Annual Report 2007 in PDF - Cairn Energy PLC

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CORPORATE GOVERNANCE STATEMENT CONTINUED The Deputy Chairman, who is also the Company’s senior independent non-executive director, sought the views of the executive directors and met with each of the other non-executive directors, in the absence of the Chairman, to discuss and assess the Chairman’s performance. The results of this review were then discussed with the Chairman. The Board (not including the Chairman) is satisfied that the Chairman’s performance is effective and that he demonstrates continued commitment to the role. The evaluation indicated areas for improvement, but no significant problems were identified. A performance evaluation of the Board, the Board committees and individual directors will continue to be conducted annually and the process for such review will continue to be reviewed by the Board in order to optimise the process. The executive directors have their performance individually reviewed by the remuneration committee against objectives which are set annually. The bonuses payable to the executive directors under the Company’s cash bonus scheme (described further on page 62) are linked directly to the results of these reviews. Independence of Non-Executive Directors The Board evaluation and review process also covered the independence of each of the non-executive directors, taking into account their integrity, objectivity and contribution to the Board and its committees. In particular, the process considered the independence of Hamish Grossart and Ed Story. Hamish Grossart Since Mr Grossart has served on the Board for more than nine years, in terms of the Combined Code he can be counted as independent only if the Board deems him to be so. Mr Grossart commits a substantial amount of time to the affairs of the Company. Mr Grossart has also been the Deputy Chairman and a member of the Company’s nomination, remuneration and audit committees for a number of years and has been the Company’s senior independent non-executive director since the role was created in 2003. Mr Grossart is a well respected and highly experienced businessman with a thorough knowledge of the Group’s business. The Board is aware that PIRC have queried whether Mr Grossart can be classed as an independent director of the Company. It is understood, however, that in terms of its internal policies, PIRC does not consider any non-executive director who has been on a board for more than nine years to be independent, notwithstanding that the Combined Code permits the Board to determine a director with this length of tenure to be independent. Accordingly, the Board has rigorously reviewed the matter, without Mr Grossart being present. Having undergone such a process, the Board is firmly of the view that Mr Grossart remains independent in character and judgement, that his performance continues to be effective and that he demonstrates continued commitment to the role. In particular, the Board noted that Mr Grossart does not participate in the Company’s cash bonus scheme, share option plans, long-term incentive plans or pension scheme and is not dependent upon the fees received from the Company as his primary source of income. Mr Grossart has indicated that he is willing to stand for re-election as a director of the Company on an annual basis and a resolution will be proposed at the AGM to be held on 23 May 2008 to this effect. The Board believes that it is in shareholders’ interests for Mr Grossart to be re-elected as an independent non-executive director of the Company. The Board believes Mr Grossart’s considerable business experience enables him to continue to challenge rigorously the executive directors, the Board and the committees on which he sits in both a constructive and appropriate manner and brings a longer-term perspective of the Company and the oil industry to the Board in his position as Deputy Chairman and senior independent non-executive director. Ed Story Mr Story has also served on the Board for more than nine years and, accordingly, can only be considered as independent if the Board deems him to be so. Mr Story was appointed an independent non-executive director of Cairn in 1997. He is a highly respected individual in the international oil and gas industry, in which he has more than 40 years’ experience. He has a particularly detailed knowledge of the Group’s activities and he remains committed to the Company. Mr Story is a member of the Company’s nomination, remuneration and audit committees. After rigorous review, and without Mr Story being present, the Board has concluded that Mr Story remains independent in character and judgement and that his performance continues to be effective as well as demonstrating a continued commitment to his role as a non-executive director. There is no evidence that length of tenure is having any adverse impact on his independence. The Board also noted that Mr Story does not participate in the Company’s cash bonus scheme, share option plans, long-term incentive plans or pension scheme and is not dependent upon the fees received from the Company as his primary source of income. 42 CAIRN ENERGY PLC ANNUAL REPORT 2007
CORPORATE GOVERNANCE STATEMENT CONTINUED Mr Story has indicated that he is willing to stand for re-election as a director of the Company on an annual basis and a resolution will be proposed at the AGM to be held on 23 May 2008 to this effect. The Board believes that it is in shareholders’ interests for Mr Story to be re-elected as an independent non-executive director of the Company. The Board believes Mr Story continues to challenge rigorously the executive directors, the Board and the committees on which he sits in both a constructive and appropriate manner and that his considerable expertise and industry experience is of great benefit to the Board, the Company and shareholders. Having reviewed the independence of each of the non-executive directors, the Board concluded that all non-executive directors of the Company are independent. Board Committees The Board has established an audit committee, a remuneration committee and a nomination committee, each of which has formal terms of reference approved by the Board. The terms of reference for each of these committees satisfy the requirements of the Combined Code and are reviewed internally on an ongoing basis by the Board. Copies of the terms of reference are available for inspection on request and will be available for inspection before the AGM to be held on 23 May 2008. The committees are provided with all necessary resources to enable them to undertake their duties in an effective manner. The Company Secretary acts as secretary to the remuneration and nomination committees and the Deputy Company Secretary acts as secretary to the audit committee. The minutes of all committee meetings are circulated to all directors. Set out below are reports from the audit committee, remuneration committee and nomination committee. 1. Audit Committee Report The audit committee comprises three non-executive directors, all of whom are considered by the Board to be independent. Currently, its members are Andrew Shilston (chairman), Hamish Grossart and Ed Story. The Board is satisfied that two members of the committee have recent and relevant financial experience. Mr Shilston was the Finance Director of Enterprise Oil plc from 1993 to 2002 and is currently the Finance Director of Rolls-Royce plc. Mr Grossart serves on audit committees of other listed companies and trained as an investment banker. Andrew Shilston intends to retire as a director of the Company at the AGM to be held on 23 May 2008. The nomination committee is reviewing the future composition of the audit committee. The audit committee met four times in 2007. At the request of the audit committee, the Finance Director and senior members of the Finance Department attended each of these meetings. The Chairman also attended two meetings as an observer, on being invited to do so by the committee. In addition, all four meetings were attended by the external auditors and by the internal auditors. The external auditors receive copies of all audit committee papers (including papers to be considered at meetings when they are not in attendance) and minutes of all committee meetings. In addition, the chairman of the committee regularly meets with the external audit partner to discuss matters relevant to the Company. The role of the committee includes: • monitoring the integrity of the financial statements of the Company and formal announcements relating to the Company’s financial performance and reviewing any significant financial reporting judgements contained in them; • reviewing accounting policies, accounting treatments and disclosures in financial reports; • reviewing the Company’s internal financial controls and internal control and risk management systems; • monitoring and reviewing the effectiveness of the Company’s internal audit function; • overseeing the Company’s relationship with the external auditors, including making recommendations to the Board as to the appointment or reappointment of the external auditors, reviewing their terms of engagement, and monitoring the external auditors’ independence, objectivity and effectiveness; and • reviewing the Company’s whistleblowing procedures and ensuring that arrangements are in place for the proportionate and independent investigation of possible improprieties in respect of financial reporting and other matters and for appropriate follow-up action. The audit committee met on three occasions during the year end process. Issues likely to impact the financial statements are raised at the initial meeting by both the senior management and the external auditors. The auditors also present their audit plan. Audit committee guidance is sought on accounting policies and assumptions to be adopted in preparing the financial statements. After discussing and challenging the issues raised, the audit committee recommends the policies to be adopted or direct senior management to produce further information if deemed necessary. At the final meeting, the external auditors report their audit results to the audit committee, including a summary of the significant accounting and auditing issues, internal control findings and a summary of audit differences identified. The audit committee considers any disagreements in accounting treatment between management and the auditors, should any arise. CAIRN ENERGY PLC ANNUAL REPORT 2007 43
Page 1 and 2: ANNUAL REPORT & ACCOUNTS 2007 CAIRN
Page 3 and 4: CAIRN is an edinburgh based oil and
Page 5 and 6: CAIRN INDIA performance First comme
Page 7 and 8: 2000 lakshmi disCovery 2001 sarasWa
Page 9 and 10: THE RESTRUCTURING OF THE GROUP INTO
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Page 13 and 14: Cambay Basin, India CAIRN ENERGY PL
Page 15 and 16: Cairn india assets 30% 30% 49% 40%
Page 17 and 18: Rajasthan, India the increased reso
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Page 37 and 38: 2007 ACCOUNTS Risk Factors 36 Corpo
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RESERVES Direct Direct working enti
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NOTICE OF ANNUAL GENERAL MEETING No
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GLOSSARY OF TERMS CONTINUED TECHNIC
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