The directors of the Company (“Directors” and together the “Board”) recognise the importance of sound corporate governance and to date, have applied the recommendations of the Quoted Companies Alliance Corporate Governance Code for small and mid-sized companies 2013 (the “QCA Code”), in so far as it was deemed appropriate for the Company. As the Company is listed on AIM, it is required from September 2018, to provide details of a recognised corporate governance code and the Board have decided to continue to apply this code and its replacement The QCA Corporate Governance Code that was published in April 2018.
As a company incorporated in the Cayman Islands, LEKOIL is not a subject to the UK City Code on Takeovers and Mergers (City Code), or any other such legislation or code in its country of incorporation or operation. LEKOIL has voluntarily adopted provisions in its Articles of Association of similar effect to Rule 9 of the City Code.
The Board will meet regularly and be responsible for strategy, performance, approval of any major capital expenditure and the framework of internal controls. The Board will have a formal schedule of matters specifically reserved to it for decision, including matters relating to major capital expenditure, management structure and appointments, strategic and policy considerations, corporate transactions and finance. The Board will be responsible for establishing and maintaining the Group's system of internal financial controls and importance is placed on maintaining a robust control environment. The key procedures which the Board intends to establish with a view to providing effective internal financial control include the following:
- the Company will institute a monthly management reporting process to enable the Board to monitor the performance of the Group;
- the Board will adopt and review a comprehensive annual budget for the Group. Monthly results will be examined against the budget and deviations will be closely monitored by the Board;
- the Board will be responsible for maintaining and identifying major business risks faced by the Group and for determining the appropriate courses of action to manage those risks; and
- fully consolidated management information will be prepared on a regular basis, at least half yearly.
The Board recognises, however, that such a system of internal financial control can only provide reasonable, not absolute, assurance against material misstatement or loss. The effectiveness of the system of internal financial control operated by the Group will therefore be subject to regular review by the Board in light of the future growth and development of the Company and adjusted accordingly. To enable the Board to discharge its duties it is intended that all of the Directors will receive timely information in respect of the affairs of the Group.
The Board conducted a performance evaluation (the “Evaluation”) to review its efficiency and effectiveness. All five Non-Executive Directors on the Board participated in the Evaluation through independent assessments of the performance of the Board(1). The Evaluation covered the period commencing from the 2019 year-end period to date. Three of the Directors who were on the Board in 2019 assessed Board performance from January 2019 to date; while the other two Directors who joined the Board in 2020 assessed Board performance from January 2020 to date. The period of assessment may have some bearing on the weighting given by the Directors in the course of the Evaluation.
The Evaluation considered a broad range of issues grouped accordingly:
1. Board composition
Number of Directors; ratio of Executive to Non-executive; selection process; qualification, industry expertise, diversity; integrity, credibility, trustworthiness, constructive conflict resolution; composition, size and efficiency of Committees(2).
2. Process and procedures
Review, approval, monitoring of operating, financial, corporate strategies and objectives; adequacy of Board materials, duration and frequency of meetings; corporate governance awareness; communication, participation, proactiveness, balanced consideration of operational and strategic issues; engagement with senior management.
3. Company and business
Understanding of the Company’s operational and financial strategies, objectives and available comprehension alternatives, results; and critical risks, opportunities, competitive factors and trends affecting the Company’s business and prospects; orientation for new directors.
- The responses from the Directors to the issues considered in the Evaluation were weighted as follows:
1 = strongly agree (outstanding); 2 = agree (consistently good); 3 = should be reviewed; 4 = disagree
- There are two Board committees – Audit Committee and Remuneration Committee.
The Directors concluded the Evaluation with a self-assessment of their contributions to the Company. The Directors indicated that they have made adequate contributions to the Company; noting useful input made during the recent QIA investigation as well as in-depth technical know-how and a keen understanding of the Nigerian industry and operating environment. The opportunity for continuous learning through interaction amongst Directors of varying backgrounds and experience provides was also noted.
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The Audit Committee comprises of Anthony Hawkins and Mark Simmonds. The members are all be independent Non-Executive Directors of the Company. The Audit Committee is chaired by Anthony Hawkins and shall meet not less than three times a year. The Audit Committee receives and reviews reports from management and from the Company’s auditors relating to the interim and annual accounts and to the internal control procedures in use throughout the Group. It is responsible for ensuring that the financial performance of the Group is properly reported with particular regard to legal requirements, accounting standards and the AIM Rules for Companies. This process includes reviews of annual and interim accounts; results announcements; risk and internal control systems; procedures; and accounting policies. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board.
The Remuneration Committee comprises of Aisha Muhammed-Oyebode and Mark Simmonds. The members are all be independent Non-Executive Directors of the Company. The Remuneration Committee is chaired by Aisha Muhammed-Oyebode and shall meet not less than twice a year. It is responsible for determining and reviewing the terms and conditions of service (including remuneration) and termination of employment of executive directors and senior employees and the grant of options implemented from time to time.
The Directors comply with Rule 21 of the AIM Rules relating to directors’ and applicable employees’ dealings in the Company’s securities. Accordingly, the Company has adopted the Share Dealing Code for directors and applicable employees and the Company will take all reasonable steps to ensure compliance by its directors and applicable employees with the provisions of the AIM Rules relating to dealings in securities.
Company responsibility: LEKOIL is committed to demonstrating leadership in stewardship of the environment, employee health and safety, and social responsibility. The Company seeks to conduct the Company with the highest ethical standards in an overriding effort to make a positive impact in the communities where it operates.
Environmental regulations: Nigeria’s Environmental Impact Assessment Act (“EIAA”) requires every company whose activity or project is likely to have a significant effect on the environment to carry out an impact assessment programme prior to the commencement of the project. The assessment is to be referred to the Federal Ministry of Environment, the regulatory body charged with the responsibility of administering the EIAA, for approval. In addition, the EIAA classifies oil and gas development and construction of off-shore pipelines in excess of 50 km in length among projects that will require environmental impact assessment to be conducted.
Environmental Guidelines and Standards for the Petroleum Industry in Nigeria The Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (the “Guidelines”) were issued by the Department of Petroleum Resources (DPR). The Guidelines mandate all licence holders or operators in the petroleum industry to adopt a systematic and integrated environmental management plan. They control the quality and quantity of industrial effluents associated with oil drilling activities/operations to ensure that such discharges do not cause any hazard to human health and living organisms. The Guidelines require that a mandatory environmental permit be obtained from the DPR prior to the commencement of seismic and drilling operations in Nigeria. An application for an environmental permit must be accompanied by an EIA report.
Employee safety: LEKOIL’s highest priority is to ensure the safety, health and well-being of our employees and contractors. The Company is committed to implementing policies and procedures that will eliminate risks in the workplace. These include operational controls and procedures, proper job training, risk assessment and ongoing monitoring of working conditions.
Terms of Reference for the Audit Committee (the "Committee") of LEKOIL Limited
- The main roles and responsibilities of the audit committee are:
- To monitor in discussion with the auditors the integrity of the financial statements of the company, and any formal announcements relating to the company's financial performance, reviewing significant financial reporting judgements contained in them;
- To review the company's internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors, or by the board itself, to review the company's internal control and risk management systems;
- To monitor and review the effectiveness of the company's internal audit function and, where there is no internal audit function, consider annually whether there is a need for an internal audit function and make a recommendation to the board;
- To make recommendations to the board, for it to be put to the shareholders for their approval in general meeting, in relation to the appointment, re-appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;
- To review and monitor the external auditor's independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements;
- To develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm; and to report to the board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken;
- To review arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters and ensure that arrangements are in place for the proportionate and independent investigation of such matters with appropriate follow-up action.
- The Committee shall comprise of at least two members who shall be appointed by the Board from time to time, all of whom shall be independent non-executive directors and at least one of whom shall have recent and relevant financial experience.
- The members of the Committee shall be re-elected each year by the Board and a member of the Committee can be removed at any time.
- Meetings will be held at least three times a year, at appropriate times in the reporting and audit cycle.
- The Committee is authorised to obtain external legal or other professional advice, when it consider its necessary to do so, to assist it in the performance of its duties the cost of which will be borne by the Company.
Terms of Reference for the Remuneration Committee (the "Committee") of the Board of Directors of Lekoil Limited (the “Company”)
The Committee should:
- Determine and agree with the board the framework or broad policy for the remuneration of the chief executive, the chairman of the Company (where executive) and such other members of the executive management as it is designated to consider;
- At a minimum, the committee should have delegated responsibility for setting remuneration for all executive directors, the chairman and, to maintain and assure their independence, the company secretary: the committee should also recommend and monitor the level and structure of remuneration for senior management;
- Where necessary obtain appropriate external advice to assist it in the performance of its duties. The cost of obtaining any such advice will be paid for by the Company within the limit authorised by the Board. The chairman of the Board will be informed before external advice is sought.
- Consist of at least two independent non-executive directors of the Company who have no personal financial interest, except as shareholders (if applicable) in the Committee’s decision. A member of the Committee can be removed by the Board at any time. The members of the Committee shall be re-elected each year by the Board.
- The remuneration of non-executive directors (including the chairman if non-executive) shall be a matter for the chairman (if executive) and executive members of the board;
- No director or manager should be involved in any decisions as to their own remuneration;
- Determine targets for any performance-related pay schemes operated by the Company;
- Determine the policy for and scope of pension arrangements for each executive director;
- Ensure that contractual terms on termination, and any payments made, are fair to the individual and the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised;
- Within the terms of the agreed policy, determine the total individual remuneration package of each executive director including, where appropriate, bonuses, incentive payments and share options;
- Co-ordinate closely with the Nomination Committee in relation to the remuneration to be offered to any new executive director;
- Be aware of and advise on any major changes in employee benefit structures throughout the Company and its group;
- Agree the policy for authorising claims for expenses from the chief executive and chairman;
- Ensure that provisions regarding disclosure of remuneration, including pensions, as set out in the Directors' Remuneration Report Regulations 2002, are fulfilled; 98523.00001/9580440.01 Page 2
- Be exclusively responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the committee; and
- Make available the committee's terms of reference which should set out the committee's delegated responsibilities and be reviewed and, where necessary, updated annually.