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Corporate governance

SANTOS’ APPROACH TO CORPORATE GOVERNANCE

The Board and Management of Santos believe that, for the Company to achieve and maintain its objective of being within the top quartile of exploration and production companies globally, it is necessary for the Company to meet the highest standards of personnel safety and environmental performance, governance and business conduct across its operations in Australia and internationally. Fundamental to this is the Board’s commitment to continually enhance the Company’s culture, vision and values, to ensure Santos continues to meet its strategic objectives whilst maintaining the highest standards.

To achieve this, the Board works under a set of well-established corporate governance policies and charters that reinforce the responsibilities of all Directors and in addition meet the requirements of the Corporations Act 2001 and the Listing Rules of the Australian Securities Exchange (ASX). These policies are publicly available on the Company’s website, www.santos.com.

The Board is aware of, and has regard to, developments in Australia and overseas in relation to corporate governance ‘best practice’. The Board regularly reviews and updates Santos’ corporate governance policies and charters to ensure that they remain in accordance with best practice.

The Board believes that the Company’s policies and practices have complied in all substantial respects with corporate governance best practice in Australia, including the ASX Corporate Governance Council Principles of Good Corporate Governance introduced in March 2003.

This Statement is divided into four sections:

  • Composition of the Board;

  • Board responsibilities;

  • Governance policies applicable to the

Board; and

  • Governance policies of general application

throughout Santos.

PART 1: COMPOSITION OF THE BOARD

RELEVANT POLICIES AND CHARTERS

See www.santos.com

  • Board Guidelines

  • Company’s Constitution

The composition of the Board is determined in accordance with the Company’s Constitution and the Board Guidelines1 which, among other things, require that:

  • the Board is comprised of a minimum of five, and a maximum of ten Directors (exclusive of the CEO);

  • the Board should be comprised of a substantial majority of independent, non-executive Directors;

  • there should be a separation of the roles of Chairman and Chief Executive Officer of the Company; and

  • the Chairman of the Board should be an independent, non-executive Director.

The Board has adopted the definition of independence set out in the ASX Principles of Good Corporate Governance and Best Practice Recommendations, and as defined in the 2002 guidelines of the Investment and Financial Services Association Limited.

Having regard to this definition, the Board generally considers a Director to be independent if he or she is not a member of Management and is free of any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company. The Board will assess the materiality of any given relationship that may affect independence on a case-by-case basis and has adopted materiality guidelines to assist in that assessment.

Under these guidelines, the following interests are regarded as material in the absence of any mitigating factors:

  • a holding of 5% or more of the Company’s voting shares or a direct association with an entity that holds more than 5% of the Company’s voting shares; or

The Board has determined that there should not be any arbitrary length of tenure that should be considered to materially interfere with a Director’s ability to act in the best interests of the Company, as it believes this assessment must be made on a case-by-case basis with reference to the length of service of all members of the Board.

Each Director’s independence is assessed by the Board on an individual basis, with reference to the above materiality guidelines and focussing on an assessment of each Director’s capacity to bring independence of judgement to Board decisions. In this context, Directors are required to promptly disclose their interests in contracts and other directorships and offices held.

Currently, the Board comprises six non- executive Directors, all of whom are deemed independent under the principles set out above, and one executive Director.

The names and details of the experience, qualifications, special responsibilities, and term of office of each Director of the Company are set out on pages 32 to 33 of this Annual Report.

APPOINTMENT OF NEW DIRECTORS, TERM OF OFFICE AND RE-ELECTION

The Board Guidelines include the following principles:

  • non-executive Directors are to be appointed on the basis that their nomination for re- election as a Director is subject to review and support by the Board;

  • there should be appropriate circumstances justifying re-election after a specified period of service as a Director; and

  • the contribution of the Board and of individual Directors is the subject of formal review and discussion on a biennial and annual basis, respectively.

Prospective candidates for the Board are reviewed by the Nomination Committee. Appropriate regard is had to the business experience, skills and expertise of the candidates and that required by the Board, to ensure its overall composition enables the Board to meet its responsibilities. The Nomination Committee makes appropriate recommendations to the Board regarding possible appointments of new Directors.

  • an affiliation with an entity which accounts for 5% or more of the revenue or expense of the Company.

Prior to appointment, each Director is provided with a letter of appointment which encloses a copy of the Company’s Constitution, Board Guidelines, Committee Charters, relevant

36 Santos Annual Report 2006

1 Except where otherwise indicated, references to the “Board Guidelines” are to the formal guidelines in force during the past financial year and as at 15 March 2007.

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