Commentary - Santos

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Corporate Governance (continued) People and Remuneration Committee The People and Remuneration Committee is responsible for reviewing the remuneration policies and practices of the Company including: • the compensation arrangements for the non-executive and executive Directors (including the CEO), and Senior Executives; • development and succession plans for the CEO and senior leadership team; • the Company’s superannuation arrangements; • employee share and option plans; • reviewing and reporting to the Board on measurable objectives for achieving gender diversity; • an annual assessment of the gender diversity objectives and progress in achieving them; and • reviewing and reporting on remuneration analysed by gender. The Committee has access to, and regularly uses, independent advice and comparative studies on the appropriateness of remuneration arrangements. Further details of 2012 activities are set out in the Remuneration Report commencing on page 58 of this Annual Report. The structure and details of the remuneration paid to Directors, the CEO and other Senior Executives during the period are set out in the Remuneration Report commencing on page 58 of this Annual Report and notes 30-31 to the financial statements commencing on page 130 of this Annual Report. Further detail about the People and Remuneration Committee’s oversight of diversity objectives and reporting, including in relation to gender diversity, is provided in section 5.1 Diversity on page 41. Part 4: Risk management Relevant policies and charters See www.santos.com • Board Charter • Risk Management Policy 4.1 Risk management systems The Board is responsible for overseeing the implementation of, and ensuring there are adequate policies in relation to, the Company’s risk management and internal compliance and control systems. These systems require Management to be responsible for identifying and managing the risks which may have a material impact on the Company’s objectives, and to review the systems if any irregularity or inadequacy becomes apparent. These risks include financial, non-financial and operational risks impacting areas such as project delivery, production, reputation, environment and safety, exploration and investment. The Board Charter specifies that risk management arrangements will include: • Board Committees; • financial reporting; • management reporting; • organisational structures, procedures, manuals and policies; • audits; • environment, health and safety standards; • comprehensive insurance programs; and • appointment of specialist staff and external advisors. An Enterprise-Wide Risk Management approach, based on the relevant International Standard (ISO31000:2009), forms the basis of the Company’s risk management activities. This approach is incorporated in the Company’s Risk Management Policy and aims to ensure that business risks facing the Company are consistently identified, analysed and evaluated, and that active management plans and controls are in place for the ongoing management of these risks. The risk ranking prioritises those risks which require attention. Independent validation of controls is undertaken by internal audit as part of its risk-based approach. The internal audit function is independent of the external auditor and reports to the Audit Committee. 4.2 Management reporting on risk As risk management is embedded throughout the Company, reporting of these risks occurs at a number of levels. All regular reports to the Board on strategic, project and operational issues incorporate an assessment by Management of the associated risks, which ensures that the Board is in a position to make fully-informed business judgements on these issues. In addition to the formal reporting arrangements, the Board and Management give ongoing consideration to the effectiveness of the Company’s risk management and internal compliance and control systems, and whether there is scope for further improvement of these systems. Following a review during 2012, amendments to the Risk Policy, risk management system and processes were endorsed by the Board in December 2012 for implementation in 2013. The Board confirms that it has received a report from Management as to the effectiveness of the Company’s management of its material business risks for the 2012 financial year. The Board also receives written certifications from the CEO and the CFO in relation to the Company’s financial reporting processes. For the 2012 financial year, the CEO and CFO provided assurance that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control, and the system is operating effectively in all material respects in relation to financial reporting risks. 38
4.3 Examples of business risks Examples of management of specific business risks, and the systems the Company has in place to manage these risks, include the following: Type of risk Project risk Managed through: • A comprehensive <strong>Santos</strong> Quality Asset Development (“SQAD”) system, which applies in full to all projects greater than $100 million and key selected principles to all smaller projects; • project managers are identified as the key risk and control owners with accountability to ensure all identified actions are taken; • reports to the Board on the material projects; • formal look back process to identify key lessons for application to future projects; and Environmental and safety risk • use of internal and external experts to peer review projects at defined points. • A comprehensive Environmental Health and Safety Management System based on Australian Standard 4801 and International Standard 14001; • environment, health, safety and sustainability committees at Board and management levels; • the retention of specialist environmental, health and safety staff and advisors; • regular internal and external environmental, health and safety audits and reviews, including process safety reviews; • regular training of employees with respect to environment, health and safety; and Exploration and reserves risk • imposing environmental care and health and safety accountability as line management responsibilities. • Implementation of risk management processes, including reporting mechanisms in respect of each exploration project; • internal control systems that include resource assessment of exploration prospects, resource development plans and project assurance processes; • corporate review, both forward looking and retrospective; and • Board approval of exploration budgets; and Reputational risk • a Reserves Management System that is consistent with the Society of Petroleum Engineers’ Petroleum Resources Management System, in respect of which external reserves reviews and audits are undertaken regularly. • Formal processes to ensure that the Company’s operations and interactions with our stakeholders and communities are of the highest standard; • consideration is given to the impacts of all operations to communities; • participation with the industry body and other oil and gas operators; and Operational risk • regular briefings to stakeholders and communities where the Company operates. • All significant areas of Company operations are subject to regular reporting to the Board; • the Board receives regular reports on the performance of each business unit, functional area and major project, including: Eastern Australia; Western Australia and Northern Territory; Asia Pacific; GLNG; PNG LNG; Corporate Development; Legal; Finance and Investor Relations; Human Resources; Government and Media; Environment, Health, Safety and Sustainability; and • identification of key safety critical equipment and maintenance processes. <strong>Santos</strong> Annual Report 2012 39
Page 1 and 2: Annual Report 2012 The energy to de
Page 3 and 4: World of Santos Ref Location Site/A
Page 5 and 6: Contents Overview 2 Operating and f
Page 7 and 8: Operating cash flow $1,658 million
Page 9 and 10: Review by Peter Coates and David Kn
Page 11 and 12: Our vision and strategy Our vision
Page 13 and 14: Production and sales Santos continu
Page 15 and 16: RESERVES (SANTOS SHARE) mmboe Year-
Page 17 and 18: NET PROFIT AFTER TAX $million AVAIL
Page 19 and 20: 2012 key statistics GREENHOUSE GAS
Page 21 and 22: Eastern Australia Positioned for gr
Page 23 and 24: On board the Mutineer-Exeter FPSO,
Page 25 and 26: GLNG Construction well underway on
Page 27 and 28: Pipelay underway at the Dua oil pro
Page 29 and 30: Jane Sharman Hemstritch BSc (Hons),
Page 31 and 32: DAVID KNOX Chief Executive Officer
Page 33 and 34: Principle 4 - Safeguard integrity i
Page 35 and 36: DEFINING REQUIRED SKILLS AND EXPERI
Page 37 and 38: Internal Board Review process Imple
Page 39 and 40: 2.2 Indemnity, access to informatio
Page 41: Regular meetings held with auditors
Page 45 and 46: 4.4 Independence of auditors and no
Page 47 and 48: The Company remains committed to at
Page 49 and 50: Organisation chart BOARD COMMITTEES
Page 51 and 52: As at 31 December 2003 2004 2005 20
Page 53 and 54: Directors’ Report The Directors p
Page 55 and 56: Principal Activities The principal
Page 57 and 58: Asia Pacific Asia Pacific Business
Page 59 and 60: Dividends On 22 February 2013, the
Page 61 and 62: Shares Issued on the Exercise of Op
Page 63 and 64: The Company believes that the addit
Page 65 and 66: Remuneration Governance People and
Page 67 and 68: Long-term Incentives (“LTI”) Th
Page 69 and 70: Long-term Incentives How much annua
Page 71 and 72: Senior Executive Remuneration Overv
Page 73 and 74: Table 7: Non-executive Directors’
Page 75 and 76: Table 9 contains details of the num
Page 77 and 78: Details of the fees and other benef
Page 79 and 80: Long-term incentives How are long-t
Page 81 and 82: Index A Announcements 173 Annual G
Page 83 and 84: Major announcements made in 2012 13

Commentary - Santos

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