The Risk Management Committee
Risk Management Committee Charter B.E. 2005 (Revision No.7)
Table of Contents
4. Qualification of the Committee Members
5. Duties and Responsibilities
6. Term of Service and Remuneration
9. Risk Management Unit
10. Effective Date
With the purpose of enhancing the risk management of PTT Exploration and Production Public Company Limited (PTTEP) and in compliance with the corporate governance practice of listed companies, PTTEP has appointed the Risk Management Committee to oversee and support the enterprise risk management program, which is the significant component to support the company to achieve its objectives.
In this Charter
“The Company” means PTT Exploration & Production Public Company Limited and PTTEP’ s subsidiaries
“Board” means Board of Directors of PTTEP
“The Sub- Committee” means the Committee Members of Standing Sub-Committee of PTTEP
“The Working Committee” means the Management and Personnel who have been appointed by the Risk Management Committee
“Risk Management Function” means the function” means Function that is nominated by the President to be responsible for corporate risk management in accordance with risk management policy framework defined by Risk Management Committee.
The Board appoints the Risk Management Committee which is composed of at least three PTTEP’s directors and at least one of committee member must be an independent director.
One of the committee members is nominated to be the Chairmen while the Head of Risk Management unit will be appointed as Secretary of the Committee.
A Committee Member must possess qualifications according to the criteria as follows:
(1) Being a Board Director and not a Chairman of the Board nor Chief Executive Officer
(2) To dedicate time to perform the Risk Management Committee’s job
(3) Independent Committee Member must have qualification according to the definition of independent director as prescribed in Good Corporate Governance of PTTEP.
5. Duties and Responsibilities
The duties and responsibilities of Remuneration Committee Charter are as follows;
(1) Define the policy framework and process for risk management including recommend on corporate risk management to the Board and Managements.
(2) Consider risk appetite prior to propose to the Board for approval as well as to determine Risk metrics and limits and regularly monitor the results.
(3) Promote and implement the risk strategy and policy by enhancing the level of risk awareness within PTTEP, and through the development of appropriate procedures and commitment of resources.
(4) Maintain an enterprise-wide view of risks which are related to Corporate Direction in the businesses i.e. E&P, related businesses and other businesses which PTTEP invest in, as well as to recommend mitigation strategy to manage the risks to keep them within the acceptable level according to clause (2) and to continuously monitor, assess and improve the mitigation strategy in responding to changing of the business environment.
(5) Support Risk Management Function in assessing key risk factors and advise on other potential risks which may impact to the Company for continuous and efficient risk management in comparable to leading companies as well as assign certain tasks related to PTTEP risk management to Risk Management Function to perform.
(6) Support the monitoring of risks across PTTEP and regularly report to the Board.
(7) Disclose the committee’s performance in the company’s annual report.
(8) Regularly review and update its own charter to ensure its appropriateness.
(9) Perform other duties relating to PTTEP risk management as may be assigned by the Board
In order to perform the duties, the Risk Management Committee may seek independent opinion from any other professional counselor when it is deemed necessary and proper, including the training and development of the committee members for the knowledge related to the company’s activities. PTTEP is responsible for those expenses.
The Risk Management Committee is responsible directly to the Board according to the duties and responsibilities, while the responsibilities for all activities of PTTEP towards third person are still vested in the entire Board.
6. Term and Remuneration
The term of service of the Committee Member is equivalent to the director’s Board term.
In case of any Committee Member’s vacating from Office or any unavailability before the expiration of his term of service, the Board must appoint another Risk Management Committee Member with is fully qualified to replace the resigning member not later than 3 months as of the date of incomplete composition of the Risk Management Committee.
Upon the expiration of the term of service, if there is no appointment of a new Risk Management Committee Member, the resigning member has to standby to perform the duty until the arrival of a new Risk Management Committee Member.
The resigning Committee Members may be re-appointed for another term. However they cannot be re-appointed immediately after two consecutive terms of service are expired.
Besides the vacating from office by expiration of term of service, the Risk Management Committee member has to resign once he/she cannot possess the qualification according to the Article 4.
The Risk Management Committee will receive an appropriate remuneration approved by the Shareholders Meeting for his duties and responsibilities and PTTEP has to disclose that remuneration in its annual report too.
The frequency of the meeting is at least four times a year.
The Risk Management Committee fixes the number of members required to attend a meeting to make it valid by not less than a half of the Committee Members. If the Chairman is absent, the attending committee members have to choose on Committee Member as Chairman of the meeting.
The voting in the meeting is exercised by a majority. A Committee Member has a casting vote. If the votes are equal, the Chairman will have an additional vote which becomes final and decisive. The Secretary of the Risk Management Committee has no right to vote.
Any Committee Member who has a stake in any issue on the agenda must inform those in attendance, abstain from expressing an opinion and voting on the issue and leave the meeting room when the issue is discussed to allow the other committee members to express their opinions freely. An exception can be made if the other committee members vote unanimously to allow the committee member to stay in the meeting room to provide information on the issue so that the Risk Management Committee can deliberate on the issue thoroughly. However, the committee member is not allowed to vote or make a decision on the issue.
The Risk Management Committee has an authority to invite the management, or any other concerned parties or other appropriate persons to participate or to explain the concerned subjects in the meeting.
The Risk Management Committee must report to the Board the result of the meeting or the other necessary reports so the Board is kept regularly informed
9. Risk Management Function
The Risk Management Function has to support Risk Management Committee as follows;
(1) Support the Risk Management Committee as assistant Secretary by performing duty regarding to Risk Management Committee Meeting ; prepare complete and accurate minutes of meeting and reports including inform meeting resolution to concerned parties for acknowledgment and implementation.
(2) Report Corporate Risks and significant operational risks together with mitigation strategy and progress of mitigation plan to reduce risks regularly and promptly.
(3) Report key risks for investment decision to Risk Management Committee for considering the investment proposal.
(4) Perform any other duties relevant to PTTEP risk management as may be assigned by Risk Management Committee.
10. Effective Date
This Charter has come into force since 15 October 2018.
The Risk Management Committee Report
PTTEP realizes the importance of risk management and commits to its efficiency and effectiveness to enable itself in achieving the vision, mission, strategy and business objectives, including appropriate response to stakeholders’ expectations for sustainable growth as well as short-term and long-term value creation. In 2020, it was a very challenging year for PTTEP to manage risks in order to achieve its goals as PTTEP has encountered the worst oil price crisis since 2016 which the average Dubai crude oil price in April fell to 20.4 US dollars per barrel. This circumstance derived from Coronavirus 2019 (COVID-19) pandemic that affects the declining global energy demand, also the conflicts in the managing of crude oil production of OPEC and Russia, causing an oversupply situation. In addition, there are other risk factors such as declining demand for fossil fuels, import of liquefied natural gas (LNG) replacing domestic gas production, disruptive technology and cybersecurity, etc., which could potentially affect the achievement of PTTEP's strategic goals. Therefore, PTTEP’s Board of Directors appointed the Risk Management Committee. As of December 31, 2020, the Committee comprised 6 members, 3 of whom were independent directors. The Committee played a vital role in overseeing that PTTEP’s risk management is in line with PTTEP’s Board of Directors’ directions to ensure that the risks are most effectively and efficiently managed.
In 2020, the Committee convened 15 times, which included a meeting with the Audit Committee. The duties and responsibilities of the Committee can be summarized as follows:
(1) Governed strategic risk management in response to the dynamically changing external environment, especially the COVID-19 pandemic and the low oil price situation by considering the followings; (1) preventive measures and mitigations to the COVID-19 pandemic in accordance with government regulations to ensure continuity of offshore, onshore, and office operations, (2) mitigations to reduce impact from the oil price slump by revising business and investment plan e.g. efficient cost management for the best benefits to the company in short-term and long-term, and (3) the implementation to improve work efficiency and apply new way of working after the COVID-19 situation, etc. The Committee also considered long-term strategic risks such as Energy Transition to mitigate risks of declining demand for fossil fuels. Moreover, the Committee considered 2021 Work Program and Budget, 5-year (2021-2025) investment plan and ensure the alignment with the corporate direction and sustainability development framework.
(2) Monitored for the smooth and efficient transition of operations in Bongkot and Erawan, post-merger integration of Murphy in Malaysia and Partex in accordance with the Execute strategy by providing recommendations e.g. applying lessons learned from past mergers and acquisitions (M&As), assigning personnel from Corporate to supervise key tasks, and provide suggestions on risk mitigation of operations transferred from previous operators to ensure that the operations can be carried out smoothly with safety, security, health and environment (SSHE), including encouraging a Post Project Review study to formulate knowledge and lessons learned, and to prepare mitigations in case the assumptions change and significantly affect the performance of the project. In addition, the Committee also considered petroleum production extension for the expiring concessions such as S1 and Nam Phong (E5) projects by assessing risks and economic returns for the continuous operations of producing assets.
(3) Considered investment projects in order to expand in E&P and new business including Merger & Acquisition, new exploration, divestment projects and portfolio rationalization to ensure the alignment with the Expand strategy such as investment opportunities in exploration and production projects, new business investment opportunities for energy transition. The committee therefore assessed both risks and potential opportunities for value creation as well as provided recommendations to mitigate risks, including counterparty and country risk analysis, market risk analysis e.g. petroleum demand-supply, financial risk analysis e.g. exchange rate, and legal risk analysis, etc.
(4) Enhanced for the effectiveness and efficiency of oil price and financial risk management during the low oil price crisis by closely monitoring the entering into derivative contracts for optimal oil price hedging and exchanging rate to reduce the negative impact on net cash flow and financial performance of PTTEP.
Furthermore, Risk Management Committee consistently oversaw enterprise risk management to ensure the businesses were operated within PTTEP’s risk appetite, particularly risks related to exploration and production operations, market, cybersecurity, environment, and legal, including emerging risk. The outcomes of Risk Management Committee meetings were reported to the Board on a monthly basis. In this regard, PTTEP has been selected as a member of the 2020 Dow Jones Sustainability Indices (DJSI) in the DJSI World Oil and Gas Upstream & Integrated Industry and maintained a DJSI score in the area of Risk and Crisis Management in the top quartile for the 7th consecutive year.
In summary, during the year 2020, the Committee independently performed its duties relating to PTTEP risk management systematically, prudently, and competently for PTTEP to efficiently manage risks in order to achieve our objectives and goals for fair and maximum benefit to PTTEP, shareholders, and other stakeholders for long-term sustainability.
(Ms. Penchun Jarikasem)
Chairman of the Risk Management Committee