assets
Production
assets
Total
oil & gas assets
Other
PP&E RoU Total
At 1 January 2020
Accumulated costs
120.4 2,871.6 2,992.0 18.0
17.5 3,027.5
Accumulated impairments
(42.1) (334.6) (376.7) (0.1)
- (376.8)
Accumulated depreciation
-
(1,279.9) (1,279.9) (17.8)
(3.6) (1,301.3)
Net book amount
78.3 1,257.1 1,335.4 0.1
14.0 1,349.5
Period ended 31 December 2020
Opening net book amount
78.3 1,257.1 1,335.4 0.1
14.0 1,349.5
Translation differences
8.8 (3.6) 5.2 0.6
-
5.8
Additions* 22.8 169.0 191.8 0.4
7.0 199.2
Transfers
- - - - - -
Disposals accumulated costs
- - -
(5.0)
(1.9) (6.9)
Disposals accumulated depreciation/
impairments
- - -
7.0 1.1 8.1
Impairments (24.0)
-
(24.0)- - (24.0)
Depreciation charges
-
(352.4) (352.4) (1.2)
(4.0) (357.6)
Closing net book amount
109.9 1,046.1 1,155.9 2.0
16.2 1,174.1
At 31 December 2020
Accumulated costs
152.0 3,037.0 3,189.0 13.7
22.9 3,225.6
Accumulated impairments
(42.1) (358.6) (400.7) (0.1)
- (400.8)
Accumulated depreciation
0.0 (1,632.3) (1,632.3) (11.7)
(6.7) (1,650.7)
Net book amount
109.9 1,046.1 1,155.9 2.0
16.2 1,174.1
Depreciation method UoP 3-7 years linear
*Includes changes in estimate of asset retirement (see Note 22)
Intangible Assets
USD million
Licence
interest
Exploration
assets
Goodwill Other
Total
At 1 January 2020
Accumulated costs
95.7 339.4 845.7 13.8
1,294.6
Accumulated impairments/exploration
write-offs
(12.0) (18.3) (288.8)
- (319.0)
Accumulated depreciation
(63.6)
- -
(8.6) (72.1)
Net book amount
20.3 321.1 556.9 5.2
903.5
Period ended 31 December 2020
Opening net book amount
20.3 321.1 556.9 5.2
903.5
Translation differences
-
5.9 (10.8)
-
(4.9)
Additions
-
45.2-
0.545.7
Transfers
- - - - -
Disposals accumulated cost
(0.4) (0.9)
- - (1.3)
Disposals accumulated depreciation/
impairments
5.8 0.9
- - 6.7
Write-off of exploration costs
capitalised in previous years
- - (0.4)
(0.4)
-Impairments (161.1)
-
(90.9)- (252.0)
Depreciation charges
(2.8) -
(1.0)
(3.8)
Closing net book amount
23.0 280.9 385.1 4.7
693.7
12. Property Plant and Equipment/Other Intangible Assets
(continued)
RAK Petroleum
plc
94
At 31 December 2020
Accumulated costs
97.1 389.2 857.4 14.3
1,358.0
Accumulated impairments/exploration
write-offs
(7.7) (108.3) (472.3)
- (588.3)
Accumulated depreciation
(66.4)
- -
(9.5)
(75.9)
Net book amount
23.0
280.9 385.1 4.7
693.7
Depreciation method UoP 3-7 years linear
Goodwill at year-end 2021 related to goodwill held in the Company’s accounts relating to its investment in DNO (USD
223.1 million, unchanged from 2020) and goodwill held by DNO in various North Sea assets, recognised due to DNO’s
business combinations.
Impairment Testing
Impairment tests of individual cash-generating units are performed when impairment indicators are identied. IAS 36
requires that an entity assess at each reporting date whether there are any indications that an asset may be impaired.
Goodwill is tested for impairment annually or more frequently when there are impairment indicators. Impairment is
recognised when the carrying amount of an asset or a cash-generating unit, including associated goodwill, exceeds
the recoverable amount. DNO has dened the licence level as the lowest level at which separate cash ows can be
identied. The recoverable amount is the higher of the asset's fair value less cost to sell and value-in-use. Impairment
assessment of DNO’s assets in Kurdistan is based on the value-in-use approach. For oil and gas assets and goodwill
recognised in relation to the acquisition of Faroe Petroleum plc (“Faroe”), the impairment assessment at year-end 2021
was based on the fair value approach (level 3 in fair value hierarchy, IFRS 13). For both the value-in-use and fair value,
the impairment testing is performed based on discounted cash ows. The expected future cash ows are discounted
to the net present value by applying a discount rate after tax. Cash ows are projected for the estimated lifetime of the
elds or licence (whichever is earlier), which may reect periods longer than ve years.
Below is an overview of the key assumptions applied for impairment testing purposes at 31 December 2021.
Oil and Gas Prices
Forecasted oil and gas prices are based on management’s estimates and market data. The near-term price assumptions
are based on forward curve pricing over the period for which there is deemed to be a sufcient liquid market, and
observable broker and analyst consensus. The long-term price assumptions reect management’s best estimate of
the oil and gas price development over the life of the Group’s oil and gas elds based on its view of current market
conditions and future developments. Management’s assessment also includes comparison with long-term oil and
gas price assumptions communicated by peer companies and other external forecasts. Oil and gas price assumptions
applied for impairment testing are reviewed and, where necessary, adjusted on a periodic basis.
The nominal oil and gas price assumptions used for impairment assessments at year-end 2021 were as follows (2020
gures in brackets):
2022 2023 2024 2025
Brent (USD/bbl)
76.9 (59.1) 70.4 (59.1) 68.3 (64.7) 70.0 (70.4)
NBP (pence/therm)
158.3 (37.8) 77.4 (41.1) 65.5 (45.1) 57.6 (48.7)
For periods after year 2025, the long-term oil and gas assumptions applied were USD 65 per barrel and 45 pence
sterling per therm, respectively (in real terms, basis year 2021).
Oil and Gas Price Differential
The oil and gas price differential is a differential to the marker selling price to account for the quality of the oil or gas
being sold and transportation for each individual eld. The recoverable amount can be sensitive to the oil or gas price
differential.
12. Property Plant and Equipment/Other Intangible Assets
(continued)
95
Oil and Gas Reserves and Resources
Future cash ows are calculated on the basis of expected production proles and estimated proven and probable
remaining reserves, and additional risked contingent resources when the impairment assessments are based on the
fair value approach. The recoverable amount is sensitive to changes in reserves. For more information about the
determination of the reserves, reference is made to Note 3 about important accounting assessments, estimates and
assumptions.
Discount Rate
The discount rate is derived from DNO’s working average cost of capital (“WACC”). For the value-in-use calculations,
the WACC is weighted based on the debt and equity to enterprise value ratios at year-end. For the fair value
calculations, WACC is derived from the capital structures of an identied peer group and market participants with
consideration given to optimal structures. Cost of equity is calculated on a country-by-country basis using the Capital
Asset Pricing Model and adding a country risk premium. The beta factor is based on publicly available data about DNO’s
beta in the value-in-use calculations, whereas the beta factors used for the fair value calculations are based on publicly
available market data for the identied peer group. For the value-in-use calculations, cost of debt is based on yield-to-
maturity on DNO’s outstanding bond loans with an upward adjustment to reect a potential longer maturity, whereas
for the fair value calculations the cost of debt is based on an identied peer group’s bond loan issues.
For the value-in-use calculations, the relevant post-tax nominal discount rates used in the impairment assessments
at year-end 2021 were 13.6 percent (2020: 13 percent) for the Kurdistan assets. For the fair value calculations, the
relevant post-tax nominal discount rates at year-end 2021 were 7.6 percent for the Norway assets (2020: 7.6 percent)
and 7 percent for the UK assets (2020: 7.8 percent).
Ination and currency rates
The long-term ination rate is assumed to be 2 percent independent of the underlying country or currency (unchanged
from 2020). DNO has applied the forward curve as the basis for assessment of currency rates. The USD/NOK exchange
rate applied for impairment testing at year-end 2021 was USD/NOK 8.5 (2020: USD/NOK 8.5) and a constant exchange
rate was used thereafter.
Impairment Charge and Reversal of PPE and Intangible Assets
The following table shows the recoverable amount and carrying amount for the cash-generating-units which have been
impaired in 2021 and 2020.
Impairments
Full-Year ended 31 December 2021
(in USD million) Income statement: Balance sheet:
CGU, Segment
Recoverable,
amount
(post-tax)
Impairment
-charge
/reversal
(post-tax)
Tax
income
-expense
Impairment
-charge
/reversal
(pre-tax) Goodwill
Other
intangible
assets
Property,
plant and
equipment
Deferred
tax asset
/-liability
Currency
effects
Fenja, North Sea
54.0 (9.7)
-
(9.7) (9.7)
- - -
0.1
Trym area, North Sea
9.0 (7.7)
-
(7.7) (7.7)
- - -
(0.3)
Ula area, North Sea
158.0 (51.1)
-
(51.1) (51.1)
- - -
0.4
Oselvar, North Sea
-
1.5 (1.2) 0.3
- -
1.5 (1.2)
-
Schooner and Ketch, North Sea
-
(11.2) 4.1 (7.1)
- -
(11.2) 4.1
-
Other CGUs, North Sea
-
(1.9)
-
(1.9)
- -
(1.9)
- -
Total 221.0 (80.1) 2.9 (77.2) (68.5) 2.9
-
(11.6)-
12. Property Plant and Equipment/Other Intangible Assets
(continued)
RAK Petroleum
plc
96
Full-Year ended 31 December 2020
(in USD million) Income statement: Balance sheet:
CGU, Segment
Recoverable,
amount
(post-tax)
Impairment
-charge
/reversal
(post-tax)
Tax
income
-expense
Impairment
-charge
/reversal
(pre-tax) Goodwill
Other
intangible
assets
Property,
plant and
equipment
Deferred
tax asset
/-liability
Currency
effects
SE Tor, North Sea
- (
66.4) 28.5
(
37.9) (28.6
)
(37.9
) -
28.7 1.6
Agar, North Sea
- (
14.7) 7.0
(
7.7) (4.2
)
(10.5
) -
6.9 3.5
Iris and Hades, North Sea
11.7
(
82.7) 33.2
(
49.5) (40.2
)
(42.5
) -
33.1 3.5
Fenja, North Sea
66.1
(
18.6)
- (
18.6) (18.6
) - - -
1.4
Ringhorne East, North Sea
13.3
(
27.1)
- (
27.1) (27.1
) - - -
1.3
Ula area, North Sea
247.8
(
19.3)
- (
19.3) (19.3
) - - -
2.2
Brage, North Sea
25.6
(
6.7)
- (
6.7) (6.7
) - - -
0.1
Marulk, North Sea
15.1
(
4.3) 1.1
(
3.2) (2.8
) -
(1.4) 1.1 0.6
Vilje, North Sea
32.9
(
8.4)
- (
8.4) (8.4
) - - -
1.6
Trym area, North Sea
13.6
(
5.2)
- (
5.2) (5.2
) - - -
0.1
Oselvar, North Sea
- (
19.8) 15.5
(
4.3)
- -
(19.8) 15.5 0.3
Schooner and Ketch, North Sea
-
2.1 (1.0) 1.1
- -
2.1 (1.0
)
0.0
Other CGUs, North Sea
- (
4.9) 2.2
(
2.7)
- -
(4.9) 2.2 0.4
Total 426.1 (276.0) 86.5 (189.5) (161.1) (90.9) (24.0) 86.5 16.6
During 2021, a total impairment charge of USD 80.1 million (USD 77.2 million post-tax) was recognised, mainly driven
by:
•
Revised reserves and resource estimates (Fenja development);
•
Revised reserves and resource estimates and cost proles (Ula area, Trym area); and
•
Revision in the cost estimate for decommissioning (Schooner and Ketch elds, Oselvar eld and other).
During 2020, a total impairment charge of USD 276.0 million (USD 189.5 million post-tax) was recognised, mainly
driven by:
•
Relinquishment of DNO’s participation in a licence (Agar discovery);
•
Reduction in resource estimates following appraisal and evaluation of potential (SE Tor discovery and Iris and
Hades discoveries);
•
Revised reserves estimates (Fenja development and Ringhorne East);
•
Revised oil and gas price assumptions (Ula area, Marulk, Vilje and Trym area);
•
Revised oil and gas price assumptions and update in cost proles (Brage);
•
Upward revision in the cost estimate for decommissioning (Oselvar eld); and
•
Partially offset by a downward revision in the cost estimate for decommissioning (Schooner and Ketch elds).
Sensitivities
The table below illustrates how the net prot/(loss) in 2021 would have been affected by changes in the various
assumptions, holding the remaining assumptions unchanged. The estimated recoverable amounts related to the
Kurdistan licences are substantially higher than the carrying amounts and the same sensitivity tests would not imply any
impairment charges. The estimated recoverable amount related to the investment in Foxtrot International is higher than
the carrying amount and the same sensitivity tests would not imply any impairment charges.
Change in oil and gas assets:
Assumption (USD million)
Change Increase in assumption:
Decrease in assumption:
Oil and gas price
+/- 15%
15.8
(75.4)
Production prole (reserves and resources) +/- 5%
4.8
(16.3)
Discount rate (WACC) +/- 1%
(10.7) 2.5
Currency rate (USD/NOK) +/- 1.0 NOK
12.5
(51.7)
Refer to Note 13 for impairment of goodwill related to the Company’s investment in DNO.
12. Property Plant and Equipment/Other Intangible Assets
(continued)
97
Climate considerations in impairment assessment
Governmental and societal responses to climate change risks are still developing, and are interdependent upon each
other, and consequently nancial statements cannot capture all possible future outcomes as these are not yet known.
Certain climate considerations are factored into the Group’s estimation of cash ows that are applied in the calculation
of recoverable amount. This includes factoring in current legislation (e.g., environmental taxes/fees) and estimation
of future levels of environmental taxes. For DNO’s oil and gas assets on the NCS, carbon pricing is in line with current
legislation and reects the operator’s forecasts for individual assets. As proposed in the Norwegian Government’s
Climate Plan for 2021-2030, a steady increase in the total carbon price (quota plus CO
2
tax) to NOK 2,000 per tonne
(in 2020 real terms) is expected by 2030. In Kurdistan, the KRG introduced in 2021 a requirement for oil companies to
put plans in place to curb gas aring to reduce emissions. DNO has run sensitivities for its Kurdistan oil assets with the
CO
2
tax assumptions as described in the scenarios outlined by the International Energy Agency (“IEA”) in their World
Energy Outlook (“WEO”) reports, namely the Stated Policies Scenario and the Sustainable Development Scenario.
An energy transition is likely to impact the future oil and gas prices which in turn may affect the recoverable amount
of the oil and gas assets. Indirectly, climate considerations are also assessed in the forecasting of oil and gas prices
where supply and demand are considered. A signicant reduction in the Company’s oil and gas price assumptions, as
shown above, would result in impairments on certain production and development assets in the North Sea portfolio
including intangible assets that are subject to impairment assessment under IAS 36, but an opposite revision in the
price assumptions would only lead to limited impairment reversals as most of the North Sea impairments recognised
were related to impairment of goodwill which cannot be reversed under IFRS.
To assess the robustness of the DNO Group’s oil and gas assets sensitivities have been run with the oil and gas price
assumptions described by scenarios outlined by the IEA in October 2021, namely the Stated Policies Scenario and
the Sustainable Development Scenario. These scenarios are commonly applied by peer companies and the Company
believes that these are useful for investors and other stakeholders in assessing portfolio resilience across companies in
the industry. The oil and gas price assumptions in the scenarios have been provided by the IEA for the years 2030 and
2050 (in 2020 real terms), and for the sensitivity calculation a linear development between average actual 2021 and
2030, as well as between 2030 and 2050 has been applied. A calculation of a possible effect of using the oil and gas
prices in the Sustainable Development Scenario (oil price: USD 56 per barrel in 2030 and USD 50 per barrel in 2050,
gas price: USD 4.2 per MMBtu and USD 4.5 per MMBtu, in real terms 2020) indicates a potential impairment of around
USD 28.0 million post-tax for DNO’s North Sea assets. No impairments are expected related to DNO’s Kurdistan assets
at these price levels. As the oil and gas price assumptions in the Stated Policies Scenario are at higher levels (oil price:
USD 77 per barrel in 2030 and USD 88 per barrel in 2050, gas price: USD 7.7 per MMBtu and USD 8.3 per MMBtu,
in real terms 2020) compared to the Group’s long-term price assumption of USD 65 per barrel, no impairments or
signicant reversals are expected, but the estimated headroom in the impairment testing would increase.
A signicant reduction in the oil and gas price assumptions could also have effect on the estimated economic cut-off
of the projects. Based on the Group’s scenario analysis, no signicant impact was identied with regards to estimated
economic cut-off dates.
These illustrative impairment sensitivities assume no changes to assumptions other than oil and gas prices. However,
signicant reductions in the oil and gas prices, offset by foreign currency effects, would likely impact the Group’s
investment levels as occurred following signicant changes in oil and gas prices during the Covid-19 pandemic in
2020. The illustrative sensitivities on climate change are not considered to represent a best estimate of an expected
impairment impact. Moreover, a signicant and prolonged reduction in oil and gas prices would likely result in
mitigating actions by DNO and its licence partners; for example it could have an impact on drilling plans and production
proles for new and existing assets. Quantifying such impacts is considered impracticable, as it requires detailed
evaluations based on hypothetical scenarios and not based on existing business or development plans.
Licence Expiry and Economic Cut-off Dates for Development and Production Assets
In Kurdistan, the Tawke licence expires in 2026, but DNO has the right to one automatic ve-year extension (i.e., to
2031) and, if commercial production is still possible at the end of this extended period, DNO is entitled to, upon request
to the KRG, a further ve-year extension (i.e., to 2036). Based on DNO’s current assessments, production from the
Tawke licence will be commercial for the duration of its contractual term and through subsequent extensions.
On the Baeshiqa licence, commerciality was declared by the contractor on 1 August 2021, terminating the exploration
12. Property Plant and Equipment/Other Intangible Assets
(continued)
RAK Petroleum
plc
98
period and moving into the PSC development period, which has a 20-year duration. If commercial production is still
possible at the end of the 20-year period, DNO is entitled to a ve-year extension.
In the North Sea, the following relevant licence expiry dates and economic cut-off dates (in brackets) applied in relation
to year-end 2021 impairment assessments; the Ula Area licences have licence expiry dates that range between 2027
and 2036 (economic cut-off dates range between 2031 and 2032); the Ringhorne East licence expires in 2030 (2045);
the Brage licence expires in 2030 (2030); the Trym licence expires in 2027 (2025); the Alve licence expires in 2029
(2030); the Marulk licence expires in 2025 (2026); the Vilje licence expires in 2032 (2040); the Fenja licence expires in
2039 (2039); the Brasse licence expires in 2022 (2044, subject to extension when a PDO is submitted and approved);
and the Iris and Hades licence expires in 2023 (2031, subject to extension when a PDO is submitted and approved).
13. Material Partly-Owned Subsidiary
The Group currently has the following investment in a subsidiary which has a material non-controlling interest:
Percent ownership interest
Subsidiary name
Country of
incorporation
2021
2020
Nature of Business
DNO ASA
Norway
44.94
44.94Exploration and production company engaged
in the acquisition, exploration, development and
operation of oil and gas properties
The summarised nancial information of this subsidiary, as reported by DNO, is provided below. This information is based
on amounts before inter-company eliminations. Changes in effective net ownership of DNO are a result of purchases of
non-controlling interest in DNO as described in Note 20.
Summarised Statement of Comprehensive Income
USD million
2021
2020
Revenues 1,004.1 614.9
Cost of goods sold
(443.1) (590.0)
Other operating income
0.5
-
General and administrative expenses
(28.2) (7.5)
Impairment oil and gas assets, exploration assets and goodwill
(80.1) (276.0)
Exploration costs expensed
(132.3) (55.9)
Financial income and expense
(100.7) (111.2)
Prot/(loss) before tax
220.1 (425.8)
Income tax credit/(expense)
(16.3) 139.8
Prot/(loss) for the year as presented by DNO
203.9 (285.9)
Total comprehensive income/(loss) for the year as presented by DNO
195.0 (298.0)
Summarised Statement of Financial Position
USD million
2021
2020
Current assets
Cash and cash equivalents
736.6 477.1
Other current assets (excl. cash)
540.7 344.5
Non-current assets
1,670.4 1,887.1
Current liabilities
385.8 (296.1)
Non-current nancial liabilities
873.4 (934.2)
Other non-current liabilities
669.8 (632.7)
Equity at 31 December
1,018.8 845.6
12. Property Plant and Equipment/Other Intangible Assets
(continued)
99
Summarised Cash Flow Information
USD million
2021
2020
Net cash from/(used in) operating activities
642.5 389.1
Net cash from/(used in) investing activities
(275.9) (238.6)
Net cash from/(used in) nancing activities
(105.4) (159.1)
Net increase/(decrease) in cash and cash equivalents
261.5 (8.6)
Cash and cash equivalents at beginning of the period
477.1 485.7
Exchange rate losses on cash and cash equivalents
(2.0)
-
Cash and cash equivalents at end of the period
736.6 477.1
Goodwill and Impairment Assessment
The Company’s investment in DNO includes goodwill that arose from the difference between the carrying value and the
recorded net identiable asset value of DNO at acquisition date. At year-end 2021 this goodwill amounts to USD 223.1
million.
Impairment Assessment
IAS 36 requires an annual goodwill impairment test, comparing the recoverable amount to the carrying amount,
regardless of impairment indicators. For the purpose of annual goodwill impairment testing, management determines
the recoverable amount which is the higher of the fair value less costs of disposal and value-in-use.
31 December 2021
A value-in-use computation exceeded the carrying amount. Accordingly, there was no goodwill impairment required at
31 December 2021. Refer to Note 12 for details of the impairment assumptions used by DNO and the Company.
31 December 2020
A value-in-use computation exceeded the carrying amount. Accordingly, there was no goodwill impairment required at
31 December 2020.
Based on the value-in-use compared to the carrying amount of the Company’s investment in DNO there exists
headroom due to the value-in-use of the Kurdistan licences compared to the carrying amount of those cash-generating
units. A sensitivity analysis for the Kurdistan licences showed that a decrease in oil price of 10 percent would not have
eliminated the headroom. An increase in the WACC by one percent or a drop in proven and probable reserves for the
Kurdistan licences by 10 percent would not have resulted in an impairment. Using two of the published IEA forecasts of
Sustainable Development and Stated Policies (refer to Note 12 for details) would not have led to an impairment of the
goodwill. The sensitivity was established on the assumption that all other factors would remain unchanged.
14. Investment in a Joint Venture
General Information
The Group’s subsidiary Mondoil Enterprises has a 50 percent equity interest in Mondoil Côte d’Ivoire, registered in the
United States and a Joint Venture under the terms of IFRS 11 (required to be equity accounted by the Group).
Mondoil Côte d’Ivoire has a 66.67 percent equity interest in Foxtrot International. Due to different voting and contractual
rights, Foxtrot International is an Associate for Mondoil Côte d’Ivoire (required to be equity accounted by Mondoil Côte
d’Ivoire). Mondoil Côte d’Ivoire has one-third of Foxtrot International’s total shareholder votes and can appoint one-third
of the Foxtrot International Board of Directors, but Mondoil Côte d’Ivoire is entitled to two-thirds of Foxtrot International’s
prot and liquidation proceeds.
Foxtrot International is a Cayman Islands company engaged in oil and gas exploration and production in Côte d’Ivoire. It
owns a direct 24 percent interest in Block CI-27 (joint operation). On 1 December 2014 Foxtrot International acquired a
27.27 percent stake in Energie de Côte d’Ivoire SA (ENERCI), which owns an additional 12 percent interest in Block CI-27.
Foxtrot International holds a 24 percent interest in and operatorship of one exploration block offshore Côte d’Ivoire, Block
CI-12.
Since Mondoil Côte d’Ivoire is solely a holding vehicle for Foxtrot International with no other activity or balances, the
Group discloses in the table below the summarised nancial information of Foxtrot International as a 33.33 percent
associate in terms of summarised nancial information.
13. Material Partly-Owned Subsidiary
(continued)
RAK Petroleum
plc
100
Foxtrot International's Summarised Statement of Comprehensive Income/(Loss)
USD million
2021
2020
Revenue 103.8 72.5
Depreciation and amortisation
(21.4) (38.3)
Other expenses
(17.6) (15.1)
Other income/nance income
7.9 2.5
Income taxes
(17.3) (12.1)
Prot/(loss) for the year as presented by Foxtrot International
55.5 9.4
Group’s share of prot/(loss) for the year (33.33 percent)
18.5 3.1
Depletion of fair value uplift of Foxtrot International’s proportionally
acquired property, plant and equipment, net of related deferred tax
(2.5) (2.2)
Group’s share of prot/(loss) for the year adjusted for depletion of fair value
uplift
16.0 0.9
Foxtrot International's Summarised Statement of Financial Position
USD million
2021
2020
Current assets
Cash 0.6 0.1
Other current assets (excl. cash)
39.1 26.4
Non-current assets
201.6 163.4
Current liabilities
(25.1) (16.2)
Non-current liabilities
(60.7) (61.9)
Equity 155.5 112.0
Group’s share of net assets (33.33 percent)
51.8 37.3
Fair value uplift on property, plant and equipment, carrying amount (before
current year impairment), net of related deferred tax
36.3 35.8
Impairment reversal/(impairment)
-
3.0
Other (0.5) 0.6
Investment carrying amount at 31 December
87.6 76.8
According to the terms of the Block CI-27 PSC, the Government of Côte d’Ivoire pays income taxes from the State’s share
of prot on behalf of Foxtrot International. Therefore, the above revenue and income taxes were presented gross under
IFRS [i.e., both revenue and tax line items were increased by USD 17.3 million in 2021 (USD 12.1 million in 2020)].
Movement of Investment Carrying Amount
USD million
2021
2020
Opening balance 1 January
76.8 85.7
Group’s share of prot/(loss)
16.0 0.9
Contributions via cash calls paid during the year
15.7 4.4
Dividends received during the year
(20.8) (17.3)
Impairment reversal/(impairment)
-
3.0
Interest in Joint Venture at 31 December
87.6 76.8
The carrying amount at 31 December 2021 contains no cumulative past impairments (2020: nil)
Impairment test
To review the climate change scenario impact on impairment testing outcomes, the assessment was updated at 31
December 2021.
14. Investment in a Joint Venture
(
continued)
101
The fair value less costs of disposal is based on cash ows expected to be generated from oil, condensates and gas
production proles up to the expected date of cessation of the PSC based on current estimates of reserves and resources,
appropriately risked. The fair value calculation is based primarily on level 3 inputs as dened by IFRS 13
Fair Value
Measurement Hierarchy
. The underlying production proles, operating and capital costs and cash ows were primarily
estimated by Foxtrot International, but were validated by an international petroleum consulting rm in 2016, with internal
updates by Foxtrot International since that time; therefore, management believes that these cash ows are an appropriate
basis upon which to assess the investment for impairment.
Key assumptions used in the fair value less costs of disposal calculation were:
•
Total proven and probable production volumes and production proles expected to be produced within the Block
CI-27 PSC term;
•
Oil and gas sales prices. The gas price is set at a oor of USD 6.0 per MMBtu subject to indexation based on a basket
of indices relevant to the oil and gas industry;
•
Operating and capital costs and abandonment cost;
•
Discount rate.
Management has used a post-tax nominal discount rate of 14.7 percent (14.7 percent in 2020) and believes that this
discount rate considers risks and uncertainties not factored into the undiscounted cash ows. On this basis, for the
current investment carrying amount before impairment testing of USD 87.6 million (USD 72.8 in 2020), no impairment
is considered necessary (USD 3 million impairment reversal in 2020). An increase in the discount rate by 100 basis points
would not have led to an impairment. A decrease in oil price of 10 percent or a decrease in oil and gas production of 10
percent would not have led to an impairment. Using two of the published IEA forecasts of Sustainable Development and
Stated Policies would not have led to an impairment.
15. Financial Investments
Financial investments are comprised of equity instruments and are recorded at fair value (market price, where available)
at the end of the reporting period. Fair value changes are included in other comprehensive income (FVTOCI). See Note 2
for more details. DNO disposed of its interests in Faroe and Panoro Energy ASA (”Panoro”), in 2019. DNO’s only nancial
investment is shares in the Company, treated by the Company as treasury shares. Refer to Note 20 for further details.
16. Other Non-Current Receivables/Trade and Other Receivables
USD million
2021
2020
Group
Trade debtors (non-current portion)
18.2 182.0
Other long-term receivables
1.3 0.4
Total other non-current receivables
19.4 182.4
Trade debtors
344.4 96.2
Underlift 17.2 27.4
Other 122.6 116.0
Total trade and other receivables
484.2 239.7
USD million
2021
2020
Company
Amounts due from DNO subsidiary
0.2
-
Amounts due from other subsidiaries
0.1 0.1
Other 0.2 0.2
Total trade and other receivables
0.5 0.3
The total current and non-current book value of trade debtors of USD 362.6 million at 31 December 2021 (USD 278.2
million 2020) relates mainly to the Tawke licence arrears for 2019 and 2020 entitlement and override invoices (USD 169.1
million), and outstanding entitlement invoices for Tawke licence crude oil deliveries for the months October through
December 2021 (USD 180.3 million). See also Note 29 for subsequent events after year-end 2021.
14. Investment in a Joint Venture
(
continued)
RAK Petroleum
plc
102
In December 2020, a plan was put in place by the KRG to pay the international oil companies operating in Kurdistan 50
percent of the incremental revenue in any month in which Brent prices exceed USD 50 per barrel towards the arrears for
2019 and 2020. In May 2021, the KRG informed the international oil companies of revised terms reducing the payment
of the arrears to 20 percent of the incremental revenue in any month in which Brent prices exceed USD 50 per barrel. The
KRG also advised that all international oil company invoices, including towards arrears, will be settled within 60 days of
receipt. DNO expects at a minimum to recover the full nominal value of the withheld receivables, and DNO continues to
work to improve the terms of recovery of the arrears, including but not limited to interest payments.
At year-end 2020, due to the IFRS 9 requirement to incorporate the time value effects of expected cash ows, DNO
reduced the book value of these receivables by USD 16.0 million when comparing the book value of the arrears with
estimated present value, which was recognised as other nancial expense. At 31 December 2021, in line with IFRS 9,
DNO made a re-run of the estimated present value, updated the Brent prices assumptions resulting in a net increase in
the book value of the arrears by USD 16.0 million, entirely reversing the nancial expense recognised in 2020. Moreover,
the classication of the receivables (current / non-current portion) was updated accordingly. The discounted value of trade
debtors is impacted by expectations of future production from the Tawke eld, forecast oil prices and the discount rate
applied. A probability-weighted assessment of a range of possible scenarios was made including a probability weighted
assessment of Brent oil price. The discount rate applied reects DNO’s cost of debt.
The underlift receivable of USD 17.2 million at 31 December 2021 (2020: USD 27.4 million) relates mainly to North Sea
underlifted volumes, valued at lower of production cost including depreciation and the market value at the reporting date,
which will be realised based on market value when the volumes are lifted. Other short-term receivables mainly relate to
items of working capital in the licences in Kurdistan and the North Sea and accrual for earned income not invoiced in the
North Sea.
Amounts due to the Company from DNO and (ultimately) Foxtrot International are unsecured and have a 30-day credit
term. Amounts due from subsidiaries are repayable on demand, expected to be settled in 2022, unsecured and interest
free. No amounts are past due nor impaired.
17. Cash and Cash Equivalents
USD million
2021
2020
Group
Restricted cash
15.8 15.6
Unrestricted cash
756.3 486.7
Total cash and cash equivalents
772.1 502.3
Unrestricted cash is mainly related to bank deposits at 31 December 2021 and 31 December 2020 in USD, NOK, GBP,
EUR, DKK and AED. Of the USD 772.1 million total cash and cash equivalents at 31 December 2021, USD 736.5 million
relates to cash held by DNO. USD 4.1 million relates to the Company and USD 31.5 million relates to its wholly-owned
subsidiaries.
The Company has no restricted cash at year-end 2021 (USD 2.0 million at year-end 2020 for a loan escrow account).
For DNO, restricted cash of USD 15.8 million (USD 13.6 million at year-end 2020) relates to deposits on escrow account,
employees’ tax withholdings and deposits for rent.
18. Share Capital
The Company had the following shares issued at 31 December 2021:
Par value
2021
Number
of shares
2020
Number
of shares
Class A Shares GBP 0.01
194,484,040 194,484,040
Restricted Class A Shares GBP 0.001
117,647,332 117,647,332
Total Class A
312,131,372 312,131,372
Class B Shares GBP 0.0000001
117,647,332 117,647,332
Class C Shares GBP 0.0000001
87,488,693 87,488,693
Redeemable Preference Shares GBP 1.00
50,000 50,000
All shares are fully paid.
16. Other Non-Current Receivables/Trade and Other Receivables (
continued)
103
Transfers of Restricted Class A Shares are limited to certain permitted transferees set forth in the Company’s Articles of
Association -- essentially, related parties or charities. Transfers to non-permitted transferees give rise to loss of Class B
Share voting rights. Because they have the same rights to participate in prots as Class A Shares, Restricted Class A Shares
are not treated as a class separate from Class A Shares for accounting purposes.
On 15 October 2020 as a result of shareholders’ requests to release the restrictions on their Restricted Class A Shares,
36,000 Restricted Class A Shares were re-designated as Class A Shares and 36,000 Class B Shares representing 72,000
votes, were transferred to the Company and cancelled.
Key rights attached to each class of shares are as follows:
Restricted
Class A share
Class A share
Class B share Class C share Preference share
Right to vote
one vote one vote
two votes none none
Right to participate in prots
yes yes
none none none
The preference shares were classied as equity.
19. Share Premium
The Company records proceeds above par value in the share premium reserve.
20. Other Reserves, Treasury Shares and Foreign Currency Translation Reserves
Other Reserves
USD million
2021
2020
Group
Discount for (predecessor) shares issued below fair value as part of acquisition in 2013
(15.5) (15.5)
Settlement of share-based payment arrangement in 2013
(20.3) (20.3)
Reclassication within equity due to Group Reorganisation in 2014
360.8 360.8
Capital Reduction in 2017
518.3 518.3
Acquisition and cancellation of own shares in 2019
(30.0) (30.0)
Capital redemption reserves resulting from acquisition and cancellation of own shares in 2019
0.3 0.3
Total other reserves
813.5 813.5
USD million
2021
2020
Company
Group Reorganisation in 2014
148.8 148.8
Capital Reduction in 2017
518.3 518.3
Acquisition and cancellation of own shares in 2019
(30.0) (30.0)
Capital redemption reserves resulting from acquisition and cancellation of own shares in 2019
0.3 0.3
Total other reserves
637.3 637.3
The USD 148.8 million above represents the difference between the nominal value of the shares issued as consideration
for the shares in subsidiaries received by the Company as part of the 2014 Group Reorganisation and their fair value. The
Group Reorganisation took place shortly before the Company listed its shares. The rst quoted price for the Company’s
shares on the Oslo Børs was determined to represent fair value. The Group Reorganisation fell under section 611 of
the 2006 Companies Act (group reconstruction relief). However, since IAS 27 requires the Company to account for
the investment at cost in its Parent Company Financial Statements, the Company was unable to take advantage of
the permission in section 615 of the 2006 Companies Act to record the transaction at nominal value. The cost of the
investment is the fair value of the consideration issued. This treatment under IAS 27 also complies with the ‘alternative
presentation’ allowed under section 615 of the 2006 Companies Act.
Treasury Shares and Foreign Currency Translation Reserves
There are cross-holdings between the Company and DNO. At 31 December 2021, DNO owned 5.08 percent (2020:
5.08 percent) being 15,849,737 of the Company’s outstanding Class A Shares plus Restricted Class A Shares. The Group
accounts for the shares in the Company as treasury shares. The shares of the Company were acquired by DNO for USD
49.8 million.
18. Share Capital (continued)
RAK Petroleum
plc
104
Acquisition of Non-controlling Interest without Change in Control
The parent’s effective ownership interest in subsidiary DNO was increased in 2020 due to the acquisition by DNO of its
own shares which changed the Group’s effective holding in DNO from 44.37 percent to 44.94 percent. The change in the
Company’s interest in 2020 did not result in a change of control of DNO and therefore was accounted for as an equity
transaction, i.e., a transaction with owners in their capacity as owners. The carrying amounts of the Treasury Shares (held
by DNO) and Foreign Currency Translation Reserves of the controlling and non-controlling interest were adjusted to reect
the changes in their relative interests in DNO. There were no changes in the Treasury Share ownership in 2021.
21. Interest-bearing Liabilities
USD million
Ticker
OSE
Facility
Currency
Facility
Amount
Interest (percent)
MaturityEffective
Interest
rate
(percent)
Fair value Carrying amount
2021
2020
20212020
Interest-bearing liabilities:
Bond loan (ISIN NO0010823347)
DNO02 USD
-
-
- -
-376.5
-
400.0
Bond loan (ISIN NO0010852643)
DNO03 USD 394.9
8.37529.05.2024
9.0410.2 370.0 394.9 400.0
Bond loan (ISIN NO0011088593)
DNO04 USD 400.0
7.87509.09.2026
8.8414.0
-
400.0
-
Borrowing issue costs
- - - - - - -
(16.5) (15.4)
Reserves-based lending facility
USD 350.0
see below07.11.2026 149.6 95.0 149.6
-
95.0Exploration nancing facility see below 3.26
NOK 250.0
see below- -
Mashreq loan
AED
- - -
-
-2.0
-
2.0
Total interest-bearing
liabilities
919.2 898.1
873.4 936.2
USD million
2021
2020
Non-current
Bonds
794.9 800.0
Capitalised borrowing issue costs (bonds)
(16.5) (15.4)
Reserves-based lending facility
95.0 149.6
Total non-current interest-bearing liabilities
873.4 934.2
Current
Mashreq loan
-
2.0
Total current interest-bearing liabilities
-
2.0
Bonds
All the bonds are issued by DNO ASA.
On 31 May 2018, DNO completed the placement of USD 400 million of ve-year senior unsecured bonds issued at 100
percent of par with a xed coupon rate of 8.75 percent. The bond was listed on the Oslo Børs under ticker DNO02. The
principal amount at 31 December 2020 was USD 400 million and fell due on 31 May 2023. On 1 September 2021, DNO
completed the placement of USD 400 million of a new, ve-year unsecured bond issued at 100 percent of par with a
coupon rate of 7.875 percent. The bond was listed on the Oslo Børs under ticker DNO04. In connection with the bond
placement, DNO agreed to buy back USD 154 million in nominal value of DNO02 at 103.7 percent of par plus accrued
interest. The remaining DNO02 bonds were called and settled after completion of the new bond at 103.5 percent of par
plus accrued interest.
On 29 May 2019, DNO completed the placement of USD 400 million of new ve-year senior unsecured bonds issued at
100 percent of par with a coupon rate of 8.375 percent. The bond was listed on the Oslo Børs under ticker DNO03. The
principal amount at 31 December 2021 is USD 400 million and falls due on 29 May 2024.
During 2021, DNO ASA has acquired USD 5.1 million of DNO03 bonds at a price range of 103.9 to 104.0 percent of par
plus accrued interest. Facility and carrying amount for the bonds is shown net of bonds held by DNO.
20. Other Reserves, Treasury Shares and Foreign Currency Translation Reserves (continued)
105
The nancial covenants of the DNO03 and DNO04 bonds require DNO to have a liquidity of a minimum of USD 40 million
and a minimum equity ratio of 30 percent or a total equity no less than USD 600 million. There is also a restriction on
declaring or making any dividend payments if the liquidity is less than USD 80 million immediately after such distribution is
made. At 31 December 2021, DNO satises all loan agreement requirements including covenants on DNO’s equity ratio.
Reserves-Based Lending
The DNO Group has a reserves-based lending (“RBL”) facility in relation to its Norway and UK licences in an aggregate
amount of USD 350 million which is available for both debt and issuance of letters of credit. An additional tranche of
USD 350 million is available on an uncommitted accordion basis. Interest charged on utilisations is based on the LIBOR,
NIBOR or EURIBOR rates (depending on the currency of the drawdown) plus a margin ranging from 2.75 to 3.25 percent.
The facility will amortise over the loan life with a nal maturity date of 7 November 2026. The entities that participate
in the facility are required to submit quarterly a liquidity test and maintain a consolidated net debt divided by EBITDAX
(earnings before interest, tax, depreciation, amortisation and exploration) ratio of maximum 3.5. The security under the
RBL includes, without limitation, a pledge over the shares in DNO North Sea plc and its subsidiaries, assignment of claims
under shareholder loans, intra-group loans and insurances and a pledge of certain bank accounts and mortgages over the
licence interests. There are also restrictions on loans and dividend payments to DNO ASA. The borrowing base amount
of the facility at 1 January 2022 is USD 106 million. The amount utilised as of the reporting date is disclosed in the table
above. In addition, USD 88 million is utilised in respect of letters of credit.
Exploration Financing Facility
DNO Norge AS has available a revolving exploration nancing facility (“EFF”) in a total amount of NOK 250 million. An
additional tranche of NOK 750 million is available on an uncommitted accordion basis. Utilisation requests need to be
delivered for each proposed loan. The aggregate of the proposed loan shall not exceed 95 percent of the tax value of
eligible costs which have not already been refunded by the tax authorities. The facility is secured against the tax refund
and is repaid when the refunds have been received which is approximately 11 months after the end of the nancial
year. The interest rate equals three months Norwegian Interbank Offered Rate (NIBOR) plus a margin of 1.70 percent.
Utilisations can be made until 31 December 2022. Due to temporary changes to the taxation of oil and gas companies in
Norway, the DNO Group has chosen to not utilise the EFF in relation to exploration spend in 2021, see Note 10.
Mashreq Loan
During 2016, the Group negotiated a new loan facility with Mashreq of USD 32.7 million at the three-month Emirates
Interbank Offered Rate (“EIBOR”) plus 4.0 percent. Quarterly repayments of principal began 15 months after the start
date of the loan and ended in February 2021. An additional principal repayment of AED 18.0 million (USD 4.9 million) was
made in April 2020. Interest was paid on a quarterly basis. While borrowings were outstanding, the Group had agreed to:
not dispose of or encumber its indirect interest in Mondoil Enterprises; maintain a pledge account holding shares in DNO
with a value of at least thrice the outstanding indebtedness; and maintain a cash balance of one quarter’s payments (USD
2.0 million) in a service account as restricted cash. The proceeds have been used for general working capital purposes,
including, among others, repayment of prior bank loans and meeting cash calls from Foxtrot International. The loan was
obtained by a subsidiary of the Company and passed onwards to the Company on the same terms. The Mashreq loan was
the only borrowing at Company level and was closed out in February 2021.
Changes in Liabilities Arising from Financing Activities Split by Cash and Non-cash Changes
USD million
At 1 Jan 2020 Cash ows
Non-cash
changes
Amortisation/
Currency
Total at
31 Dec 2020
Cash
ows
Non-cash changes
Total
at 31 Dec 2021
Acquisition
Amortisation/
Currency
Group
Bond loans
961.2 (161.0) (0.2) 800.0 (5.1)
- -
794.9
Borrowing issue costs
(23.0)
-
7.6 (15.4) (10.5)
-
9.4
(16.5)
Reserves-based lending facility
37.8 109.2 2.6 149.6 (53.9)
-
(0.7)
95.0
Exploration nancing facility
85.6 (86.1) 0.5
- - - - -
Mashreq loan
14.3 (12.3)
-
2.0 (2.0)
- - -
Total liabilities from nancing activities
1,075.9 (150.3) 10.5 936.2 (71.5)
-
8.7
873.4
Company
Mashreq loan
14.3 (12.3)
-
2.0 (2.0)
- - -
Related party debt
0.5 (0.5)
- - - - - -
Total liabilities from nancing activities
14.8 (12.8)
-
2.0 (2.0)
- -
-
21. Interest-bearing Liabilities
(
continued)
RAK Petroleum
plc
106
At 31 December 2021, the Group had the following provisions:
USD million
2021
2020
Non-current
Asset retirement obligations
386.3 436.6
Other long-term obligations
3.7 3.5
Total non-current provisions for other liabilities and charges
390.0 440.2
Lease liabilities
12.5 13.9
Total non-current lease liabilities
12.5 13.9
Current
Asset retirement obligations
69.7 86.7
Other provisions and charges
34.8 25.3
Total current provisions for other liabilities and charges
104.4 112.0
Current lease liabilities
15.7 3.8
Total current lease liabilities
15.7 3.8
Total provisions for other liabilities and charges and lease liabilities
522.6 569.7
Other provisions relate mainly to litigations as disclosed in Note 23.
The Company currently has no provisions with the exception of accrued end of service benets for staff based in the
United Arab Emirates of USD 0.1 million.
Asset retirement obligations
The provisions for asset retirement obligations are based on the present value of the estimated future cost of
decommissioning oil and gas assets in Kurdistan and the North Sea. The discount rates applied before tax at year-end
2021 were between 3.2 percent and 3.7 percent (2020: between 3.2 percent and 3.7 percent). The credit margin
included in the discount rates at year-end 2021 was 2.8 percent (2020: 2.8 percent).
The decrease in asset retirement obligation provisions in 2021 compared to 2020 is due mainly to the payment of USD
86.8 million of decommissioning costs during 2021 and the accretion expenses from the unwinding of discounting.
USD million
Asset
retirement
obligations
Other
non-current
Balance at 1 January 2020
492.8 7.1
Decommissioning spend (30.7)
-
Increase/(decrease) in existing provisions
38.3
(3.6)
Amounts charged against provisions
-
(0.1)
Effects of change of the discount rate
2.9
-
Accretion expenses (unwinding of discount)
17.0
-
Reclassication and transfer
3.0
-
Balance at 31 December 2020
523.3 3.4
Decommissioning spend
(86.8)
-
Increase/(decrease) in existing provisions
0.9 0.2
Amounts charged against provisions
- -
Effects of change of the discount rate
0.9
-
Accretion expenses (unwinding of discount)
17.7
-
Reclassication and transfer
- -
Balance at 31 December 2021
456.0 3.6
22. Provisions for Other Liabilities and Charges/Lease Liabilities
107
Lease Liabilities
The DNO Group’s future minimum lease payments under non-cancellable leases are mainly related to ofce rent
(including warehouse and equipment) and rig lease. In 2021, DNO entered into a rig lease agreement to perform
decommissioning, plugging and abandonment at the Schooner and Ketch elds in the UK part of the North Sea. The
rig lease was entered into with DNO as the operator of the licenses at the initial signing and subsequently allocated to
the licence partners. The rig lease was recognised on a gross basis, rather than based on DNO’s working interest share
(60 percent).
The identied lease liabilities have no signicant impact on the DNO Group’s nancing, loan covenants or dividend
policy. The Group does not have any residual value guarantees. Extension options are included in the lease liability
when, based on management’s judgement, it is reasonably certain that an extension will be exercised.
The difference between the recognised lease liabilities in the Consolidated Statement of Financial Position and the
undiscounted lease liabilities is due to discounting and adjustment for short-term leases and low-value leases. Lease
payments related to short-term leases and leases of low-value assets are recognised under lifting costs and exploration
costs, or tangible assets and capitalised exploration. Total lease payments related to short-term leases and low-value
assets was USD 56.6 million (2020: USD 31.2 million) of which most of the lease payments are related to drilling rigs.
At 31 December 2021, the DNO Group’s future undiscounted minimum lease payments under non-cancellable leases
that are recognised in the nancial position were payable as follows and are related to ofce rent and equipment:
USD million
2021 2020
Within one year
16.6 4.7
Two to ve years
13.1 13.8
After ve years
-
1.1
Total undiscounted lease liabilities at 31 December 2021
29.7 19.6
The Company has no leases with a duration of more than 12 months.
23. Commitments and Contingencies
Contingent Liabilities and Contingent Assets
During the normal course of its business, the Company or its Investment Entities can be involved in legal proceedings
and unresolved claims. The Group provides in its Consolidated and Parent Company Financial Statements for probable
liabilities related to litigation and claims based on management’s best judgement and in line with IAS 37. Other than
what is set out below, the Group is not aware of any governmental, legal or arbitral proceedings (including any such
proceedings which are pending or threatened) initiated against it that may have, or have had, signicant effects on the
Group’s results of operations, cash ows or nancial position.
At 31 December 2021, DNO had the following legal disputes.
Disputes with Ministry of Oil and Minerals of Yemen (“MOM”) – Block 43 and Block 32
DNO Yemen AS was involved in a dispute with MOM with respect to DNO Yemen AS’ relinquishment of Block 43 in
2016. An arbitral award was rendered on 18 February 2020 in DNO Yemen AS’ favour for USD 6.8 million (almost
entirely dismissing the USD 131 million counterclaim of the MOM). In accordance with IAS 37, the contingent asset
related to this arbitration award was not recognised in the nancial statements at year-end 2021.
As part of the Block 43 arbitral award issued in 2020, a cost recovery audit was mandated for the years 2014 and
2015. In 2021, the MOM led an arbitration claim against DNO Yemen AS for allegedly over-recovered costs of USD
17.2 million from the Ministry in 2014 and 2015. In accordance with IAS 37.92, the DNO Group does not provide
further information with respect to this arbitration dispute and the associated risk for the DNO Group, especially with
regards to the measures taken in this context, in order not to impair the outcome of the proceedings. In accordance
with IAS 37, no provision for liability was made at year-end 2021 related to this dispute.
22. Provisions for Other Liabilities and Charges/Lease Liabilities (continued)
RAK Petroleum
plc
108
DNO Yemen AS was involved in a dispute with MOM with respect to DNO Yemen AS’ relinquishment of Block 32 in
2016. An arbitral award was rendered on 7 April 2021 in the MOM’s favour in the amount of USD 8.1 million (out
of USD 151 million counterclaim) while the contractors of the licence were awarded USD 5 million (out of a USD 14
million claim). A provision for liability of USD 1.4 million (net to DNO Yemen AS’ 45 percent interest) was recognised in
2021 related to this arbitration award.
Disputes with Ministry of Energy and Minerals (“MEM”) of Oman - Block 8
On 3 January 2019, DNO announced that its subsidiary, DNO Oman Block 8 Limited, had relinquished operatorship and
participation in Block 8 to Oman’s MEM as a result of the expiry of the Exploration and Production Sharing Agreement
(“EPSA”). DNO held a 50 percent interest in the licence alongside LX International Corp., which held the remaining 50
percent interest. The relinquishment gave rise to certain contested issues between MEM and the partners of Block 8,
DNO Oman Block 8 Limited and LX International Corp., which were under arbitration proceedings. A nal settlement
agreement was signed between the parties in the fourth quarter of 2021 in the MEM’s favour in the amount of USD
17.7 million. In accordance with IAS 37, a provision for liability of USD 8.9 million (net to DNO Oman Block 8 Limited’s
50 percent interest) was made at year-end 2021.
Capital Commitments and Abandonment Expenditures
Based on work plans at year-end 2021 and contingent on future market conditions including development in the oil
price, the DNO Group’s estimated capital commitments and abandonment expenditures at year-end amounted to
USD 545 million (2020: USD 445 million). The projected capital commitments and abandonment expenditures reect
the DNO Group’s share of planned drilling and facility investments and decommissioning plans in its licences in 2022.
Execution of these work plans is subject to revisions.
Foxtrot International is committed to building processing facilities and pipelines to supply gas to two new power
stations in Côte d’Ivoire. The estimated remaining cost is USD 8.9 million for Foxtrot International’s share to be spent in
2022.
Guarantees Related to Assets in Operation at 31 December 2021
DNO ASA has issued parent company guarantees to the authorities in Norway and the United Kingdom on behalf of
certain subsidiaries that participate in licences on the NCS and UKCS.
Liability for Damages/Insurance
Installations and operations are covered by various insurance policies.
24. Trade and Other Payables
USD million
2021
2020
Group
Trade payables
85.8 58.4
Public duties payable
6.1 4.1
Prepayments from customers
-
9.2
Overlift 17.3 6.4
Other accrued liabilities
123.4 102.4
Total trade and other payables
232.7 180.3
USD million
2021
2020
Company
Trade payables
0.2 0.1
Total trade and other payables
0.2 0.1
Trade payables are non-interest bearing and are normally settled on 30 to 60 day terms.
Trade payables and other accrued expenses at year-end 2021 include items of working capital related to participation in
oil and gas licences in Kurdistan and the North Sea and prepayment from customers in the North Sea.
The overlift payable of USD 17.3 million at year-end 2021 relates mainly to DNO’s North Sea licences, valued at
production cost including depreciation.
23. Commitments and Contingencies (continued)
109
Subsidiaries
The Group had the following subsidiaries:
Name of the subsidiary Percent holding
Address
Country of
incorporation
Place of
business
31 December
2021
31 December
2020
Nature of business
Directly held by the Company
RAK Petroleum Holdings B.V.
Prins Bernhardplein 200
1097JB Amsterdam
Netherlands
Netherlands Netherlands
100
100Holding and
nance company
RAK Petroleum Public Company Limited
Ofce 12A07 XL Tower
Marasi Drive, Business Bay
Dubai, UAE
UAE
United Arab Emirates
100
100Ras Al Khaimah and
Dubai ofces
Indirectly held by the Company
Mondoil Enterprises, LLC
Corporation Trust Center
1209 North Orange Street
Wilmington, Delaware,
USA
USA
United States
100
100Holding entity
DNO ASA
Dokkveien 1
0250 Oslo, Norway
Norway
Norway, Kurdistan, Other
44.94
44.94
Holding company
Held directly or indirectly by DNO ASA
DNO Iraq AS
Dokkveien 1
0250 Oslo, Norway
Norway Kurdistan
44.94
44.94Operating company
DNO UK Limited
Dokkveien 1
0250 Oslo, Norway
UK UK
44.94
44.94Holding company
DNO Mena AS
Dokkveien 1
0250 Oslo, Norway
Norway
Oman, Tunisia
44.94
44.94
Holding company
DNO Technical Services AS
Dokkveien 1
0250 Oslo, Norway
Norway Dubai
44.94
44.94Services company
DNO Exploration UK Limited
Dokkveien 1
0250 Oslo, Norway
UK UK
44.94
44.94Operating company
DNO Yemen AS
Dokkveien 1
0250 Oslo, Norway
Norway Yemen
44.94
44.94Operating company
DNO North Sea plc
Dokkveien 1
0250 Oslo, Norway
UK UK
44.94
44.94Operating company
Northstar Oman AS
Dokkveien 1
0250 Oslo, Norway
Norway Oman
-
44.94Liquidated
Held through DNO Mena AS
DNO Oman Limited
Dokkveien 1
0250 Oslo, Norway
Bermuda Oman
44.94
44.94Dormant
DNO Oman Block 8 Limited
Dokkveien 1
0250 Oslo, Norway
Guernsey Oman
44.94
44.94Dormant
DNO Oman Block 30 Limited
Dokkveien 1
0250 Oslo, Norway
Guernsey Oman
44.94
44.94Dormant
DNO Technical Services Limited
Dokkveien 1
0250 Oslo, Norway
Guernsey Dubai
44.94
44.94Dormant
DNO Tunisia Limited
Dokkveien 1
0250 Oslo, Norway
Guernsey Tunisia
44.94
44.94Dormant
Held through DNO North Sea plc
DNO North Sea (Norge) AS
Dokkveien 1
0250 Oslo, Norway
Norway Norway
44.94
44.94Inactive
DNO Norge AS
Dokkveien 1
0250 Oslo, Norway
Norway Norway
44.94
44.94Operating Company
DNO North Sea (UK) Limited
Dokkveien 1
0250 Oslo, Norway
UK UK
44.94
44.94Operating Company
DNO North Sea (ROGB) Limited
Dokkveien 1
0250 Oslo, Norway
UK UK
44.94
44.94Operating Company
DNO North Sea (Energy) Limited
Dokkveien 1
0250 Oslo, Norway
UK UK
44.94
44.94Inactive
DNO North Sea SIP EBT Limited
Dokkveien 1
0250 Oslo, Norway
UK UK
44.94
44.94Inactive
Faeroya Kolventi P/F
Dokkveien 1
0250 Oslo, Norway
Denmark Denmark
-
44.94Liquidated
The DNO subsidiary companies are owned by DNO either directly or indirectly, giving the Group an indirect interest in
them. DNO’s subsidiary DNO Iraq AS has operations in Kurdistan. Activities on the NCS are carried out through DNO
Norge AS, while activities on the UKCS are carried out through DNO North Sea (UK) Limited and DNO North Sea
(ROGB) Limited. DNO ASA, DNO Technical Services AS and DNO North Sea plc provide technical support and services to
the various companies in the DNO Group. The other subsidiaries had minimal activity during the year. Northstar Oman
AS and Faeroya Kolventi P/F were liquidated during 2021.
25. Investment in Subsidiaries
RAK Petroleum
plc
110
The Company
The Company holds its interests in the Investment Entities through its wholly-owned subsidiary, RAK Petroleum
Holdings B.V. The value of RAK Petroleum Holdings B.V. is predominantly derived from the recoverable amounts of
its investments in DNO and Foxtrot International. Refer to impairment testing in Notes 12 and 13 for DNO and Note
14 for Foxtrot International. At 31 December 2021 and 2020, the Company conducted an impairment test, however,
no impairment was considered warranted. At 31 December 2021 a change in oil price of 10 percent would not have
eliminated the headroom.
26. Related Party Disclosures
Transactions with related parties were carried out in the normal course of business on terms agreed between the
parties.
The Group has no (ultimate) controlling company/party.
Related Party Transactions (Company)
Related party transactions occur between DNO and the Company. DNO and the Company entered into a Service
Agreement whereby DNO reimburses the Company for work carried out on behalf of DNO and travel expenses
incurred on behalf of DNO. An amount of USD 0.2 million was owed by DNO to the Company at 31 December 2021.
An administration fee of 2.5 percent is charged on expenses incurred by the Company on DNO’s behalf.
Related party transactions occur between Foxtrot International and the Company. Foxtrot International and the
Company entered into a Service Agreement whereby Foxtrot International reimburses the Company for work carried
out in relation to the assets of Foxtrot International. An amount of USD 0.1 million was owed by Foxtrot International
to the Company at 31 December 2021.
USD million
2021
2020
Services Agreement – Foxtrot International
0.1 0.1
Services Agreement - DNO
0.2 0.5
Total related party transactions
0.3 0.6
Details of the Board of Directors and executive management remuneration are disclosed elsewhere in this report in the
Directors’ Remuneration Report. Key management compensation required to be disclosed by IAS 24 is as follows:
Key Management Compensation (Group)
USD million
2021
2020
Salaries and other short-term employee benets
(4.0) (4.1)
Directors’ fees
(0.3)
(0.3)Total key management compensation
(4.3) (4.3)
Key Management Compensation (Company)
USD million
2021
2020
Salaries and other short-term employee benets
(2.4) (2.4)
Directors’ fees
(0.3)
(0.3)Total key management compensation
(2.6) (2.7)
Key management compensation of the Group includes Mr. Mossavar-Rahmani’s salary as Executive Chairman of DNO and Mr. Dale as the
Managing Director of DNO.
25. Investment in Subsidiaries (continued)
111
27. Financial Risk Management Objectives and Policies
Financial Risk Policies
The Group’s activities expose it to a variety of nancial risks. The Board of Directors provides certain specic guidance
in managing such risks, particularly as relates to credit and liquidity risk. Any form of borrowing arrangement requires
approval from the Board of Directors and the Group does not currently use any derivative nancial instruments to
manage its nancial risks. The key nancial risks and the Group’s major exposures are as follows:
Equity Price Risk
Equity price risk includes the risk that the fair value of equity securities held by the Group may decrease because of
changes in (i) equity markets generally, (ii) particular equity markets or market segments, or (iii) the market price of
individual equities.
TThe Group’s most valuable asset is its shareholding in DNO, whose shares are publicly traded on the Oslo Børs. At
31 December 2021, the market value of that interest was USD 519.7 million. However, the Group’s interest in DNO is
accounted for as an investment in a subsidiary under International Financial Reporting Standards (see Note 13) such
that the market value is not directly reected in the Group’s nancial position. If the public equity value of the Group’s
interest in DNO decreases below the carrying value, the Group in certain circumstances may be required to record an
impairment of its goodwill in DNO, recorded as a loss in the Group’s income statement. Similarly, the Group’s income
statement reects the income performance of DNO and does not directly record or reect changes in its market value.
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash ows of a nancial instrument will uctuate because of
changes in market interest rates. The Company has no nancial instruments. The Company is not exposed to any
signicant interest rate risk. DNO has bond loans maturing in 2024 and 2026 with xed interest rates. The bond loans
are not subject to interest rate exposure as the bond loans have a xed interest rate. In addition to the bond loans,
DNO has an exploration nancing facility of NOK 250 million with a further NOK 750 million accordion with a oating
rate (draw down nil) and a reserves-based lending facility of USD 106 million (drawn USD 95 million). These loans are
subject to interest rate exposure but do not create a material interest rate exposure for the Group. The terms of the
loans are described in Note 21. At year-end 2021, neither the Company nor the Group had any interest rate hedging
instruments.
Foreign Currency Exchange Rate Risk
Currency risk is the risk that the value of a nancial instrument will uctuate due to changes in foreign exchange rates.
The Company is not exposed to any signicant currency risk. The Group operates internationally and can be exposed
to currency risk on commercial transactions, assets and liabilities. Commercial transactions and assets and liabilities are
subject to currency risk when payments are denominated in a currency other than the respective functional currency
of the Group. The vast majority of the Group’s expenditures, revenues, debts, receivables and cash are denominated
in USD. The Group has material expenditures in NOK and GBP related to the North Sea. The Group has minor
expenditures in AED, IQD and EUR. DNO’s revenues from the sale of oil and gas are in USD and EUR, while corporate
operational costs are mainly in USD and NOK. The Group’s assets and liabilities are mainly denominated in USD. A +/-
10 percent change in the NOK/USD exchange rate at 31 December 2021 will impact other comprehensive income by
USD (30.0) million to USD 8.8 million (2020: USD (65.4) million to USD 74.4 million). A +/- 10 percent change in the
GBP/USD exchange rate at 31 December 2021 will impact other comprehensive income by USD (75.6) million to USD
50.8 million (2020: USD (31.4) million to USD 30.0 million). A +/- 10 percent change in the EUR/USD exchange rate
at 31 December 2021 will impact prot before tax by USD (3.6) million to USD 3.6 million (2020: USD (0.9) million to
USD 0.9 million). The Group had no currency hedging arrangements at year-end 2021 although it monitors its foreign
currency risk exposure on a continuous basis and evaluates hedging alternatives.
Credit Risk
Credit risk is the risk of nancial loss to the Group if a customer or counter-party to a nancial instrument fails to meet
its contractual obligations. For all classes of nancial assets held by the Group, the maximum exposure to credit risk is
the carrying value as disclosed in the statement of nancial position.
Credit risk from balances with banks and nancial institutions is managed by the Group’s treasury function. The Group
limits its counterparty credit risk by maintaining its cash deposits with multiple banks and nancial institutions with high
credit ratings.
RAK Petroleum
plc
112
Credit risk for related party receivables of the Company is viewed as negligible. Credit risk for the tax receivable is
viewed as negligible.
The Group’s exposure to credit risk is mainly related to the DNO Groups outstanding trade debtors.
USD million
31 December 2021
31 December 2020
Trade debtors (non-current portion) (Note 16)
18.2 182.0
Trade debtors (Note 16)
344.4 96.2
Other receivables (Note 16)
140.7 143.4
Tax receivables
21.1 63.1
Cash and cash equivalents
772.1 502.2
Total 1,296.5 986.9
Trade Debtors
The impairment model in IFRS 9 is based on the premise of providing for expected credit losses. Expected credit
losses (“ECL”) under IFRS 9, are based on the difference between the contractual cash ows due in accordance with
the contract and all the cash ows that are expected to be received, discounted at an approximation of the original
effective interest rate. Measurement of ECLs under IFRS 9 shall reect an unbiased and probability-weighted amount
that is determined by evaluating the range of possible outcomes as well as incorporating the time value of money. The
entity considered reasonable and supportable information about past events, current conditions and reasonable and
supportable forecasts of future economic conditions when measuring expected credit losses.
Trade Receivables from Oil Sales and Override Invoices in Kurdistan
Normal payment terms apply to amounts owed to DNO by the KRG for oil sales or entitlements and override invoices
from the Tawke licence in Kurdistan. Since late 2015, DNO received the payment due to it from entitlements and
overrides on a monthly basis from the KRG until early 2020. At year-end 2020, the DNO Group had accumulated
a receivable against the KRG after certain 2019 and 2020 entitlement and override payments to the DNO Group
(USD 259.0 million DNO share) and other Kurdistan based oil exporters were withheld early in 2020 by the KRG in
connection with the Covid-19 pandemic. Entitlement payments were resumed in March 2020 and override payments
were resumed in early 2021.
In December 2020, a plan was put in place by the KRG in respect of the withheld entitlement and override payments
from 2019 and 2020 such that if Brent prices exceed USD 50 per barrel on average in any month, one-half of the
incremental revenue will be paid to the Tawke partners and shared prorata to their interest in the licence by the KRG
towards the withheld amounts. Override payments would resume from the January 2021 invoice. In May 2021, the
KRG advised of a reduction from 50 percent to 20 percent of incremental revenue that would be paid to the Tawke
partners by the KRG towards the withheld amounts. DNO expects at a minimum to recover the full nominal value of
the withheld receivables and discussions continue to further improve the terms of recovery of the arrears, including but
not limited to interest payments reecting DNO’s cost of debt. During 2021, the outstanding arrears were reduced from
USD 259.0 million at the start of the year to USD 169.1 million at year-end.
Due to the IFRS 9 requirement to incorporate the time value of money, at year-end 2020 DNO reduced the book value
of these receivables by USD 16.0 million (recognised as other nancial expense) when comparing the book value of
the receivables to the estimated present value. At year-end 2021 the amount was reversed in full. The calculation
of present value in accordance with IFRS 9, takes into account the most recent production forecasts for the Tawke
licence and DNO’s Brent price assumptions (see Note 12) to determine the expected timing of payments towards the
arrears plus contractual interest under IFRS 9, and reects the probability-weighted amount for a range of possible
scenarios including probability-weighted Brent price scenarios with a probability assigned to each. The discount rate
that is applied reects DNO’s cost of debt. In addition, at year-end 2021, USD 18.2 million was classied to non-current
receivables based on the forecasted repayment plan.
27. Financial Risk Management Objectives and Policies (continued)
113
The table below shows the aging of trade debtors and information about credit risk exposure using a provision matrix.
Days past due (trade debtors)
USD million Contract assets Current < 30 days 30-60 days 61-90 days > 90 days
Total
As of 31 December 2021
Trade debtors (nominal value) (Note 16)
- - 169.1 362.6
131.6 61.9
-Expected credit loss rate (percent)
- - - - - -
-
Expected credit loss rate (USD million)
- - - - - -
-
As of 31 December 2020
Trade debtors (nominal value) (Note 16)
- 294.2
42.3 2.7 2.8 3.3
243.4Expected credit loss rate (percent)
- - - - - -
-
Expected credit loss rate (USD million)
- - - - - -
-
Total trade debtors of USD 362.6 million in nominal value at year-end 2021 relate mainly to withheld entitlement and
override payments from the Tawke licence, see Note 16 for further details.
Liquidity Risk
The Company's liquidity risk is the risk that it will not be able to meet its nancial obligations as they fall due. Prudent
liquidity risk management implies maintaining sufcient cash balances, marketable securities, credit facilities and other
nancial resources to maintain nancial exibility under dynamic market conditions. Cash ow forecasts are performed
by the Group and liquidity requirements monitored.
Foxtrot International issues cash calls to Mondoil Enterprises to fund capital and operating requirements for Côte
d’Ivoire Block CI-27. These cash calls are made on a regular basis pursuant to an approved budget and in 2021 totalled
USD 15.6 million.
The Company has concluded that cash distributions anticipated to be received from Foxtrot International will be
sufcient to enable the Company to meet all of its scheduled and anticipated obligations. In the unlikely event of a
disruption of these cash distributions, the Company (i) will make use of any cash reserves or available borrowings,
(ii) will pursue additional nancing arrangements, if available, (iii) may have available to it the proceeds of insurance
against the risks giving rise to the disruption, or (iv) could liquidate a portion of its liquid investment holdings.
The DNO Group’s principal sources of liquidity are operating cash ows from its producing assets in Kurdistan and the
North Sea. In addition to its operating cash ows, the DNO Group relies on the debt capital markets for both short- and
long-term funding. At year-end 2021, the DNO Group had outstanding senior unsecured debt in the form of bonds
totalling USD 794.9 million and had available an Exploration Financing Facility in an aggregate amount of NOK 250
million (equivalent to USD 29 million at 31 December 2021) with an accordion option of NOK 750 million (equivalent
to USD 88 million at 31 December 2021). In addition, the DNO Group had available reserves-based lending in relation
to its Norway and UK licences with a total facility amount of USD 350 million. The DNO Group’s nance function
prepares projections on a regular basis in order to plan the DNO Group’s liquidity requirements. These plans are
updated regularly for various scenarios and form part of the basis for decision making for the DNO Board of Directors
and management.
Risk Concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the
same geographical region, or have economic features that would cause their ability to meet contractual obligations to
be similarly affected by changes in economic, political or other conditions. DNO’s revenues currently derive mainly from
production in the Tawke licence in Kurdistan and from several licences in the North Sea. The Group actively seeks to
reduce such risk through organic growth and business and asset acquisitions aimed at further diversifying its revenue
sources.
27. Financial Risk Management Objectives and Policies (continued)
RAK Petroleum
plc
114
DNO has loans and borrowings falling due at various times during the next three years. The tables below summarise
the maturity prole of the Group’s nancial liabilities on contractual undiscounted cash ows.
2021 USD million Book value On demand Less than 3 months 3 to 12 months 1 to 3 years Over 3 years
DNO loans and borrowings
873.4
-
16.9 60.8 510.4
545.3
Other liabilities
34.8
-
18.6 16.2
- -
Taxes payable
33.1
- 12.6 20.5 - -
Trade and other payables
232.6 1.9 210.5 3.0
- -
Total 1,173.9 1.9 258.6 100.5 510.4
545.3
2020 USD million Book value On demand Less than 3 months 3 to 12 months 1 to 3 years Over 3 years
Mashreq loan
2.0
-
2.0
- - -
DNO loans and borrowings
934.2
-
17.1 51.4 516.6
564.0
Other liabilities
25.3
-
11.3 14.0
- -
Taxes payable
- - - - - -
Trade and other payables
180.4 2.0 169.9 8.5
- -
Total 1,141.9 2.0 200.4 73.9 516.6
564.0
The undiscounted cash ows of the Group’s and Company’s other nancial liabilities approximate their carrying
amounts and their contractual maturity is predominantly within three months.
The Company’s loans included the Mashreq loan transferred to the Company through its subsidiary RAK Petroleum PCL
on the same terms and conditions. The loan was paid out in February 2021.
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to
support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments
to it in light of changes in business conditions. Equity is dened as capital. No changes were made in the objectives,
policies or processes during the years ended 31 December 2021 and 31 December 2020, although the changes in
capital structure and debt described in the Notes above were implemented.
The Group’s debt to equity (attributable to shareholders of the parent) ratio at 31 December 2021 was nil (0.3 percent
at 31 December 2020) as the Company has no debt.
Financial Assets and Liabilities
Financial assets and liabilities in the Group consist of bank deposits, trade and other receivables, other non-current
assets, interest-bearing liabilities, other current and non-current provisions for other liabilities and charges and
trade and other payables. Financial assets and liabilities are offset when there is a legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability
simultaneously. Current nancial assets and liabilities are carried at their fair value due to their short maturity.
Fair Value Hierarchy
Financial instruments measured at fair value are classied by the levels in the fair value hierarchy. Both carrying amount
and fair value are shown for all nancial instruments.
27. Financial Risk Management Objectives and Policies
(continued)
115
For nancial instruments measured at fair value, the levels in the fair value hierarchy are:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
Financial instruments are reclassied between the levels at the date of the event or change in circumstances that
caused the transfer.
Note that nancial instruments where the carrying amount is a reasonable approximation of fair value (e.g., bank
deposits, tax receivables, trade and other receivables, trade and other payables) are not included in the fair value
hierarchy. For the Group’s bank loans/facilities, the fair value is assessed equal to the carrying amount.
2021 - USD million
Notes
Carrying amount
Total
Fair value hierarchy
Financial assets
designated at FVTOCI*
Financial liabilities
at amortised cost
Date of valuation Level 1 Level 2 Level 3
Financial liabilities measured
or disclosed at fair value
Interest-bearing liabilities (non-current)
21
-
873.4
31 December 2021 824.2 - 95.0
Interest-bearing liabilities (current)
21
- - - - - -
*Financial assets designated at FVTOCI with no recycling of cumulative gains and losses upon derecognition (equity instruments).
2020 - USD million
Notes
Carrying amount
Total
Fair value hierarchy
Financial assets
designated at FVTOCI*
Financial liabilities
at amortised cost
Date of valuation Level 1 Level 2 Level 3
Financial liabilities measured
or disclosed at fair value
Interest-bearing liabilities (non-current)
21
-
934.2
934.2 31 December 2020 746.5 - 149.6
Interest-bearing liabilities (current)
21
-
2.0
2.0 31 December 2020 - 2.0 2.0
*Financial assets designated at FVTOCI with no recycling of cumulative gains and losses upon derecognition (equity instruments).
The Company’s other receivables (USD 0.5 million) and cash and cash equivalents (USD 4.1 million) make up the
Company’s nancial assets at amortised cost. The Company’s trade and other payables (USD 0.2 million) make up the
Company’s other nancial liabilities at amortised cost. The carrying amount of these items approximate their fair value.
27. Financial Risk Management Objectives and Policies
(continued)
RAK Petroleum
plc
116
At year-end 2021 DNO held interests in two licences in Kurdistan, both of which are PSCs. The Tawke licence contains
the producing Tawke and Peshkabir elds. The Baeshiqa licence contains two large structures, Baeshiqa and Zartik, with
multiple independent stacked target reservoirs, including in the Cretaceous, Jurassic and Triassic formations.
At year-end 2021, DNO also held 73 offshore licences in Norway, 11 offshore licences in the UK, two offshore licences
in the Netherlands, one offshore licence in Ireland and one onshore licence in Yemen.
At year-end 2021 Foxtrot International held two licences offshore Côte d’Ivoire.
As is customary in the oil and gas industry, most of the Group's assets are held in partnership with other companies.
Below is an overview of the Group's licences, which are held through several wholly-owned subsidiary companies.
Held through DNO as a subsidiary:
Region/licence Participating
interest at end
2021 (percent)
Participating
interest at end
2020 (percent)
Operator Partners
Kurdistan
Tawke PSC Genel Energy International Limited
75.0 75.0
DNO Iraq ASBaeshiqa PSC
64.0 32.0
DNO Iraq ASExxonMobil Kurdistan Region of Iraq Limited, Turkish Energy Company
Limited, Kurdistan Regional Government
Norway
PL006 C Aker BP ASA
65.0 85.0
DNO Norge ASPL006 E Aker BP ASA
85.0 85.0
DNO Norge ASPL006 F Aker BP ASA
85.0 85.0
DNO Norge ASPL018 ES DNO Norge AS, Spirit Energy Norway AS
45.0 100.0
A/S Norske ShellPL019 20.0 20.0
Aker BP ASA DNO Norge AS
PL019 E DNO Norge AS
20.0 20.0
Aker BP ASAPL019 F DNO Norge AS
45.0 45.0
Aker BP ASAPL036 D DNO Norge AS, PGNiG Upstream Norway AS
28.9 28.9
Aker BP ASAPL048 D DNO Norge AS, Petrolia NOCO AS, Aker BP ASA
9.3 9.3
Equinor Energy ASPL053 B DNO Norge AS, Lime Petroleum AS, Vår Energi AS, Neptune Energy Norge AS
14.3 14.3
Wintershall Dea Norge ASPL055 14.3 14.3
Wintershall Dea Norge AS DNO Norge AS, Lime Petroleum AS, Vår Energi AS, Neptune Energy Norge AS
PL055 B DNO Norge AS, Lime Petroleum AS, Vår Energi AS, Neptune Energy Norge AS
14.3 14.3
Wintershall Dea Norge ASPL055 D DNO Norge AS, Lime Petroleum AS, Vår Energi AS, Neptune Energy Norge AS
14.3 14.3
Wintershall Dea Norge ASPL055 E DNO Norge AS, Lime Petroleum AS, Vår Energi AS, Neptune Energy Norge AS
14.3 14.3
Wintershall Dea Norge ASPL065 45.0 45.0
Aker BP ASA DNO Norge AS
PL065 B DNO Norge AS
45.0 45.0
Aker BP ASAPL1006 30.0 30.0
Equinor Energy AS DNO Norge AS
PL1007 40.0 40.0
DNO Norge AS OMV (Norge) AS, Spirit Energy Norway AS, Equinor Energy AS
PL1021
-
50.0Wintershall Dea Norge AS DNO Norge AS
PL1022
-
30.0Aker BP ASA DNO Norge AS, Concedo ASA
PL1027 20.0 20.0
Lundin Norway AS DNO Norge AS, Wintershall Dea Norge AS, INPEX Norge AS
PL1029 40.0 40.0
Lundin Norway AS DNO Norge AS, Spirit Energy Norway AS
PL1036 60.0 60.0
DNO Norge AS Source Energy AS
PL1048 50.0 50.0
Lundin Energy Norway AS DNO Norge AS
PL1056
-
20.0A/S Norske Shell DNO Norge AS, Aker BP ASA, Petoro AS, Wintershall Dea Norge AS
PL1070 30.0 30.0
Total E&P Norge AS DNO Norge AS, Vår Energi AS
PL1076 50.0 50.0
Equinor Energy AS DNO Norge AS
PL1077 40.0 40.0
Equinor Energy AS DNO Norge AS
PL1083 30.0 30.0
Lundin Energy Norway AS DNO Norge AS, Petoro AS
PL1084 40.0
-
Lundin Energy Norway AS DNO Norge AS
PL1085 25.0
-
Aker BP ASA DNO Norge AS, Petoro AS
PL1086 50.0
-
DNO Norge AS Source Energy AS, Petoro AS
PL1102 40.0
-
Lundin Norway AS DNO Norge AS
PL1106 40.0
-
DNO Norge AS Petoro AS, Petrolia NOCO AS, Lundin Energy Norway AS
28. Oil and Gas Licence Portfolio
117
PL1108 40.0
-
DNO Norge AS Pandion Energy AS, OKEA ASA
PL1109 30.0
-
OMV Norge AS DNO Norge AS, ONE-Dyas Norge AS
PL1112 20.0
-
D/a Norske Shell DNO Norge AS, Neptune Energy Norge AS, Spirit Energy Norway AS
PL1120 40.0
-
DNO Norge AS Equinor Energy AS, Vår Energy AS, Wintershall Dea Norge AS
PL1127 20.0
-
Equinor Energy AS DNO Norge AS, TotalEnergies EP Norge AS
PL122 17.0 17.0
Vår Energi AS DNO Norge AS, Equinor Energy AS, PGNiG Upstream Norway AS
PL122 B DNO Norge AS, Equinor Energy AS, PGNiG Upstream Norway AS
17.0 17.0
Vår Energi ASPL122 C DNO Norge AS, Equinor Energy AS, PGNiG Upstream Norway AS
17.0 17.0
Vår Energi ASPL122 D DNO Norge AS, Equinor Energy AS, PGNiG Upstream Norway AS
17.0 17.0
Vår Energi ASPL147 50.0 50.0
DNO Norge AS Spirit Energy Norge AS
PL159 B DNO Norge AS, PGNiG Upstream Norway AS
32.0 32.0
Equinor Energy ASPL159 G DNO Norge AS, PGNiG Upstream Norway AS
32.0 32.0
Equinor Energy ASPL169 E Vår Energi AS
87.0 87.0
DNO Norge ASPL185 14.3 14.3
Wintershall Dea Norge AS DNO Norge AS, Lime Petroleum, Vår Energi AS, Neptune Energy Norge AS
PL248 F DNO Norge AS, Petoro AS
20.0 20.0
Wintershall Dea Norge ASPL248 GS DNO Norge AS, Petoro AS
20.0 20.0
Wintershall Dea Norge ASPL248 HS DNO Norge AS, Petoro AS
20.0 20.0
Wintershall Dea Norge ASPL274 55.0 55.0
DNO Norge AS CapeOmega AS
PL274 CS CapeOmega AS
-
55.0
DNO Norge ASPL293 B DNO Norge AS, Idemitsu Petroleum Norge AS, Longboat Energy Norway AS
29.0 29.0
Equinor Energy ASPL300 45.0 45.0
Aker BP ASA DNO Norge AS
PL405 15.0 15.0
Spirit Energy Norway AS DNO Norge AS, Aker BP ASA, Suncor Energy Norge AS
PL433
-
15.0Spirit Energy Norway AS DNO Norge AS, ONE-Dyas Norge AS, PGNiG Upstream Norway AS
PL586 7.5 7.5
Neptune Energy Norge AS DNO Norge AS, Vår Energi AS, Suncor Energy Norge AS
PL644 20.0 20.0
OMV (Norge) AS DNO Norge AS, Equinor Energy AS, Spirit Energy Norway AS
PL644 B DNO Norge AS, Equinor Energy AS, Spirit Energy Norway AS
20.0 20.0
OMV (Norge) ASPL644 C DNO Norge AS, Equinor Energy AS, Spirit Energy Norway AS
20.0 20.0
OMV (Norge) ASPL740 50.0 50.0
DNO Norge AS Vår Energi AS
PL827 S DNO Norge AS
49.0 49.0
Equinor Energy ASPL836 S DNO Norge AS, Spirit Energy Norway AS
30.0 30.0
Wintershall Dea Norge ASPL836 SB DNO Norge AS, Spirit Energy Norway AS
30.0 30.0
Wintershall Dea Norge ASPL888
-
40.0DNO Norge AS Wellesley Petroleum AS, ConocoPhillips Skandinavia AS
PL902
-
10.0Lundin Norway AS DNO Norge AS, Petoro AS, Aker BP ASA
PL902 B DNO Norge AS, Petoro AS, Aker BP ASA
-
10.0
Lundin Norway ASPL906 30.0 20.0
Aker BP ASA DNO Norge AS, Longboat Energy Norge AS
PL923 20.0 20.0
Equinor Energy AS DNO Norge AS, Wellesley Petroleum AS, Petoro AS
PL924 15.0 15.0
Wellesley Petroleum AS DNO Norge AS, Lundin Energy Norway AS, Equinor Energy AS
PL926
-
60.0DNO Norge AS Concedo ASA, Lundin Norway AS
PL929 10.0 10.0
Neptune Energy Norge AS DNO Norge AS, Pandion Energy AS, Wintershall Dea Norge AS, Lundin
Norway AS
PL943 30.0 30.0
Equinor Energy AS DNO Norge AS, Sval Energi AS
PL967 60.0 60.0
DNO Norge AS Equinor Energy AS
PL968 40.0 40.0
DNO Norge AS Petoro AS, MOL Norge AS, Aker BP ASA
PL969 45.0 45.0
A/S Norske Shell DNO Norge AS, Spirit Energy Norway AS
PL975
-
60.0DNO Norge AS Source Energy AS
PL983 20.0 20.0
Equinor Energy AS DNO Norge AS, TotalEnergies EP Norge AS, Petoro AS
PL984 40.0 40.0
DNO Norge AS Source Energy AS, Vår Energi AS
PL984 BS Source Energy AS, Vår Energi AS
40.0 40.0
DNO Norge ASPL986 20.0 20.0
Aker BP ASA DNO Norge AS, Petoro AS
28. Oil and Gas Licence Portfolio (continued)
RAK Petroleum
plc
118
PL987
-
20.0Suncor Energy Norge AS DNO Norge AS, Lundin Norway AS, Vår Energi AS
PL987 B DNO Norge AS, Lundin Norway AS, Vår Energi AS
-
20.0
Suncor Energy Norge ASPL988
-
30.0Lundin Norway AS DNO Norge AS, Vår Energi AS
PL991
-
60.0DNO Norge AS Lundin Norway AS
PL994 30.0 30.0
Neptune Energy Norge AS DNO Norge AS, Petrolia NOCO AS
PL995
- -
DNO Norge AS INEOS E&P Norge AS
United Kingdom
P111 54.3 54.3
Repsol Sinopec Resources UK Ltd DNO North Sea (U.K.) Ltd, DNO North Sea (ROGB) Ltd, Dana Petroleum
(BVUK) Ltd
P219 18.2 18.2
Repsol Sinopec North Sea Ltd DNO North Sea (ROGB) Ltd, Dana Petroleum (BVUK) Ltd, Waldorf Production
UK Ltd
P2401 45.0 45.0
Shell U.K. Ltd DNO North Sea (U.K.) Ltd, Spirit Energy Resources Ltd
P2472 70.0 70.0
DNO North Sea (U.K.) Ltd One-Dyas E&P Ltd
P255 45.0 45.0
Shell U.K. Ltd DNO North Sea (U.K.) Ltd, Spirit Energy Resources Ltd
P558 10.0 10.0
Britoil Ltd DNO North Sea (U.K.) Ltd, Rockrose UKCS 10 Ltd
P803 10.0 10.0
BP Exploration Operating
Company Ltd
DNO North Sea (U.K.) Ltd, Rockrose UKCS 10 Ltd
P2551 100.0 100.0
DNO North Sea (U.K.) Ltd
P2533 50.0 50.0
Zennor Exploration Ltd DNO North Sea (U.K.) Ltd
P2537 30.0 30.0
Chrysaor Production (U.K.)
Limited
DNO North Sea (U.K.) Ltd
P2548 100.0 100.0
DNO North Sea (U.K.) Ltd
P1763
-
12.5Apace Beryl I Ltd DNO North Sea (U.K.) Ltd, Azinor Catalyst Ltd, Nautical Petroleum Ltd
P2074
-
25.0Chrysaor CNS Ltd DNO Exploration UK Ltd, Chrysaor Ltd, Ineos UK SNS Ltd
P2312
-
15.0Nautical Petroleum Ltd DNO North Sea (U.K.) Ltd, Suncor Energy UK Ltd
P454
-
5.9Neptune E&P UKCS Ltd DNO North Sea (U.K.) Ltd, Ineos UK SNS Ltd, Premier Oil E&P UK Ltd
P611
-
5.9Neptune E&P UKCS Ltd DNO North Sea (U.K.) Ltd, Ineos UK SNS Ltd, Premier Oil E&P UK Ltd
Ireland
FEL3/19 20.0 20.0
CNOOC Petroleum Europe Ltd DNO North Sea (U.K.) Ltd
Netherlands
D15 5.0 5.0
Neptune E&P UKCS Ltd DNO North Sea (U.K.) Ltd, Ineos UK SNS Ltd, Premier Oil E&P UK Ltd
D18a 2.5 2.5
Neptune E&P UKCS Ltd DNO North Sea (U.K.) Ltd, Ineos UK SNS Ltd, Premier Oil E&P UK Ltd
Yemen
Block 47 The Yemen Company, Geopetrol Hadramaut Incorporated
64.0 64.0
DNO Yemen ASHeld through equity-accounted investment Mondoil Côte d’Ivoire as a Joint Venture:
Region/licence
Participating
interest at end
2021 (percent)
Participating
interest at end
2020 (percent)
Operator Partners
Côte d’Ivoire
Block CI-27 SECI SA, Petroci*
27.27 27.27
Foxtrot International LDCBlock CI-12 SECI SA, Petroci
24.00 24.00
Foxtrot International LDC*Société Nationale d’Opérations Pétrolières de la Côte d’Ivoire
28. Oil and Gas Licence Portfolio
(continued)
119
The following events occurred in early 2022:
DNO Received 10 Awards in Norway’s APA Licensing Round
On 18 January 2022, DNO announced that its wholly-owned subsidiary, DNO Norge AS, had been awarded
participation in 10 exploration licences, of which three are operatorships, under Norway’s Awards in Predened Areas
(“APA”) 2021 licensing round. Of the 10 new licences, six are in the North Sea and four in the Norwegian Sea.
DNO Received Payments from Kurdistan
Since year-end 2021, DNO received USD 153.3 million net to DNO from the KRG for the months October and
November 2021 towards the respective month’s entitlement share of oil deliveries to the export market from the Tawke
licence, override payments equivalent to three percent of the gross Tawke licence revenues under the August 2017
receivables settlement agreement and arrears relating to withheld payment of 2019 and 2020 entitlement and override
invoices.
Federal Supreme Court of Iraq Ruling
The Company notes from public reports that on 15 February 2022, the Federal Supreme Court of Iraq ruled amongst
other things that the Kurdistan Oil and Gas Law No. 27/2007 is unconstitutional, that the KRG is to hand over all oil
production from areas located in the Kurdistan region of Iraq to the FGI and that the FGI has the right to pursue the
nullity of the oil contracts concluded by the KRG. DNO was not a party to the legal proceedings, and it is unclear how
the KRG and the FGI will follow up on the ruling. At present, normal operations are maintained at the Tawke and
Baeshiqa licences.
The Company continues to monitor the situation. Any future impacts of this ruling and subsequent actions by the FGI
and the KRG cannot currently be estimated but may impact the operations and nancial performance of the Group.
DNO Board of Directors Approve Dividend Payment
On 9 March 2022, DNO announced that pursuant to the authorisation granted at the 2021 annual general meeting
of its shareholders, the DNO Board of Directors has decided to distribute a dividend payment of NOK 0.20 per share to
be made on or about 21 March 2022 to all shareholders of record as of 15 March 2022. The Company’s share of the
dividend payment was USD 9,877,192 million.
Potential Implications of the Russia-Ukraine Conict
The Company notes the implications for commodity prices and potential interruptions of supply chains and third-party
services from the ongoing Russia-Ukraine armed conict. The Company, DNO and Foxtrot International are monitoring
international sanctions and trade control legislation in order to mitigate the potential impact on operations. A 4
kilometre section of the Kurdistan Export Pipeline, the operator of which is 60 percent owned by Rosneft, is used to
transport DNO’s Kurdistan crude oil to the Iraq/Turkey border for export. DNO is monitoring the evolving sanctions on
Russian companies following the conict with Ukraine to ascertain whether alternative transport arrangements should
be put in place.
29. Events After the Reporting Period
We’re not just hands on.
We’re hands in.