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Type of Risk Exploration risk

Investment risk

Financial reporting and treasury

Operational risk reporting

Method of management Exploration risk is managed through internal control systems which include:

  • formalised risk assessment procedures at the functional level;

  • corporate review in both prospect and hindsight;

  • Board approval of exploration budgets; and

  • regular reporting on progress to the Board.

External reviews are also undertaken as necessary. The Company has clearly defined procedures for capital allocation and expenditure. These include:

  • a portfolio management system;

  • annual budgets;

  • detailed appraisal and review procedures;

  • project management processes;

  • levels of authority; and

  • due diligence requirements where assets are being acquired.

  • A comprehensive budgeting system exists with an annual budget approved by the Board.

  • Monthly actual results are reported against budget and quarterly forecasts for the year are prepared and reported to the Board.

  • Treasury operations are subject to a comprehensive system of internal control, and speculative transactions are prohibited.

  • Further details relating to financial instruments and commodity price risk management are included in Note 37 to the financial statements.

  • All significant areas of Company operations are subject to regular reporting to the Board.

  • The Board receives regular reports on the performance of each functional area, including: operations; gas marketing and commercialisation; liquids marketing; corporate and people; legal and secretariat; geoscience, exploration and new ventures; development projects and technical services; finance; safety; government; investor relations; and greenhouse gas, sustainability, cultural heritage and environmental matters.

DIRECTOR FEES AND EXECUTIVE REMUNERATION

Remuneration levels are competitively set to attract and retain appropriately qualified and experienced personnel. Performance, duties and responsibilities, market comparison and independent advice are all considered as part of the remuneration process.

The structure and details of the remuneration paid to Directors, the CEO and other senior executives during the period are set out in the Remuneration Report commencing on page 54 of this report and note 30 to the financial statements on page 117 of this report.

PART 4: GOVERNANCE POLICIES OF GENERAL APPLICATION THROUGHOUT SANTOS

RELEVANT POLICIES AND CHARTERS

See www.santos.com

  • Code of Conduct

  • Guidelines for Dealing in Securities

  • Continuous Disclosure Policy

ETHICAL STANDARDS AND CODE OF CONDUCT

To promote high standards of corporate governance and business conduct, the Company has provided its employees with a clear set of rules, values and guidelines to

follow when carrying out their work as a Santos employee and representative. In addition to the Board Guidelines, the Company has in place an integrated Code of Conduct which prescribes that, in addition to compliance with all applicable legal requirements, the Board expects all Directors, executives and employees of the Company to adopt appropriate standards of professional and business conduct in their dealings on behalf of the Company. The Board, in conjunction with Management, is responsible for ensuring compliance by all employees with those standards.

In particular, the integrated Code of Conduct requires that Directors and employees:

  • avoid conflicts of interest, and ensure that all business transactions are conducted solely in the best interests of the Company;

Santos Annual Report 2006 41

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