Corporate Governance

Risk Profile

Oil Search faces a range of risks that are inherent to the business activities undertaken. The following risk profile is based on a comprehensive assessment of operational, financial and compliance exposures from the following risk sources.

Risk Profile

Environmental

Risk exposures related to potential environmental spills or contamination with associated cleanup costs. Numerous environmental laws and regulations must be adhered to and both regional and international expectations taken into account.

Strategic / Business

Risk of financial loss if market conditions change or if new business is not adequately evaluate. It includes alliance and joint venture management, capital planning and expenditure, price and hedging strategies. Processes for management of exploration risk and investment appraisal risk are important control systems.

Exploration and Production Operations

Risk exposures from production operations, and exploration and development drilling and processing activities. These risks are directly driven by design, procurement, and installation standards as well as operating procedures and emergency response contingency planning.

Asset Management

Risk exposures relating to asset / equipment integrity. Preventive maintenance, inspection practices, spare parts philosophies, and strategic vendor arrangements are particularly leveraging mitigants.

Human Resources

Risks arising from inadequate human resource practices, policies and processes. It includes the ability to attract, retain and train competent resources, maintaining employee relations and the integration of productivity with performance management and reward systems.

Health Safety / Security

Risk exposures relating to operating locations, local community integration, safe work practices and hazard identification systems. In particular, hazard identification and management covers job safety analysis as well as assessment of external threats such as landslides and lightning strikes. Security exposures include political and terrorist threats within countries of operation.

External Influences

Risk exposures from operations that could have a reputational or local community impact. These include landowner relationships, labour force relations, regulatory compliance systems as well as the geo-political environment of operating locations.

Information Technology

Risks relating to our dependence on information technology as a business enabler. Includes strategic planning initiatives, delivery and support of key applications, data management requirements, and business continuity / contingency planning practices.

Financial

Exposures relating to the integrity of company financial procedures and of financial reporting to the Board and Shareholders. These risks are affected by the information contained within the processing system and by compliance with delegation of authority, accounting principles and regulatory requirements. It also includes exposures to interest rate, commodity, foreign exchange, derivative, liquidity and counterparty risks. Fraud and corrupt conduct risks are key exposures within this risk source.

Governance

The governance structure sets the tone of the organisation influencing the competency levels, integrity and control consciousness of our employees, consultants, contractors and suppliers. Legal and fiduciary responsibilities in meeting the high levels of corporate governance are addressed to ensure market expectations are exceeded.

Oil Search risk management systems provide for monitoring and reporting to alert management and the Board of significant risk exposure changes. As part of the ASX corporate governance requirements any material change to the risk profile will be brought to the attention of investors. Oil Search has been building an increasingly robust risk management framework for assessing risks at all levels of detail and across all parts of the business. At the detailed daily work level, departments are conducting processes like Job Hazard Analysis, Supervisor Safety Tours, HAZIDs, Incident Investigations, and Stop Cards. From a higher level consequence and likelihood perspective, departments implementing significant projects / expenditures are routinely conducting formal risk assessments in the form of HAZOPs, HSES audits, and internal financial and compliance audits. Strategically, business and operational risks are re-evaluated annually by senior management through critical exposure, business and financial risk assessments.