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Corporate Governance Statement

LEKOIL LIMITED (“Lekoil” or the “Company) and its subsidiaries (together, the “Group”)

Chairman’s Corporate Governance Statement 2018

 

Introduction

This Statement is issued in compliance with Rule 26 of the AIM Rules.

Lekoil is incorporated and registered in the Cayman Islands and its shares are listed on the Alternative Investment Market of the London Stock Exchange (“AIM) following its IPO in May 2013.

I am the non-executive chairman of Lekoil and I am responsible for leading the Board and upholding high standards of corporate governance throughout the Group and particularly at Board level. It gives me great pleasure to introduce our first Corporate Governance Statement.

Since the Company’s IPO, a number of steps have been taken to establish a governance structure appropriate to the size and nature of the business and the interests of its shareholders. 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 (the “New QCA Code”).

High standards of corporate governance are a priority for the Board and we recognise that there are areas where the Company’s governance structures and practices differ from the expectations set by the New QCA Code. We will undertake to review the governance structures, procedures and disclosures we make as we consider good corporate governance key in the creation of value for our shareholders and in growth for the Company over the medium to long-term. The table appended to this statement demonstrates how the New QCA Code has been applied by the Board and where we have departed from it or the required disclosures, an explanation has been provided.

Further information on compliance with the New QCA Code will also be provided in the Company’s next Annual Report and Accounts.

Samuel Adegboyega
Non-executive Chairman
Lekoil Limited
September 2018

 

Application of the New QCA Code

DELIVER GROWTH (Principles 1 - 4)

 

Principle

Application

1

Establish a strategy and business model which promote long-term value for shareholders

Application of Principle
Our strategy is clearly articulated on our website and our key objective is to create sustainable long-term value where our operational low-cost, Africa focused long-life asset base creates the high-margin cash flow that funds our growth, reduce our debt and deliver shareholder returns. As a responsible operator, LEKOIL manages above-ground risks with the same rigour and focus with which it manages the below-ground technical challenges of exploring for and producing oil and gas. We are committed to sustaining high levels of safety, environmental and social performance across our operations. To facilitate this, we have enacted mandatory policies and standards to guide operational responsibility and to which we hold all employees and contractors accountable. Our organisational structure makes clear the accountability of Business Delivery Teams for operational delivery in accordance with these requirements and the Corporate Centre’s accountability for structured and independent assurance. We have continued to strengthen and clarify these policies and standards to ensure compliance and robust risk management. The Board meets on a regular basis to discuss the strategic direction of the Company and any significant change will be highlighted promptly.

Disclosure requirement
Information on our strategy and growth plans for the business were included in the Chairman’s and CEO’s Statement on pages 3 – 11 of the 2017 Lekoil Limited Annual Report and Accounts for the year ended 31 December 2017 (the “2017 Annual Report”), and will be expanded upon in our Annual Report and Accounts for the year ended 31 December 2018 (the “2018 Annual Report”).

2

Seek to understand and meet shareholder needs and expectations

Application of Principle
We focus on business growth and value creation for our shareholders and it is important for our Board to understand the needs and expectations of them.

The Board is aware that following the introduction of the Markets in Financial Instruments Directive II (MiFID II) regulations on 3 January 2018 at the start of 2018, private investor access to research on public companies has been restricted. Despite this, we currently have active sell-side coverage from four institutions.

The Board has ultimate responsibility for reviewing and approving the Annual Report and Accounts and it has considered and endorsed the arrangements for their preparation, under the guidance of its audit committee. The Directors confirm that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s position and performance, business model and strategy.

Responsibility for investor relations rests with the Investor Relations Manager. Management team members that frequently take on investor-facing roles include the Chief Executive Officer, Chief Financial Officer and Chief Technical Officer.

Disclosure requirement
We are committed to communicating openly with our shareholders to ensure that our strategy is clearly understood. We communicate with shareholders through the Annual Report and Accounts, full-year and half-year announcements, operational updates and the annual general meeting. 

We have made significant efforts to ensure effective engagement with both institutional and private shareholders. We conduct regular roadshows and participate at select investor conferences throughout the year.

We actively distribute relevant operational information to investors that have elected to subscribe to Company information via email and make it easy for prospective investors to join this distribution on our website.  We host our Annual General Meeting (“AGM”) in Lagos as a forum to present to and meet investors that may not otherwise have access to management at institutional conferences.  A range of corporate information (including all our announcements) is also available to shareholders, investors and the public on our website.

We provide a link to contact our Investor Relations team on the Investors section of the Lekoil website.

3

Take into account wider stakeholder and social responsibilities and their implications for long-term success

Application of Principle
We take our responsibilities in the communities we operate in very seriously and we care about our environment and value our employee’s welfare highly. Engagement with, and obtaining feedback from, our key stakeholders is vital in the long term success of the Company.

Disclosure requirement
Whilst we recognise our social responsibilities, as set out on page 10 of the Chairman’s and CEO’s Statement of the 2017 Annual Report, we appreciate it would be useful to provide more on the business model, the key resources and relationships to the business and stakeholder feedback. We have provided these disclosures below and the same will be included in our subsequent Annual Report and Accounts.

The oil we produce has the potential to create sustainable value and shared prosperity in the communities where we operate. Over the course of the oil and gas life cycle, we prioritise cost consciousness, paying fair and appropriate amounts of tax, being transparent in the payments we make to the government and regulatory agencies as well as identifying opportunities for local businesses within our supply chain to share the benefits from our operations. Building a robust social licence is fundamental to our ability to operate. Without the engaged support of our host communities, we would be unable to undertake the technical, infrastructural and logistical work associated with exploration, development and production of hydrocarbons. Focal areas of our social performance therefore include stakeholder engagement, management of community grievances – all led by focused stakeholder engagement teams – with emphasis dependent on project context and proposed activities.

Private shareholders: The AGM is the principal forum for dialogue with private shareholders, and we encourage all shareholders to attend and participate. The Notice of Meeting is sent to shareholders at least 21 days before the meeting. The chairs of the Board and all committees, together with all other Directors whenever possible, attend the AGM and are available to answer questions raised by shareholders. Shareholders vote on each resolution, by way of a poll.

Institutional shareholders: The Directors actively seek to build a mutual understanding of objectives with institutional shareholders. Our CEO, CFO, CTO and Investor Relations Manager make presentations to institutional shareholders and analysts throughout the year. We communicate with institutional investors frequently through a combination of formal meetings, participation at investor conferences, roadshows and informal briefings with management. The majority of meetings with shareholders and potential investors are arranged by the broking team within the Group’s three nominated advisors. Following meetings, the broker provides anonymised feedback to the Board from all fund managers met, from which sentiments, expectations and intentions may be gleaned.

In addition, we receive additional feedback from investors via our proxy advisors in regard to investor sentiment around resolutions proposed for the AGM.

We review analysts’ notes to achieve a wide understanding of investors’ views. This information is considered by the Board and has contributed to the preparation of the group’s investor relations strategy.

4

Embed effective risk management, considering both opportunities and threats, throughout the organisation

Application of Principle
We have recently adopted a Risk Management Policy which provides a procedure for the management of the Company’s risk. As part of the risk management procedure, the Company is in the process of developing a risk register which identifies business continuity risks, corporate governance risks, security risks and health, safety and environment protection risks.  Reporting is required from each functional group head or business unit leader and consists of quarterly Management Information reports assessing material changes within the risk profiles.

The Chief Financial Officer is in charge of collating management risk reports and presenting them to the Audit Committee, in the form of a Group-wide Risk Register, for consideration at least twice a year.  The Audit Committee will then report on its activities and make recommendations to the Board as appropriate.

Disclosure requirement
The Board is responsible for setting the Group’s risk philosophy and appetite and approving the overall risk management policy.  It is responsible for maintaining a sound system of internal control that supports the achievement of its goals and objectives. 

The Board is also responsible for overseeing the establishment, implementation and review of the Group’s risk management systems and, to this end, has delegated certain functions relating to risk to the Audit Committee and to management.

Whilst our Risk Management Framework is noted on page 69 of the 2017 Annual Report, our subsequent Annual Report and Accounts will include statements on the Group’s risk management and internal control systems and will report on the principle risks and uncertainties facing the Group and steps taken to mitigate these risks.

At least once a year the Audit Committee will review the effectiveness of all aspects of the Group’s risk management and internal control systems.

MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK (Principles 5 - 9)

 

Principle

Application

5

Maintain the Board as a well-functioning, balanced team led by the chair.

Application of Principle
Corporate Governance arrangements will be an area of focus for the Board in 2019. We consider that our current Board composition is appropriate, and that we have a sufficient number of independent Non-Executive Directors. The Board is provided with information and documentation of a high standard and is supported by its Audit and Remuneration Committees.

Disclosure requirement
In 2018, the Board comprised of a Non-executive Chairman, five independent Non-executive Directors and two Executive Directors. The Company believes that compared to companies of a similar size and market capitalisation this governance structure is appropriate.

The Board considers that the size of the Group does not justify the establishment of a formal nominations committee, and consequently all of the Directors play an active part where any director replacements/ additions are required.

Time Commitment:
Under their appointment letters, Lekoil may call on the Directors to spend at least 20 days per year on Company business.

The attendance record of the Directors is provided on page 20 of the 2017 Annual Report. The 2018 Annual Report will provide more detail on the independence position of each of the directors and the appropriate time commitment required by them in order to fulfil their roles.

Brief biographical details of the current Directors can be found on the Company’s website here.

6

Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities

Application of Principle
Our Board has the appropriate balance of skills and experience relevant to the Company. Board diversity from various perspectives is considered an important matter by the Board and membership of our Board includes two female Directors and members from various backgrounds. These include sector-specific experience in the oil and gas industry, as well as more general finance, accounting and business management skills.

Disclosure requirement
The current Directors, their background and experience is identified on pages 16-17 of the 2017 Annual Report.

The Board currently has the broad range of skills and capabilities required to direct the Group. The Board is supported by the following committees:

Audit Committee
The Audit Committee comprises of John van der Welle, Hezekiah Adesola Oyinlola and Gregory Eckersley. The members are all independent Non-Executive Directors of the Company.  The Audit Committee is chaired by John van der Welle and meets 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.

Remuneration Committee
The Remuneration Committee comprises of Gregory Eckersley, Aisha Muhammed-Oyebode and John van der Welle. The members are all independent Non-Executive Directors of the Company. The Remuneration Committee is chaired by Gregory Eckersley and meets 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 the grant of options implemented from time to time.

It reviews the performance of the Executive Directors, sets the scale and structure of their remuneration and reviews the basis of their service agreements.

The Remuneration Committee also makes recommendations to the Board concerning the allocation of share options to employees. No Director is permitted to participate in discussions or decisions concerning his or her own remuneration. The details of Directors’ remuneration and share options are contained within the Directors’ Remuneration Report on page 23 of the Company’s 2017 Annual Report.

The advisers of the Company are listed on page 73 of the 2017 Annual Report and on the AIM Rule 26 section of the website. More detail on their roles, particularly where we have sought advice on a significant matter, will be disclosed in the 2018 Annual Report, if necessary.

Explanations on how each Director keeps their skill set up to date were not previously disclosed in our 2017 Annual Report as there was no similar requirement in the previous version of the QCA Code. However, we intend to expand the disclosures on director training and how the directors keep their skillset up to date and any internal advisory roles, such as the role of the Company Secretary, in the 2018 and subsequent Annual Reports.

 

7

Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

Application of Principle
Although the Company, due to the size of the Board and the focus on the Company’s strategic growth, has not carried out a formal Board evaluation exercise, we recognise the importance of assessing the performance of the Board and will undertake to carry this exercise out within the next 12 months.

Following consultation with the executive team, the Non-Executives will be appraised by the Chairman, with a particular focus on the following: Participation at Board and committee meetings; People management and relationships; Strategic planning; Knowledge and skill; Financial management.

The performance evaluation of the Chief Executive Officer and the Chief Financial Officer is carried out by our Remuneration Committee, using metrics set in the preceding year, to be achieved in the course of the following year. These metrics essentially measure:

The extent to which the executive director is leading the organisation to accomplish its goals; whether they are leading the organisation to deliver results in the short- and longer-term; to what extent is the executive director’s leadership consistent with our values and our beliefs about what skills they need to be effective; and the implications of the performance review in terms of the executive director’s role, areas in which they should continue performing well, and areas in which they can improve.

Succession planning is regarded by the Board as vitally important in maintaining a ‘strong bench’ and the continued success of the business. Through regular reviews and management discussions, the company’s future business leaders are identified, and personal development plans are put in place to harness their potential and plan for job growth and career progression. In practice, the chairman and the chief executive lead on the Board nomination and appointment process. They consider the balance of skills, knowledge and experience on the Board and make appropriate recommendations for consideration by the whole Board. Each Board member is invited to meet with the candidate. This process has been used effectively for a number of years and has led the Board to remain of the view that it should continue to operate in this way rather than through a more formal nomination committee. Other senior appointments are made by the chief executive in discussion with the chairman. We expect the Board evaluation process to evolve over time so that it becomes linked to succession.

Disclosure requirement
Once an evaluation has been undertaken further information will be set out in the Corporate Governance Statement and on the Lekoil website.

8

Promote a corporate culture that is based on ethical values and behaviours

Application of Principle
We have established a vision and mission and our core values which are based on integrity, professionalism, respect, innovation and creativity, drive and team-work and collaboration. These values set the themes for our culture and guide the objectives and strategy of the Company, which is reinforced to all members of staff on a quarterly basis by the CEO during regular town-hall meetings.  A culture of ethical behaviour aligned to our values and a robust quality management system are central to how we run the business. Through clear corporate governance policies, supported by robust risk, assurance and performance management processes, we manage the opportunities and risks in our operations and respond to the concerns of our shareholders and stakeholders. The Board incentivises such good governance and risk management measures through a set of Key Performance Indicators (KPIs) in our Corporate scorecard, which are used to determine Executive Directors’ and employees’ variable, performance-related compensation.  

Disclosure requirement
As outlined above, corporate social responsibility, as detailed on page 10 of the 2017 Annual Report, is very important to us as a business. Lekoil is committed to demonstrating leadership in stewardship of the environment, employee health and safety and social responsibility. Our responsibilities and the related regulations applicable to us are also set out on the corporate social responsibility section of the Lekoil website.

The Executive Directors work in an open plan environment in the respective Lekoil offices, which provides them with plenty of opportunities to see and hear how people interact both with their work colleagues and others outside of the business (and would enable them to address matters if they were at odds with the Company’s culture).

An Anti-bribery and Corruption Policy is on our corporate website (see https://www.lekoil.com/general-business-principles) which is referenced in the Company’s contracts with vendors.  The policy confirms that the Group has a zero-tolerance stance on bribery and repeats the Board’s expectation that everyone behaves professionally, respectfully and with integrity at all times.

The Anti-bribery and Corruption Policy along with all the other company policies, are circulated to all staff during regular corporate governance policy training exercises and is located on the Company’s intranet website.

The Group has also put a Whistleblowing policy in place. This allows staff to raise any concerns in confidence directly with the Chief Executive Officer, Chairman of the Board or the Company Secretary.

Experience to date suggests that the Company policies are effective and staff members are aware of them.

We understand that we do not necessarily make our corporate culture and how it is linked to our ethical values clear within the 2017 Annual Report or on the website. We will undertake to expand on these disclosures in the 2018 and subsequent Annual Reports to demonstrate how the culture of the business is linked to our ethical values and behaviours.

9

Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

Application of Principle
The Board recognises the importance of corporate governance and we are reviewing our governance structures, processes and disclosures in 2018.

Roles and responsibilities of the chair, chief executive and any other directors who have specific individual responsibilities or remits (e.g. for engagement with shareholders or other stakeholder groups)

It is the role of the Chairman to lead the Board of Directors and it is the role of the Chief Executive to lead the executive team in running the business of the Company and its subsidiary undertakings (the Group).

Responsibilities of the Chairman
In leading the Board, the Chairman is specifically responsible for:

General:
Upholding the highest standards of integrity, probity and corporate governance throughout the Group, particularly at Board level.

Ensuring an appropriate balance is maintained between the interests of shareholders and other stakeholders (employees, customers, suppliers and the community).

Board meetings:
Chairing meetings of the Board and setting the agenda for such meetings.

Ensuring that the Directors receive accurate, timely and clear information to enable the Board to make sound decisions.

Managing the Board to allow enough time for discussion of complex or contentious items and in particular of strategic issues.

Directors
Facilitating the effective contribution of Non-executive Directors and encouraging active engagement by all members of the Board.

Ensuring constructive relations between the Executive and Non-executive Directors.

Ensuring that the composition of the Board supports the needs of the business and succession planning for Board appointments (except that of a successor as Chairman) subject to Board and shareholder approval.

Annual General Meeting:
Chairing the Annual General Meeting and any other general meeting of the Company.

Arranging for the Chairmen of the Board Committees to be available to answer questions at the Annual

General Meeting and for all Directors to attend.

Responsibilities of the Chief Executive Officer
The Chief Executive Officer is responsible for the following, within the authority limits delegated by the Board:
Business strategy and management.

Leading the Executive Directors and senior executive team in the day to day running of the Group’s businesses including oversight and management of all operations, business activities and performance.

Development of objectives and strategic business plans having regard to the Company’s responsibilities to its shareholders, customers, employees and other stakeholders.

Identifying acquisitions, disposals and new business opportunities in line with strategic plans.

Ensuring effective implementation of Board decisions.

Ensuring that all Group policies and procedures are followed and conform to the highest standards of corporate governance.

Board Meetings:
Providing input to the Board’s agenda from Executive management.

Development of a succession plan for senior management.

Along with the Chief Financial Officer, recommending to the Board an annual budget and financial plans.

Board Membership and Remuneration:
Making recommendations on remuneration policy, executive remuneration and terms of employment of the senior executive team to the Remuneration Committee.

Making recommendations to the Board on the role and capabilities required in respect of any appointment of an Executive Director.

Disclosure requirement
The roles and terms of reference of the Audit Committee and Remuneration Committee are available on the website. The matters reserved for the Board are also available on the Corporate Governance section.

Audit committee: its primary focus is on corporate reporting (from an external perspective) and on monitoring the company’s internal control and risk management systems (from an internal perspective). Further details on the committee’s responsibilities and activities are stated on the Audit Committee section of our website.

Remuneration committee: its primary function is to determine, on behalf of the board, the remuneration packages of the executive directors. Further details on the committee and the company’s reward policy are on page 23 of our 2017 annual report.

The terms of reference for the Audit and Remuneration committees can be found in the Corporate Governance section of the Company’s website.

The Board has a formal written schedule of matters reserved for its review and approval which is located in the Corporate Governance Section of the Company’s website.

We will be expanding our website disclosures to include more detail on the specific roles and responsibilities of the chair, chief executive and any other directors who have specific individual responsibilities or remits (e.g. for engagement with shareholders or other stakeholder groups).

The Corporate Governance section of the Lekoil website sets out our approach to corporate governance.

BUILD TRUST (Principle 10)

 

Principle

Application

10

Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

Application of Principle
As soon as practicable after any general meeting has concluded, the results of the meeting are released through a regulatory news service and a copy of the announcement is posted on the Regulatory News page on our website.

Disclosure requirement
Copies of previous annual reports and other corporate documents are available on the Lekoil website under the Corporate Documents section.

A Remuneration Committee Report is set out on pages 23 and 24 of the 2017 Annual Report.

In the 2018 Annual Report, we will undertake to include an Audit Committee Report and more details on the work of the Board and the Committees during the year.

The Company would provide an explanation of actions where a significant proportion of votes (e.g. 20% of independent votes) is cast against a resolution at any general meeting, if this became relevant.

The investors section of our website along with the Regulatory News  page includes Notices of all general meetings held in the last five years and copies of all our annual reports.