REG-Cadogan Petroleum: Annual Financial Report <Origin Href="QuoteRef">CADP.L</Origin> - Part 2
26/04/2016 14:10
- Part 2: For the preceding part double click ID:nPRrQ1408a
for more information on the
composition of the Board.
In 2015 the new nominated Company Secretary is female.
As at 31 December 2015, the Company comprised a total of 84 employees, as
follows:
Male Female
Non-executive directors 4 -
Executive directors 3 -
Management, other than Executive directors 7 3
Other employees 45 22
All employees 59 25
Human rights
Cadogan's commitment to the fundamental principles of human rights is embedded
in our HSE polices and throughout our business processes. We promote the core
principles of human rights pronounced in the UN Universal Declaration of Human
Rights. Our support for these principles is embedded throughout our Code of
Conduct, our employment practices and our relationships with suppliers and
partners wherever we do business.
Community
The Group's activities are carried out in rural areas of Ukraine and the Board
is aware of its responsibilities to the local communities in which the Group
operates and from which some of the employees are recruited. At current
operational sites, management works with the local councils to ensure that the
impact of operations is as low as practicable by putting in place measures to
mitigate their effect. Key projects undertaken include improvement of the road
infrastructure in the area, which provides easier access to the operational
sites while at the same time minimising inconvenience for the local population
and allowing improved road communications in the local communities. Specific
community activities are undertaken for the direct benefit of local
kindergartens, schools, sporting facilities and medical services, as well as
other community-focused facilities. All activities are followed and supervised
by managers who are given specific responsibility for such tasks.
The Group's local companies see themselves as part of the community and are
involved not only with financial assistance, but also with practical help and
support. The recruitment of local staff generates additional income for areas
that otherwise are predominantly dependent on the agricultural sector.
Approval
The Strategic Report was approved by the Board of Directors on 25 April 2016
and signed on its behalf by:
Marta Halabala
Company Secretary
25 April 2016
CORPORATE GOVERNANCE
Board of Directors
Zev Furst, 68, American
Independent Non-executive Chairman
Appointed to the Board on 2 August 2011, Mr Furst is a leading global business
and communications strategist who has advised political leaders, foreign
principals and corporate executives of Fortune 100 companies. He is the
Chairman and CEO of First International Resources, an international corporate
and political consulting firm he founded in 1992. Mr Furst specialises in
providing strategic counsel on crisis management, market entry, corporate
positioning and personal reputational issues. In recent years, he has also
advised and consulted with candidates running for national office in Israel,
Japan, Mexico and Ukraine.
In 1986, Mr Furst was a founding partner of Meridian Resources and Development
Ltd, an international commodities trading company specialising in chemicals and
petroleum products.
Mr Furst currently serves as Chairman of the International Board of the Peres
Center for Peace and is a member of the Advisory Board of the Kennan Institute
in Washington, DC. He has written and lectured extensively on international
affairs, business and political strategy and the role of media in politics and
diplomacy.
Mr Furst is Chairman of the Company's Nomination Committee and a member of the
Remuneration Committee.
Guido Michelotti, 61, Swiss
Chief Executive Officer
Mr Michelotti was appointed to the Board of Directors as Chief Executive
Officer on 25 June 2015. An Oil & Gas executive with over 30 years' of
international experience across the entire E&P cycle, he spent more than 10
years in senior executive roles with eni, leading E&P companies as well as
managing major capital projects.
Prior to joining Cadogan he was CEO of a Luxembourg based Private Equity fund
investing in E&P.
Mr Michelotti is a Senior Advisor to the Energy Practice of the Boston
Consulting Group, a member of the Society of Petroleum Engineers (SPE) and a
former member of SPE's Industry Advisory Council.
Bertrand des Pallieres, 49, French
Chief Trading Officer
Mr des Pallieres was appointed as Chief Executive Officer on 1 August 2011,
having joined the Board as a non-executive Director on 26 August 2010. Mr des
Pallieres is also the CEO of SPQR Capital Holdings SA, a major shareholder of
the Company. On 22 June 2015, Mr des Pallieres was appointed as Chief Trading
Officer.
Previously he was the Global Head of Principal Finance and member of the Global
Market Leadership Group of Deutsche Bank from 2005 to 2007. From 1992 to 2005
he held various positions at JPMorgan including Global Head of Structured
Credit, European Head of Derivatives Structuring and Marketing, and Co-Head of
sales for Europe, Middle East and Africa. He is a non-executive director of
Versatile Systems Inc. listed on the Toronto and London Stock Exchanges and
Equus Total return, Inc., listed on the NYSE.
Mr des Pallieres is a member of the Nomination Committee.
Adelmo Schenato, 64, Italian
Chief Operating Officer
Mr Schenato was appointed to the Board as Chief Operating Officer on 25 January
2012. He joined the Company after a 35 year career at Eni S.p.A ("Eni"), the
Italian integrated energy business, where he served in senior global and
regional positions.
His global roles at Eni included Well Operations Research and Development and
Technical Management, and Vice President HSE & Sustainability. His regional
roles include General Manager of Tunisia, Gabon and Angola as well as CEO of
Eni's Italian gas storage company.
Mr Schenato is a member of the Health, Safety and Environment Committee.
Gilbert Lehmann, 70, French
Senior Independent non-executive Director
Mr Lehmann was appointed to the Board on 18 November 2011. He is currently
acting as an adviser to the Executive Board of Areva, the French nuclear energy
business, having previously been its Deputy Chief Executive Officer responsible
for finance. He is also a former Chief Financial Officer and deputy CEO of
Framatone, the predecessor to Areva, and was CFO of Sogee, part of the
Rothschild Group. Mr Lehmann is also Deputy Chairman and Chairman of the Audit
Committee of Eramet, the French minerals and alloy business. He is Deputy
Chairman and Audit Committee Chairman of Assystem SA, the French engineering
and innovation consultancy. He was Chairman of ST Microelectronics NV, one of
the world's largest semiconductor companies, from 2007 to 2009, and stepped
down as Vice Chairman in 2011.
Mr Lehmann is currently Chairman of the Company's Audit Committee and a member
of the Remuneration and Nomination Committees.
Michel Meeùs, 63, Belgian
Non-Independent non-executive Director
Mr Meeùs was appointed as a Non-executive Director on 23 June 2014. Mr. Meeùs
is currently acting as Chairman of the Board of Directors of Theolia, an
independent international developer and operator of wind energy projects, of
which he is a major shareholder. Since 2007, he has been a director within the
Alcogroup SA Company (which gathers the ethanol production units of the
homonymous group), as well as within some of its subsidiaries. Before joining
Alcogroup, Mr Meeùs carried out a career in the financial sector, at Chase
Manhattan Bank in Brussels and London, then at Security Pacific Bank in London,
then finally at Electra Kingsway Private Equity in London.
Enrico Testa, 64, Italian
Independent non-executive Director
Appointed to the Board on 1 October 2011, Mr Testa has a long and varied
background in the energy market. He was Chairman of the Board of ACEA (the Rome
electricity and water utility company) from 1996 to 2002. He was Chairman of
the Board of Enel S.p.A, the major Italian electricity supplier, during its
privatisation. From 2005 to 2009 he was Chairman of Roma Metropolitane, the
Rome council-owned company constructing new underground lines. He was also
Chairman of the Organising Committee for the 20th World Energy Congress held in
Rome in November 2007, Senior Partner at the Franco Bernabè Group which owns
several investments in the IT sector from 2002 to 2005 he was member of the
Advisory Board of Carlyle Europe and has been Chairman of the Italian Nuclear
Forum since 2010. In addition, between 2004 and August 2012 Mr Testa was
Managing Director of Rothschild S.p.A.
He is currently Chairman of the AIM listed telecommunications company Telit
Communications Plc, Vice Chairman of Intecs S.p.A and Chairman of E.VA -
Energie Valsabbia S.p.A. - a company developing hydropower and solar generating
plants.
Mr Testa is Chairman of the Company's Remuneration Committee and a member of
the Audit and Nomination Committees.
Report of the Directors
Directors
The Directors in office during the year and at the date of this report are as
shown below:
Non-executive Directors Executive
Directors
Zev Furst (Chairman) Guido
Michelotti
Gilbert Lehmann
Bertrand des Pallieres
Michel Meeùs
Adelmo Schenato
Enrico
Testa
Directors' re-election
The Board has decided previously that all Directors must be subject to annual
election by shareholders, in accordance with the best practice guidance for
FTSE 350 companies contained in the UK Corporate Governance Code that was
issued in September 2014 by the Financial Reporting Council (the "Code"). As
such, all of the Directors will be seeking re-election at the Annual General
Meeting to be held on 22 June 2016.
The biographies of the Directors in office at the date of this report are shown
on pages 20 and 21.
Appointment and replacement of Directors
The Board may appoint any individual willing to act as a Director either to
fill a vacancy or act as an additional Director. The appointee may hold office
only until the next annual general meeting of the Company whereupon his or her
election will be proposed to the shareholders.
The Company's Articles of Association prescribe that there shall be no fewer
than three Directors and no more than fifteen.
Directors' interests in shares
The beneficial interests of the Directors in office as at 31 December 2015 and
their connected persons in the Ordinary shares of the Company at 31 December
2015 are set out below.
Director Number of Shares
Z Furst -
G Michelotti -
B des Pallieres 200,000
G Lehmann -
M Meeùs 26,000,000
A Schenato -
E Testa -
Directors' indemnities and insurance
The Company continues to maintain Directors' and Officers' Liability Insurance.
The Company's Articles of Association provide, subject to the provisions of the
Companies Act 2006, an indemnity for Directors in respect of any liability
incurred in connection with their duties, powers or office. Save for such
indemnity provisions, there are no qualifying third party indemnity provisions.
Powers of Directors
The Directors are responsible for the management of the business and may
exercise all powers of the Company (including powers to issue or buy back the
Company's shares), subject to UK legislation, any directions given by special
resolution and the Articles of Association. The authorities to issue and buy
back shares, granted at the 2015 Annual General Meeting, remains unused.
Dividends
The Directors do not recommend payment of a dividend for the year to 31
December 2015 (2014: nil).
Principal activity and status
The Company is registered as a public limited company (registration number
05718406) in England and Wales. Its principal activity is oil and gas
exploration, development and production.
Structure of share capital
The authorised share capital of the Company is currently £30,000,000 divided
into 1,000,000,000 Ordinary shares of 3 pence each. The number of shares in
issue as at 31 December 2015 was 231,091,734 Ordinary shares of 3 pence each
with a nominal value of £6,932,752. The Companies (Acquisition of Own Shares)
(Treasury Shares) Regulations 2003 allow companies to hold shares in treasury
rather than cancel them. Following the consolidation of the issued capital of
the Company on 10 June 2008, there were 66 residual Ordinary shares which were
transferred to treasury. No dividends may be paid on shares whilst held in
treasury and no voting rights attach to shares held in treasury. Total voting
rights amount to 231,091,668.
Rights and obligations of Ordinary shares
On a show of hands at a general meeting every holder of Ordinary shares present
in person or by proxy and entitled to vote shall have one vote and, on a poll,
every member present in person or by proxy, shall have one vote for every
Ordinary share held. In accordance with the provisions of the Company's
Articles of Association, holders of Ordinary shares are entitled to a dividend
where declared and paid out of profits available for such purposes. On a return
of capital on a winding up, holders of Ordinary shares are entitled to
participate in such a return.
Exercise of rights of shares in employee share schemes
None of the share awards under the Company's incentive arrangements are held in
trust on behalf of the beneficiaries.
Agreements between shareholders
The Board is unaware of any agreements between shareholders which may restrict
the transfer of securities or voting rights.
Restrictions on voting deadlines
The notice of any general meeting of the Company shall specify the deadline for
exercising voting rights and appointing a proxy or proxies to vote at a general
meeting. It is the Company's policy at present to take all resolutions at a
general meeting on a poll and the results of the poll are published on the
Company's website after the meeting.
Substantial shareholdings
As at 31 December 2015 and 25 April 2016, the Company had been notified of the
following interests in voting rights attached to the Company's shares:
31 December 2015 25 April 2016
Major shareholder Number of % of total Number of % of
shares voting shares total
held rights held voting
rights
SPQR Capital Holdings SA 67,298,498 29.12 67,298,498 29.12
Mr Pierre Salik 40,550,000 17.55 40,550,000 17.55
Mr Michel Meeùs 26,000,000 11.25 26,000,000 11.25
Credit Agricole Indosuez (Suisse) SA 14,383,000 6.22 14,383,000 6.22
Kellet Overseas Inc. 14,002,696 6.06 14,002,696 6.06
Credit Suisse Private Banking 9,629,091 4.17 9,062,091 3.92
Cynderella Trust 7,657,886 3.31 7,657,886 3.31
Amendment of the Company's Articles of Association
The Company's Articles of Association may only be amended by a special
resolution of shareholders.
Disclosure of information to auditors
As required by section 418 of the Companies Act 2006, each of the Directors as
at 25 April 2016 confirms that:
(a) so far as the Director is aware, there is no relevant audit information of
which the Company's auditor is unaware; and
(b) the Director has taken all the steps that he ought to have taken as a
Director in order to make himself aware of any relevant audit information and
to establish that the Company's auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with section
418 of the Companies Act 2006.
Going concern
After making enquiries, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the Consolidated and Company Financial
Statements. For further detail refer to the detailed discussion of the
assumptions outlined in note 3(b) to the Consolidated Financial Statements.
Change of control - significant agreements
The Company has no significant agreements containing provisions which allow a
counterparty to alter and amend the terms of the agreement following a change
of control of the Company.
Should a change in control occur then certain Executive directors are entitled
to a payment of salary and benefits for a period of six months.
Global greenhouse gas emissions
This section contains information on greenhouse gas ("GHG") emissions required
by the Companies Act 2006 (Strategic Report and Directors' Report) Regulations
2013 (the "Regulations").
Reporting year
The reporting year coincides with the Company's fiscal year, which is 1 January
2015 to 31 December 2015.
Methodology
The principal methodology used to calculate the emissions is drawn from the
'Environmental Reporting Guidelines: including mandatory greenhouse gas
emissions reporting guidance (June 2013)', issued by the Department for
Environment, Food and Rural Affairs ("DEFRA"). Additionally, 'Petroleum
Industry Guidelines for Reporting Greenhouse Gas Emissions (2nd edition, May
2011)' were used to cover issues specific for the petroleum industry. DEFRA GHG
conversion factors for company reporting were utilised to calculate the CO2
equivalent of emissions from various sources. In certain limited cases, where
information was available only for a part of the reporting period, the total
emissions were extrapolated by extending the available information to cover the
full reporting period. This occurred where it was not possible to retrieve
information on the amount of heating supplied to one of the Company's office
buildings, due to an office move.
The Company has reported on all of the emission sources required under the
Regulations.
The Company does not have responsibility for any emission sources that are not
included in its consolidated statement.
Consolidation approach and organisation boundary
An operational control approach was used to define the Company's organisational
boundary and responsibility for GHG emissions. All material emission sources
within this boundary have been reported upon, in line with the requirements of
the Regulations.
Scope of reported emissions
Emissions data from the sources within Scope 1 and Scope 2 of the Company's
operational boundaries is detailed below. This includes direct emissions from
assets that fall within the Company's organisational boundaries (Scope 1
emissions), as well as indirect emissions from energy consumption, such as
purchased electricity and heating (Scope 2 emissions).
Intensity ratio
In order to express the GHG emissions in relation to a quantifiable factor
associated with the Company's activities, wellhead production of crude oil,
condensates and natural gas has been chosen as the normalisation factor for
calculating the intensity ratio. This will allow comparison of the Company's
performance over time, as well as with other companies in the Company's peer
group.
Total greenhouse gas emissions data for period from 1 January 2015 to 31
December 2015
Greenhouse gas emissions source 2015 2014
Scope 1
Direct emissions, including combustion of fuel and 554 842
operation of facilities (tonnes of CO2 equivalent)
Scope 2
Indirect emissions from energy consumption, such 741 778
as electricity and heating purchased for own use
(tonnes of CO2 equivalent)
Total (Scope 1 & 2) 1,295 1,620
Normalisation factor
Barrels of oil equivalent 42,493 41,363
Intensity ratio
Emissions reported above normalised to tonnes of 30.47 39.15
CO2e per total wellhead production of crude oil,
condensates and natural gas, in thousands of
Barrel of Oil Equivalent
2016 Annual General Meeting
The 2016 Annual General Meeting ("AGM") of the Company will be an opportunity
to communicate with shareholders and the Board welcomes their participation.
Board members constantly strive to keep in touch with shareholder opinion and
to discuss strategy and governance issues with them through direct contacts.
The Board looks forward to welcoming shareholders to the AGM and shareholder
information will be enclosed as usual with the AGM notice to facilitate voting
and feedback in the usual way.
The AGM notice will be issued to shareholders well in advance of the meeting
with notes to provide an explanation of all of the resolutions to be put to the
AGM. The Board considers that the resolutions to be put to the AGM are in the
best interests of the Company and the shareholders as a whole. Accordingly, the
Directors unanimously recommend that the shareholders vote in favour of the
proposed resolutions at the AGM, as the Directors intend to do in respect of
their own beneficial holdings.
Board and committee members will be available for shareholders participation at
the AGM. All relevant shareholder information including the annual report for
2015 and any other announcements will be published on our website -
www.cadoganpetroleum.com
This Report of Directors comprising pages 22 to 26 has been approved by the
Board and signed on its behalf by:
Marta Halabala
Company Secretary
25 April 2016
Viability statement
In accordance with provision C2.2 of the 2014 revision of the UK Corporate
Governance Code, the Board has assessed the prospect of the Group over a longer
period than the twelve months required by the 'Going Concern' provision. The
Board selected three-year period as appropriate for the assessment for the
reason that the Group's strategy is aligned with a three-year view and that the
current volatility in commodity markets makes confidence in a longer assessment
of prospects highly challenging.
The Board has conducted a stress test in three scenarios as well as assessment
of the principal risks facing the Group (as set out on pages 13 to 15),
including those that would threaten its business model, future performance,
solvency or liquidity. These scenarios include:
* consideration of potential impact of political situation and renewal of the
licences that will expire during following three years
* foreign exchange movements to which the Group is exposed as a result of
its operations in Ukraine
* downturn in the price and demand of hydrocarbon products most impacting
Group's operations
Based on the results of the related analysis and taking account of the Group's
current position, particularly its cash availability, and the principal risks,
and the effect of the licences that expired during the year the Board has a
reasonable expectation that the Group will be able to continue its operation
and meet its liabilities as they fall due over the three-year period of the
assessment.
Corporate Governance Statement
The Board of the Company is committed to the highest standards of corporate
governance and bases its actions on the principles set out in the Code issued
by the Financial Reporting Council ('FRC') in September 2014 (the "Code"). The
Code can be found on the FRC's website at www.frc.org.uk
This statement describes how the Group applies the principles of the Code. On
20 December 2011 the Company's listing category on the London Stock Exchange
was transferred from 'Premium Listing' to 'Standard Listing'. Although
companies with a standard listing are subject to less stringent corporate
governance requirements, the Board has decided that the Group will continue to
govern itself in accordance with the principles of the Code and explain why it
has chosen not to comply with any of the provisions of the Code.
During the year under review, the Group has complied with the Code's provisions
with the following exceptions:
* Code provision A.4.2 - During the year, the Chairman did not hold meetings
with the non-executive Directors without the executives present
* Code provision E.1.1 - The Senior Independent Director has not attended
meetings with major shareholders
The reasons for these two areas of non-compliance are as follows:
* Although the Chairman did not hold formal meetings of the non-executive
Directors during the year, regular discussions took place by telephone and
email.
* The Senior Independent Director, Mr Lehmann, did not attend meetings with
major shareholders as this responsibility was undertaken by the Chairman
and the Executive Directors. Mr Lehmann is available to shareholders who
have concerns that they feel would be inappropriate to raise via the
Chairman or Executive Directors.
Board
The Board provides leadership and oversight. The Board comprises a
non-executive Chairman, Chief Executive Officer, Chief Trading Officer, Chief
Operating Officer, two independent non-executive Directors and one
non-executive Director who is not deemed independent. The membership of the
Board and biographical details for each of the Directors are incorporated into
this report by reference and appear on page 21 and 22.
As at the date of this report, the Chairman had no significant commitments that
might affect his ability to allocate sufficient time to the Company to
discharge his responsibilities effectively.
Under the Company's Articles of Association, all Directors must seek
re-election by members at least once every three years. However, the Board has
agreed that all Directors will be subject to annual election by shareholders,
as recommended by the Code in respect of FTSE 350 companies. Accordingly, all
members of the Board will be standing for re-election at the 2016 Annual
General Meeting due to be held on 22 June 2016.
The Board has a formal schedule of matters specifically reserved for it to
decide, including approval of acquisitions and disposals, major capital
projects, financial results, Board appointments, dividend recommendations,
material contracts and Group strategy.
The Chairman, in conjunction with the Company Secretary, plans the programme
for the Board during the year. The agenda for Board and Committee meetings is
considered by the relevant Chairman and issued with supporting papers during
the week preceding the meeting. For each Board meeting, the Directors receive a
Board pack including management accounts, briefing papers on commercial and
operational matters and major capital projects including acquisitions. The
Board also receives briefings from key management on specific issues. Eight
Board meetings took place during 2015.The attendance of those Directors in
place at the year end at Board and Committee meetings during the year was as
follows:
Board Audit Nomination Remuneration
Committee Committee Committee
No. Held 8 3 1 4
No. Attended:
Z Furst 7 n/a 1 4
G Michelotti 3 n/a n/a n/a
B des Pallieres 6 n/a 1 n/a
G Lehmann 7 3 1 4
M Meeùs 7 n/a n/a n/a
A Schenato 7 n/a n/a n/a
E Testa 5 3 - 4
A procedure exists for the Directors, in the furtherance of their duties, to
take independent professional advice if necessary, under the guidance of the
Company Secretary and at the Company's expense. All Directors have access to
the advice and services of the Company Secretary, who is responsible to the
Chairman for ensuring that Board procedures are complied with and that
applicable rules and regulations are followed.
Board independence
The roles and responsibilities of the Chairman and Chief Executive Officer are
separate. A formal division of each individual's responsibilities has been
agreed and documented by the Board. Mr Lehmann is the Senior Independent
Director.
The non-executive Directors bring an independent view to the Board's
discussions and the development of its strategy. Their range of experience
ensures that management's performance in achieving the business goals is
challenged appropriately. Two non-executive Directors, Lehmann and Testa are
considered by the Board in accordance with the Code, to be independent. Michel
Meeùs, who is a significant shareholder, is not considered to be independent.
The letters of appointment for the independent non-executive Directors are
available for review at the Registered Office and prior to the Annual General
Meeting.
Responsibilities and membership of Board Committees
The Board has agreed written terms of reference for the Nomination Committee,
Remuneration Committee and Audit Committee. The terms of reference for all
three Board Committees are published on the Company's website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. A review of the terms of reference, membership and
activities of all Board Committees is provided on pages 30 to 37.
Board performance evaluation
Principle B.6 of the Code recommends that boards undertake a formal and
rigorous annual evaluation of its own performance and that of its committees
and individual directors. The Board is mindful that it needs to continually
monitor and identify ways in which it might improve its performance and
recognises that board evaluation is a useful tool for enhancing a board's
effectiveness. For the year ended 31 December 2015, the Board opted to
undertake self-evaluation by way of a questionnaire designed specifically to
assess the strengths of the Board and identify any areas for development.
The process was led by Mr Furst as Chairman and the evaluation of the
Chairman's performance was led by Mr Lehmann as the Senior Independent
Director. The Board discussed the evaluation questionnaire findings, which were
also used by the Nomination Committee in its annual assessment of the Board's
composition. The Directors are committed to ensuring that the Board continues
to represent a broad balance of skills, experience, independence and knowledge
and that there is sufficient diversity within the composition of the Board. All
appointments are made on merit against objective criteria - which include
gender and diversity generally - in the context of the requirements of the
business and the overall balance of skills and backgrounds that the Board needs
to maintain in order to remain effective.
Internal control
The Directors are responsible for the Group's system of internal control and
for maintaining and reviewing its effectiveness. The Board has delegated
responsibility for the monitoring and review of the Group's internal controls
to the Audit Committee. The Group's systems and controls are designed to
safeguard the Group's assets and to ensure the reliability of information used
both within the business and for publication.
Systems are designed to manage, rather than eliminate, the risk of failure to
achieve business objectives and can provide only reasonable, and not absolute,
assurance against material misstatement or loss.
The key features of the internal control systems which operated during 2015 and
up to the date of signing the Financial Statements are documented in the
Group's Corporate Governance Policy Manual and Finance Manual. These manuals
have been circulated throughout the Group. In addition, the Company's joint
venture entities adopted policies that mirror the Company's own, except
Westgasinvest LLC ("WGI"), where Eni's policies are adopted.
Day-to-day responsibility for the management and operations of the business has
been delegated to the Chief Executive Officer and senior management.
Certain specific administrative functions are controlled centrally. Taxation,
treasury and insurance functions report to the Group Director of Finance who
reports directly to the Chief Executive Officer. Trading business is managed by
the Chief Trading Officer who reports directly to Chief Executive Officer. The
legal function is managed by the General Counsel who reports to the Chief
Executive Officer. The Health, Safety and Environment functions report to the
Chief Operating Officer. An overview of the Group's treasury policy is set out
on page 13.
The Group does not have an internal audit function. Due to the small scale of
the Group's operations at present, the Board does not feel that it is
appropriate or economically viable to have this function in place. The Audit
Committee will continue to consider the position annually.
The Board has reviewed the process, which has been in place from the start of
the year to the date of approval of this report and which is in accordance with
the Code. During the course of its review of the risk management and internal
control systems, the Board has not identified nor been advised of any failings
or weaknesses which it has deemed to be significant. Therefore a confirmation
in respect of necessary actions has not been considered appropriate.
Relations with shareholders
The Chairman and Executive Directors of the Company have a regular dialogue
with analysts and substantial shareholders. The outcome of these discussions is
reported to the Board and discussed in detail. Mr Lehmann, as the Senior
Independent Director, is available to shareholders who have questions that they
feel would be inappropriate to raise via the Chairman or Executive Directors.
The Annual General Meeting is used as an opportunity to communicate with all
shareholders. In addition, financial results are posted on the Company's
website, www.cadoganpetroleum.com, as soon as they are announced. The Notice of
the Annual General Meeting is contained also on the Company's website,
www.cadoganpetroleum.com. It is intended that the Chairmen of the Nomination,
Audit and Remuneration Committees will be present at the Annual General
Meeting. The results of all resolutions will be published on the Company's
website, www.cadoganpetroleum.com
Board Committee Reports
Audit Committee Report
The Audit Committee is appointed by the Board, on the recommendation of the
Nomination Committee, from the non-executive Directors of the Group. The Audit
Committee's terms of reference include all matters indicated by the Code. They
are reviewed annually by the Audit Committee and any changes are then referred
to the Board for approval. The terms of reference of the Committee are
published on the Company's website, www.cadoganpetroleum.com, and are also
available from the Company Secretary at the Registered Office. Two members
constitute a quorum.
Responsibilities
* To monitor the integrity of the annual and interim financial statements,
the accompanying reports to shareholders, and announcements regarding the
Group's results.
* To review and monitor the effectiveness and integrity of the Group's
financial reporting and internal financial controls.
* To review the effectiveness of the process for identifying, assessing and
reporting all significant business risks and the management of those risks
by the Group.
* To oversee the Group's relations with the external auditor and to make
recommendations to the Board, for approval by shareholders, on the
appointment and removal of the external auditor.
* To consider whether an internal audit function is appropriate to enable the
Audit Committee to meet its objectives.
* To review the Group's arrangements by which staff of the Group may, in
confidence, raise concerns about possible improprieties in matters of
financial reporting or other matters.
Assessment of the effectiveness of the external auditor
The Committee has assessed the effectiveness of the external audit process.
They did this by:
* Reviewing the 2015 external audit plan;
* Discussing the results of the audit including the auditor's views on
material accounting issues and key judgements and estimates, and their
audit report;
* Considering the robustness of the audit process;
* Reviewing the quality of the service and people provided to undertake the
audit; and
* Considering their independence and objectivity.
Governance
Mr Testa and Mr Lehmann, who are both independent non-executive Directors under
provision B.1.1 of the Code, are the members of the Audit Committee. The Audit
Committee is chaired by Mr Lehmann who has recent and relevant financial
experience as a former finance director of major European companies as well as
holding several non-executive roles in major international entities.
At the invitation of the Audit Committee, the Group Director of Finance and
external auditor regularly attend. The Company Secretary attends all meetings
of the Audit Committee.
The Audit Committee also meets the external auditor without management being
present.
Activities of the Audit Committee
During the year, the Audit Committee discharged its responsibilities as
follows:
Financial statements
The Audit Committee examined the Group's consolidated and Company's financial
statements and, prior to recommending them to the Board, considered the
appropriateness of the accounting policies adopted and reviewed critical
judgements, estimates and underlying assumptions and whether the financial
statements represented a true and fair view.
Significant issues relating to the 2015 financial statements
For the year ended 31 December 2015 the Audit Committee identified the
significant issues that should be considered in relation to the financial
statements, being areas which may be subject to heightened risk of material
misstatement.
Impairment of E&E and D&P
The Audit Committee considered the Group's intangible exploration and
evaluation assets and interests in exploration and evaluation assets held
through joint ventures individually for any indicators of impairment, including
those indicators set out in IFRS 6 Exploration for and Evaluation of Mineral
Resources. The uncertainties on the timing and outcome of the licence renewal
and award process and the persistent difficult situation faced by Ukraine have
suggested a prudent approach to the treatment of E&E assets. The Audit
Committee agreed to the identified indicators of impairment and recognised
impairment charge of oil and gas assets of $10.1 million in the financial
statements as at 31 December 2015. The Audit Committee has discussed the
Group's exploration and evaluation assets with both management and the auditors
and concurs with the treatment adopted.
Following discussions with management and the auditor, including discussing the
range of sensitivities, the Committee is satisfied with results of the
assessment of the recoverable amount of development and production assets. The
recoverability assessment involves the use of significant judgment both in the
review of impairment indicators and, in any subsequent impairment test, the
consideration of estimates which are dependent on assumptions about the future.
Reserves
Oil and gas reserves, as discussed in the Statement of Reserves and Resources,
are based on the Independent Reserves and Resources Evaluation performed by
Brend Vik, referred to 31 December 2015 and concluded in March 2016.
However, reserves estimates are inherently uncertain, especially under present
market volatility or in the early stages of a field's life, and are routinely
revised over the producing lives of oil and gas fields as new information
becomes available and as economic conditions evolve. The Audit Committee
acknowledges that such revisions may impact the Group's future financial
position and results, in particular, in relation to impairment testing of oil
and gas property, plant and equipment.
Recoverability of investments in joint ventures
Recoverability of the Group's investments in joint ventures is based on
assessment of exploration and evaluation assets impairment which constitute
most of the investments in joint ventures cost. As of 31 December 2015
impairment assessment of the joint ventures' exploration and evaluation assets
was based on the value in use of the assets held by each individual joint
venture company.
Going concern
After making enquiries and considering the uncertainties described above, the
Committee has a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be appropriate.
For further detail refer to the detailed discussion of the assumptions outlined
in note 3(b) to the Consolidated Financial Statements. The Committee also
support the Group's viability statement presented on page 27.
Political and economic situation in Ukraine
Recent political situation in Ukraine has made it necessary for management to
assess the extent of its impact on the Group's operations and assets.
The Committee reviewed reports from management which considered whether
adjustments are required to the carrying values of assets and the
appropriateness of the going concern assumption. As a result management have
concluded that, other than the impacts derived from the Subsoil use tax and the
uncertainties on the timing of the approval process, there were no significant
adverse consequences in relation to the Group's operations, cash flows and
assets that impact the 2015 financial statements.
In discussion with management, the Committee acknowledged the inherent
difficulty in making any assessment as to the eventual outcome of the present
political situation and, as a consequence, the difficulty of making a reliable
judgement as to the future impact, if any, on the Group's business. The
Committee concurs with conclusions reached by management summarised in Note 4
and in Note 31 to the financial statements.
Internal controls and risk management
The Audit Committee reviews and keeps under review financial and control issues
throughout the Group including the Group's key risks and the approach for
dealing with them.
External auditor
The Audit Committee is responsible for recommending to the Board, for approval
by the shareholders, the appointment of the external auditor.
The Audit Committee considers the scope and materiality for the audit work,
approves the audit fee, and reviews the results of the external auditor's work.
Following the conclusion of each year's audit, it considers the effectiveness
of the external auditor during the process. An assessment of the effectiveness
of the audit process was made, giving consideration to reports from the auditor
on its internal quality procedures. The Committee reviewed and approved the
terms and scope of the audit engagement, the audit plan and the results of the
audit with the external auditor, including the scope of services associated
with audit-related regulatory reporting services. Additionally, auditor
independence and objectivity were assessed, giving consideration to the
auditor's confirmation that its independence is not impaired, the overall
extent of non-audit services provided by the external auditor and the past
service of the auditor.
We have also taken account of the latest recommendations of the Code in
relation to the regular tendering of the external audit appointment.
Deloitte LLP was first appointed in 2005. Having satisfied itself as to their
qualifications, expertise, resources and independence and the effectiveness of
the audit process, the Audit Committee has recommended to the Board, for
approval by shareholders, the reappointment of Deloitte LLP as the Company's
external auditor.
There is an agreed policy on the engagement of the external auditor for
non-audit services to ensure that its independence and objectivity are
safeguarded. Work closely related to the audit, such as taxation or financial
reporting matters, can be awarded to the external auditor by the executive
Directors provided the work does not exceed £50,000 in fees per item. Work
exceeding £50,000 requires approval by the Audit Committee. All other non-audit
work either requires Audit Committee approval or forms part of a list of
prohibited services, where it is felt the external auditor's independence or
objectivity may be compromised.
A breakdown of the non-audit fees is disclosed in note 10 to the Consolidated
Financial Statements. The Company's external auditor, Deloitte LLP, has
provided non-audit services (excluding audit related services) which amounted
to $113,000 (2014: $63,000). The Audit Committee has reviewed the level of
these services in the course of the year and is confident that the objectivity
and independence of the auditor are not impaired by the reason of such
non-audit work.
The Company is aware that, as a result of the EU Audit Directive and
Regulation, companies where the auditor was appointed between 17 June 2003 and
16 June 2006 will need to conduct a tender and either reappoint the existing
auditor or appoint new auditors for the audit for the year end at 31 December
2017. Accordingly, the Company intends to conduct a tender following the Annual
General Meeting to be held on 22 June 2016.
Internal audit
The Audit Committee considers annually the need for an internal audit function
and believes that, due to the size of the Group and its current stage of
development, an internal audit function will be of little benefit to the Group.
The Group's whistleblowing policy encourages employees to report suspected
wrongdoing and sets out the procedures employees must follow when raising
concerns. The policy, which was implemented during 2008, was refreshed in 2013
and recirculated to staff as part of a manual that includes the Company's
policies on anti-bribery, the acceptance of gifts and hospitality, and business
conduct and ethics.
Overview
As a result of its work during the year, the Audit Committee has concluded that
it has acted in accordance with its terms of reference and has ensured the
independence and objectivity of the external auditor. A formal review of the
Audit Committee's performance was undertaken after the year end and concluded
that the Committee is effective in its scrutiny of the accounts and financial
reporting process, its oversight of risk management systems and its monitoring
of internal control testing.
The Chairman of the Audit Committee will be available at the Annual General
Meeting to answer any questions about the work of the Audit Committee.
Gilbert Lehmann
Chairman of the Audit Committee
25 April 2016
Health, Safety and Environment Committee Report
The Health, Safety and Environment Committee (the "HSE Committee") is appointed
by the Board, on the recommendation of the Nomination Committee. The HSE
Committee's terms of reference are reviewed annually by the HSE Committee and
any changes are then referred to the Board for approval. The terms of reference
of the Committee are published on the Company's website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. Two members constitute a quorum, one of whom must be a
Director.
Responsibilities
* To develop a framework of the policies and guidelines for the management of
health, safety and environment issues within the Group.
* Evaluate the effectiveness of the Group's policies and systems for
identifying and managing health, safety and environmental risks within the
Group's operation.
* Assess the policies and systems within the Group for ensuring compliance
with health, safety and environmental regulatory requirements.
* Assess the performance of the Group with regard to the impact of health,
safety, environmental and community relations decisions and actions upon
employees, communities and other third parties and also assess the impact
of such decisions and actions on the reputation of the Group and make
recommendations to the Board on areas for improvement.
* On behalf of the Board, receive reports from management concerning any
fatalities and serious accidents within the Group and actions taken by
management as a result of such fatalities or serious accidents.
* Evaluate and oversee, on behalf of the Board, the quality and integrity of
any reporting to external stakeholders concerning health, safety,
environmental and community relations issues.
* Where it deems it appropriate to do so, appoint an independent auditor to
review performance in regard to health, safety, environmental and community
relations matters and review any strategies and action plans developed by
management in response to issues raised and, where appropriate, make
recommendations to the Board concerning the same.
Governance
The HSE Committee was in place throughout 2015. Members of the HSE Committee
are Mr Adelmo Schenato (Chief Operating Officer and HSE Committee Chairman), Ms
Snizhana Buryak (HSE Manager), Mr Andriy Bilyi (Deputy Operations Manager). The
Company Secretary attends meetings of the HSE Committee. The HSE Committee
meets monthly to monitor continuously progress by management.
Activities of the Health, Safety and Environment Committee
During the year, the HSE Committee discharged its responsibilities as follows:
* The ongoing review of existing HSE policies and procedures, as well as
development of new ones, was regularly discussed at the Committee meetings
in relation to the current activities.
* Compliance with HSE regulatory requirements was ensured through discussion
of any inspections, both internal ones and those carried out by the
Authorities.
* HSE performances, key indicators and statistics were a standing item on the
agenda, allowing the HSE Committee to assess the Company's activities
performance by analysing any lost-time incidents (of which there were none
during 2013, 2014 and 2015), near misses, HSE training and other
indicators.
* Interaction with contractors, Authorities, local communities and other
stakeholders was discussed among other HSE activities.
Overview
As a result of its work during the year, the HSE Committee has concluded that
it has acted in accordance with its terms of reference.
Adelmo Schenato
Chairman of the Health, Safety and Environment Committee
25 April 2016
Nomination Committee Report
The Nomination Committee is appointed by the Board predominantly from the
non-executive Directors of the Group. The Nomination Committee's terms of
reference include all matters indicated by the Code. They are reviewed annually
by the Nomination Committee and any changes are then referred to the Board for
approval. The terms of reference of the Nomination Committee are published on
the Company's website, www.cadoganpetroleum.com, and are also available from
the Company Secretary at the Registered Office. Two members constitute a
quorum.
Responsibilities
* To regularly review the structure, size and composition (including the
skills, knowledge and experience) required of the Board compared to its
current position and make recommendations to the Board with regard to any
changes.
* Be responsible for identifying and nominating for the approval of the Board
candidates to fill Board vacancies as and when they arise.
* Before appointment is made by the Board, evaluate the balance of skills,
knowledge, experience and diversity on the Board and, in the light of this
evaluation, prepare a description of the role and capabilities required for
a particular appointment.
In identifying suitable candidates, the Nomination Committee shall use open
advertising or the services of external advisers to facilitate the search and
consider candidates from a wide range of backgrounds on merit, taking care that
appointees have enough time available to devote to the position.
The Nomination Committee shall also make recommendations to the Board
concerning:
* Formulating plans for succession for both executive and non-executive
Directors and in particular for the key roles of Chairman and Chief
Executive Officer.
* Membership of the Audit and Remuneration Committees, in consultation with
the Chairmen of those committees.
* The reappointment of any non-executive Director at the conclusion of their
specified term of office, having given due regard to their performance and
ability to continue to contribute to the Board in the light of the
knowledge, skills and experience required.
* The re-election by shareholders of any Director having due regard to their
performance and ability to continue to contribute to the Board in the light
of the knowledge, skills and experience required.
* Any matters relating to the continuation in office of any Director at any
time including the suspension or termination of service of an executive
Director as an employee of the Company subject to the provisions of the law
and their service contract.
Governance
Mr Zev Furst (Board and Nomination Committee Chairman), Mr Bertrand des
Pallieres (Chief Trading Officer), and Messrs Gilbert Lehmann and Enrico Testa
(independent non-executive Directors) are the members of the Nomination
Committee. The Company Secretary attends all meetings of the Nomination
Committee.
Activities of the Nomination Committee
The Nomination Committee carried out a review of the size, structure and
composition of the Board after the year end and concluded that it had the
appropriate balance of skills, knowledge, independence and experience. The
Nomination Committee recommends the re-election of each of the Directors at the
AGM.
Overview
As a result of its work during the year, the Nomination Committee has concluded
that it has acted in accordance with its terms of reference. The Chairman of
the Nomination Committee will be available at the Annual General Meeting to
answer any questions about the work of the Nomination Committee.
Remuneration Committee
Statement from the Chairman
I am pleased to present the Annual Report on Remuneration for the year ended 31
December 2015.
During 2015 there were no substantial changes made to the Remuneration Policy,
nor to the composition of directors' remuneration, and there was no increase to
executive and non-executive directors' salary and fees in base currency. During
2015 there were no performance payments made.
In June 2015 Mr Guido Michelotti has replaced Mr Bertrand des Pallieres as a
Chief Executive Officer. Mr des Pallieres has been appointed as Chief Trading
Officer.
The Remuneration Policy and Annual Report on Remuneration 2014 were presented
for an advisory vote and approved at the Annual General Meeting 2015 held on 25
June 2015. No major changes were made to the Remuneration Policy, which can be
found at our website. Shareholders at the Annual General Meeting will be asked
to approve the Remuneration Policy every three years, unless there is a need to
amend the Policy in the interim. The Annual Report on Remuneration 2015 will be
presented for a binding vote at the Annual General Meeting 2016 to be held on
22 June 2016.
Given the challenging political situation in Ukraine, the Company's aim to
develop a revised, long-term and balanced Remuneration Policy aligned to
strategy and performance and linked to shareholder preferences took second
precedence last year to other pressing matters.
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