Stuart Petroleum Limited’s corporate governance practices are set out below. These practices, to the extent practicable, comply with the corporate governance recommendations specified in the ASX Corporate Governance Principles and Recommendations 2nd Edition as issued by the ASX Corporate Governance Council in August 2007.
Compliance with the ASX Principles and Recommendations is reported in the Corporate Governance section of the Annual Report of the Company.
1. Foundations for Management and Oversight
1.1. Board Functions
The Board does not have a formal Charter. In addition to the functions and responsibilities contained within the Constitution of the Company and its legal responsibilities, the functions and responsibilities reserved for the Board include:
- Providing strategic guidance to the Company including contributing to the development of, and approving, the corporate strategy.
- Reviewing and approving business plans, the annual budget and financial plans including available resources and major capital expenditure initiatives.
- Overseeing and monitoring organisational performance and the achievement of the Company’s strategic goals and objectives.
- Authorising the issue of shares, options, equity instruments or other securities.
- Authorising borrowings and the security undertakings granted by the Company in relation to such borrowings.
- Approving the acquisition, establishment, disposal or cessation of any significant business of the Company.
- Monitoring the progress of major capital expenditures.
- Monitoring the financial performance of the Company including approval of the annual and half-year financial reports and liaison with the Company’s auditors.
- Approval of new or replacement directors to fill casual vacancies.
- Appointment, performance assessment and, if necessary, the removal of the Managing Director.
- Ratifying the appointment and/or removal and contributing to the performance assessment for the members of the senior management team including the Managing Director and Company Secretary.
- Ensuring there are effective management processes in place and approving major corporate initiatives.
- Enhancing and protecting the reputation of the organisation.
- Approving the remuneration of Management and employees.
- Approving and overseeing compliance with policies and procedures, including risk management, quality, health, safety, security and environment (QHSE), designed to enable the Board to exercise its powers and discharge its responsibilities.
- Approving the delegation of authority to management and authorising expenditures which exceed the Managing Director's delegated authority.
1.2. Senior Executive Functions
Other than those responsibilities specifically reserved for the Board, responsibility for the management of the Company’s business activities is delegated to the Managing Director who is accountable to the Board. Through the Managing Director:
- Senior executives are required to conduct the day to day operations of the Company as specified in their Contract of Employment and related Job Description.
- Operations are to be conducted within the framework of approved programmes and budgets.
- Senior executives are authorised to conduct activities to the extent of their delegated authority. No executive may approve their personally incurred expenditures.
1.3. Process for Evaluating Senior Executive Performance
Senior Executive Performance is regularly reviewed against appropriate measures. This includes comparison of achievements during the year against specific performance objectives established for each year.
Recruitment and induction procedures ensure that new senior executives contribute to management decision making at the earliest opportunity. These procedures ensure that senior executives have a substantial knowledge of the petroleum industry and the Company, including its financial position, strategies, operations and risk management policies. In addition, senior executives are made aware of the respective rights, duties and responsibilities of their roles and those of the Board.
2. Structure of the Board to Add Value
2.1. Composition
The Board comprises two non-executive directors and the Managing Director in accordance with the Constitution of the Company. The number of Directors may be increased when it is considered that additional expertise is required in specific areas, or when an outstanding candidate is identified.
An appropriate balance is maintained between achieving a desirable level of Board independence and maintaining sufficient relevant experience, competence and commitment for the Board to fulfil its responsibilities. A majority of the Board of Directors are independent directors.
The determination of independence is a matter for the Board’s judgment. The existence of specific relationships does not automatically mean that a Director has lost the ability and willingness to operate independently and objectively and to challenge the Board and management.
Details of directors’ qualifications, experience and independence relationships are contained in the Corporate Governance section of the Annual Report of the Company.
2.2. Chairman
The Chairman is an independent director.
2.3. Chairman and Managing Director
The roles of Chairman and Managing Director are not exercised by the same individual.
The Chairman is responsible for leading the Board, ensuring directors are properly briefed in all matters relevant to their roles and responsibilities, facilitating Board discussion and managing the Board’s relationship with the Company’s senior management.
The Managing Director is responsible for implementing Company strategies and policies approved by the Board. His responsibilities and accountabilities are embodied in the position statement as agreed with the Board.
2.4. Board Nominations
The Company does not have a Nomination Committee. The Board considers the size and level of operations of the Company is not sufficient to warrant such a separate Committee.
In the absence of a Nomination Committee, the full Board conduct the functions and consider the issues that would otherwise be considered by a Nomination Committee.
2.5. Process for Evaluating the Performance of the Board and Individual Directors
The Board is provided with access to information and there are processes in place to enable directors’ to make informed decisions and to discharge their responsibilities effectively. The Board is supported by the Company Secretary and has access to management.
The Board is of the view that the directors have the knowledge and skills to discharge their responsibilities. The performance of the Managing Director and Company Secretary is reviewed annually by the Chairman.
There is no independent review of the conduct and performance of each Director and the Board as a whole.
3. Promote Ethical and Responsible Decision-Making
3.1. Code of Conduct
The Company subscribes to the Australian Petroleum Production & Exploration Association (APPEA) Principles of Conduct.
All directors and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Company.
The Principles of Conduct are discussed with each new director, employee, contractor or consultant as part of their induction.
3.2. Policy Concerning Trading in Company Securities
The Company has documented its “Share Trading Policy”, the most recent version of which was approved by the Board on 13 June 2007. Each director and employee of the Company is provided with a copy and a copy is posted on the Company’s web-site under “Corporate Governance”.
The holding of Company securities and options by directors and employees is reported to directors at each Board meeting.
The Company’s share trading policy is discussed with each new director, employee, contractor or consultant as part of their induction.
4. Safeguard Integrity in Financial Reporting
4.1. Audit Committee
There is no audit committee.
The use of additional committees of the Board of Directors is not considered appropriate because of the size of the Company and its financial affairs and operations. All matters that might properly be dealt with by such committees are currently dealt with by the full Board of Directors. Decisions of the Board are, to the extent practical, unanimous. There has been no occasion where decisions were not unanimous.
In the absence of an audit committee, all members of the Board of Directors participate in the oversight of corporate reporting. Board members are considered financially literate and where necessary, are provided with appropriate technical financial and industry advice.
As part of the finalisation of the half yearly and annual accounts the Chief Financial Officer reviews with the directors, all issues of relevance in preparing the accounts including the impact of changes in accounting principles and carrying value of assets.
Each half year and annually, directors review management responses to a questionnaire designed to ensure they are informed of all facets of the financial statements.
The Chief Executive Officer and the Chief Financial Officer are required, in accordance with the Companies Act, to state in writing that the Company’s Financial Reports present a true and fair view in all material respects of the Company’s financial condition and operational results in accordance with relevant accounting standards. The statement is supported by a systematic and comprehensive evaluation process which includes a consideration of risk management, internal compliance and control against an established set of criteria, consideration of the effectiveness of the design of internal controls, and remediation of weaknesses identified.
4.1.1. External Audit
The Company is responsible for appointing external auditors to provide assurance services.
Quarterly management reviews are held with the external auditor to consider year to date results, new accounting standards and new activities which would need to be factored into the audit scope.
After completion of the half-yearly review and the annual statutory audit, a meeting takes place between the external auditors, the Board and management of the Company. Audit recommendations, internal control matters and any other matter arising from the audit are reviewed and discussed. Recommendations from the auditors are considered and, if deemed appropriate, implemented.
If necessary, the directors also meet separately with the auditors to discuss any matters raised by them in relation to the management of the Company.
The directors review the performance of the external auditors on an annual basis and meet with them at least twice during the year. PricewaterhouseCoopers was appointed in 1999. The lead external audit engagement partner is being rotated off at least every 5 years; this occured last in 2006.
An analysis of fees paid to the external auditors, including a breakdown of fees for non audit services, is provided in the Directors’ Report and the Notes to the Financial Statements. As required by section 307C of the Corporations Act 2001, the external auditors provide an annual declaration of their independence to the Board.
The external auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report.
4.2. Structure of Audit Committee
There is no Audit Committee. Therefore, all matters that might properly be dealt with by an Audit committee are currently dealt with by the full Board of Directors as outlined in 4.1 above.
4.3. Audit Committee Charter
There is no Audit Committee Charter as there is no Audit Committee.
5. Make Timely and Balanced Disclosure
5.1. Continuous Disclosure Policy
There is no written policy relating to Continuous Disclosure other than as stated herein. The Board recognises its responsibility to ensure that shareholders are informed of all major developments affecting the Company. It is Company policy that:
- All shareholders receive a copy of the Company’s annual report including a concise financial report. A full financial report is available upon request and is posted on the Company’s web-site. Both the annual and half yearly reports are posted on the Company’s web-site.
- Quarterly reports are prepared in accordance with ASX listing rules. A copy is posted on the Company’s web-site.
- Regular updates on operations are made via ASX releases.
- When analysts are briefed on aspects of the Company’s operation, the material used in the presentation is released to the ASX.
The Company Secretary has been nominated as the person responsible for communications with the Australian Stock Exchange (ASX). This role includes responsibility for ensuring compliance with the continuous disclosure requirement in the ASX Listing Rules and overseeing and co-ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public.
All announcements released to the ASX by the Company are approved by a director. Subject to availability, this is normally the Chairman, or in his absence, the Managing Director. Such announcements are also posted on the Company’s web-site to facilitate access by shareholders and potential investors.
6. Respect the Rights of Shareholders
6.1. Communications Policy
There is no written policy relating to Communications other than as stated herein. It is the Company’s policy to ensure that shareholders and other stakeholders are kept informed of the Company’s activities to the fullest extent possible via a range of communication processes and procedures. These processes and procedures are developed and maintained as necessary. Information on the Company’s activities is provided at annual meetings; in annual and half-yearly reports; in periodic newsletters circulated directly to shareholders; through the continuous disclosure obligations under the ASX Listing Requirements, including daily press releases advising drilling activities; and through the posting of information on the Company web-site.
6.1.1. Electronic Communication
The Company continually reviews opportunities to utilise and the availability of electronic communication technology. As the Company grows and as technology develops, it is expected that the use of electronic communication will be increased.
6.1.2. Meetings
The Company usually holds one meeting each year, the Annual General Meeting, to apprise shareholders of its operations, financial results and future plans.
Additional meetings would be held as necessary.
6.1.3. Web-site
The Company web-site may be accessed at www.stuartpetroleum.com.au. The web-site includes the Corporate Governance Statement, all relevant Company policies and procedures including its Quality, Health, Safety and Environment policy (QHSE), as well as a feedback option for shareholders to register their email address for direct email updates of Company matters.
The Company recognises the legal and other interests of all stakeholders including:
- Regulators
- Native title groups
- Shareholders
- Employees
- Customers
- Consultants, contractors and suppliers.
7. Recognise and Manage Risk
7.1. Policy for the Oversight and Management of Material Business Risks
7.1.1. Risk Management Policy
The Board is responsible for the oversight and management of material business risks. As a key element of its risk strategy, the Company has documented all of its Business Management Systems covering its day-to-day internal operations. The process centred on the identification, analysis, evaluation, control and management of risks and was applied across the entire business.
The Board’s powers and responsibilities are outlined in Section 1.1 and include:
- the approval of acquisition and disposal of exploration and development interests.
- overseeing identification and development of strategies to mitigate price risk, including hedging
- overseeing identification and development of insurance strategies for asset protection and mitigation of potential liabilities.
- Authorisation of equity raisings, entering into debt facilities and major capital expenditure or commitments.
All routine operating programs and expenditures are the responsibility of management in accordance with programmes and budgets approved by the Board and with specific and defined delegated authority. The most recent update to the Delegation of Authority was approved by the Board on 27 April 2007.
7.2. Management and Reporting of Material Business Risks
7.2.1. Risk Management and Internal Control System
The Company has in place a risk management and internal control system. It undertakes such modifications as are necessary to ensure effective levels of control are maintained. The board reviews the effectiveness of the implementation of the system each year.
In relation to its responsibilities, the Board’s consideration of the Company’s risk management and internal controls includes the following:
- Reviewing risk management and internal control system and making recommendations for enhancements.
- Monitoring compliance with the Corporations Act 2001, Australian Stock Exchange, Australian Taxation Office and Australian Securities Investments Commission requirements.
- Improving the quality of the management and accounting information.
- Overseeing the follow up and rectification by management of deficiencies or breakdown in risk management or internal controls, where necessary.
The Board also considers all internal and external inputs and influences. This includes, but is not limited to, legal obligations, stakeholder requirements and expectations, employees, business partners, creditors, consumers, OHS, the environment and the broader community.
The Board retains responsibility for assessing the effectiveness of the Company’s systems for the management of material business risks. The Company’s management provides assurance annually that the management of material business risks is effective.
As part of the risk management system, the risk profile of the business is continually reviewed and updated. Under the guidance and authority of the executive management team and Board and, in response to ongoing evaluations and profile reviews, systems, processes and information are routinely updated to effectively manage material business risks.
The effectiveness of the Company’s business management systems and processes for managing and reducing significant risk in its field operations (operational risk) are integral to the Company’s regulatory supervision status which, under the Petroleum Act SA, is classified as “low supervision”.
Exploration risk requires balancing the potential rewards with the cost of information and the cost of drilling a dry hole. The Company employs a number of strategies to mitigate its exploration risk including farming out prospects and acquiring 3D seismic data in order to better define prospects. The Company utilises industry standard software to evaluate prospect economics. Another way in which the Company reduces its exploration risk is by peer review of prospects both internally and by co-venturers.
Price risk resulting from commodity price fluctuations through the sale of crude oil denominated in US$ is managed using price hedges. Foreign exchange risk is also managed through Foreign Exchange Hedge Facilities where appropriate.
7.2.2. Internal Audit Function
The Company’s current staffing structure does not include an internal audit function.
7.2.3. Risk Management Committee
The Company does not have a Risk Management Committee. The functions that would otherwise be conducted by a Risk Management Committee are conducted by the full Board.
7.3. Managing Director and Chief Financial Officer Assurance relating to Financial Reporting Risks
The Managing Director and Chief Financial Officer have assured the Board that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.
8. Remuneration
8.1. Remuneration Committee.
There is no Remuneration Committee. The full Board manages the remuneration system.
8.1.1. Charter
The objective of the Company’s executive reward system is to ensure that reward for performance is competitive and appropriate for the results delivered. The system aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders.
8.1.2. Composition
The full Board manages the remuneration process.
8.1.3. Responsibilities
The full Board reviews recommendations from management in respect of the Company’s remuneration, recruitment, retention and termination policies and procedures for all staff, including long and short term incentives and superannuation arrangements. Appropriate external advice is sought where necessary.
8.1.4. Remuneration Policy
The Board endeavours to ensure that executive reward satisfies the key criteria for good reward governance practices by being:
- Competitive and reasonable.
- Acceptable to shareholders.
- Linked to performance.
- Transparent.
- Reflective of the Company’s capital management policy.
The Board recognises that the attraction and retention of high calibre executives is critical to generating shareholder value. Appropriate external advice is sought where necessary.
The Board approves director remuneration and thus each director is involved in approval of directors’ remuneration.
8.2. Remuneration Structure
8.2.1. Non-Executive Directors
Fees and payments to non-executive directors reflect the demands that are made on, and the responsibilities of, the directors. The Board reviews non-executive directors’ fees and payments annually and any increase over the $500,000 stipulated in the Company’s Constitution, would be subject to shareholder approval.
Superannuation payments are in accordance with the requirements of the Superannuation Guarantee legislation.
The remuneration of Non-Executive Directors’ is detailed in the Remuneration Report contained within the Annual Report of the Company.
8.2.2. Executives
Each member of the executive team signed a formal employment contract at the time of their appointment covering a range of matters including their duties, rights, responsibilities and any entitlements on termination. The standard contract refers to a specific formal job description relevant to each position.
The Board has awarded options to key executives as a component of executive remuneration in accordance with the terms of their employment contracts.
The Company has established a Directors and Employees Remuneration and Reward Plan, which includes issue of securities to employees.
Further information on executive remuneration is detailed in the Remuneration Report and contained within the Annual Report of the Company.
30 June 2008