Governance structure and Management approach

Karachaganak Petroleum Operating B.V. Kazakhstan Branch was established in 1997 as a Joint Venture to operate the Karachaganak Oil and Gas Condensate Field (further as Karachaganak Field or the KOGCF) in accordance with the Final Production Sharing Agreement (FPSA).

KPO brings expertise from five international oil and gas companies (hereinafter referred to as the Contracting or Parent Companies), represented by their respective affiliates, named herein":

Well-built management system is the key to the sustained organizational success. KPO established a well-balanced and integrated system of governance, risk management, business planning, internal control and compliance. The integrated management system approach enables appropriate decision-making and provides adequate control mechanisms to ensure strategies, directions and guidance from senior management are carried out systematically and effectively.

ORGANISATIONAL STRUCTURE

KPO organisational structure was designed to enable KPO to meet its business objectives and to satisfy the requirements from the Republic of Qazaqstan (the Authority represented by the PSA LLP) and the Contracting Companies by continuously assess its external environment. In order to carry out the petroleum operations stipulated in the FPSA, there is a Co-operatorship model of Karachaganak field represented by Agip Karachaganak B.V. and BG Karachaganak Limited (respective affiliates of Eni Spa and Shell. Shell has officially acquired 100 % of BG Group).

KPO has two main governing bodies: the Joint Operating Committee (JOC) and the Joint Marketing Committee (JMC), which are formed by representatives of each of the five Contracting Companies and representation of the Authority under the FPSA. In particular, at JOC and JMC level, the Authority has one vote and the Contracting Companies, as a whole, have one vote. An affirmative vote on both sides is required for a decision.

In addition to the above, and in order to satisfy the requirements of the Joint Operating Agreement (between the Parent Companies) and the Operator Participants Agreement (between the Operators Eni and Shell). There has been established certain sub-committees, at Contractor and Operator level, dealing with specific matters. Graphical view of the full governance structure is given on figure 6. Functions of the committees and sub-committees were described in detail in the Sustainability Report 2018 (pp. 33-34).

The different subcommittees, at Contractor and Operator level, provide professional advice and assurance in specific areas of expertise at operational and corporate levels. Each Sub-Committee has its own purpose and objectives stipulated in the respective ‘Terms Of Reference’.

The topics on sustainable development, such as social, economic, environmental topics are captured in Sustainability Sub-committee at Operator level – represented by both Operators and KPO. Its main purpose is to advise on identified issues, concerns and impacts of KPO business on the communities living in KPO’s direct impact area.

The Sustainable Development Sub-Committee reviews issues such as the post-resettlement monitoring of the former Berezovka and Bestau villages, engagement with Burlin District and Karachaganak field adjacent communities, NGOs, and sustainability reporting.

Fig. 6. Karachaganak venture senior management structure (as of 01.01.2022)

MANAGING RISKS

Petroleum operations must be carefully managed with respect to people, the environment, and assets. As a responsible oil and gas operator, KPO makes particular emphasis on managing business risks encompassing all dimensions, including, but not limited to:

• Attracting and retaining qualified local Qazaqstani personnel;
• Personnel safety: potential emissions of hydrogen sulphide (H₂S);
• Political and social stability;
• Road traffic incidents – loss of vehicle control;
• Ethics & Compliance of our own personnel, our contractors, and subcontractors;
• Environment: potential spills, generation of waste, and emissions to air, withdrawal of emissions permit;
• Decarbonizing (climate change risk);
• Asset integrity failure;
• Lack of clear long-term strategy;
• Loss of monetization opportunities for gas and liquids products;
• Cost Recoverability;
• Exposure to major cyber security incidents.

KPO works on reducing negative impacts of the above risks through its management systems and continuous assessment in order to positively shape business strategy and change management.

In 2021, KPO has adopted a new Integrated Risk Management model, which allows to identify, qualitatively assess and effectively manage business and process safety risks. The Integrated Risk Management Procedure and HSE Risk Management Framework define and describe this process, as well as roles and responsibilities across the Company. It also aimed at synchronizing business goals and targets with business risks on each level of the organization.

Corporate Governance Controllership is responsible for adoption, maintenance, monitoring and continuous improvement of the integrated risk management system. In particular, the risk model summarizes its main business risks in the ‘Corporate Risk Register’, which contains a list of potential risks, as well as relevant preventive and remedial actions. This process is regulated by the Integrated Risk Management Procedure. All business risks are reported through Corporate Risks Register and reviewed in the KPO Risk Committee meetings participated by KPO senior management. While on the other hand, Key Process Safety risks are recorded in the Barrier Model containing all detailed process safety risks, which are under management of Safety & Asset Integrity Controllership and regulated with the HSE Risk Management Framework.

Risk monitoring and review is part of the risk management process and involve regular checking and re-assessment to be carried out through the Risk Management Tool. This tool contains all detailed information reported and reviewed in respect of the integrated risk management matters.

With the purpose of obtaining reasonable assurance that risk management process continues to operate effectively, the following reporting steps are performed:

• Twice per year: by conducting Risk Committee meetings, where the Summary Risks Report is reviewed and agreed; and then shared at Contractor level;
• Continuously: regular assessment and update on risks evolution at Risk Owner level to ensure well-timed and effective implementation of preventive actions to mitigate identified risks, and timely informing the Integrated Risk Management focal point.

Detailed disclosure on measures for reduction of key specific risks related to social, environmental and economic material topics is provided in the relevant chapters of this Report.

KPO MANAGEMENT SYSTEMS

Good governance is essential for ensuring the sustainability of large-scale investments, and particularly important in a complex governance structure as the one of KPO in which our strong governance, internal controls and assurance processes are vital to our ongoing success.

In all aspects of its activities and in accordance with the FPSA, KPO operates to internationally recognized standards, which are implemented through a number of policies, procedures and appropriate best practices embedded in KPO’s management systems.

In respect of sustainable development, KPO management systems address sustainable development matters and issues as shown in the following table:

Tab. 4. KPO management systems relevant to sustainable development

Integrated HSE Management System

KPO manages HSE issues through its Integrated HSE Management System, which is certified in accordance with ISO 14001:2015 (Environmental Management System), ISO 45001:2018 (Occupational Health and Safety), and ISO 50001:2018 (Energy Management).

Continuous improvement and commitment are KPO’s priority in ensuring the health and safety of the workforce with minimum impact to the environment. In 2021, KPO had passed through the re-certification process to maintain its credentials in relation to ISO requirements. KPO employees and contractor staff work intensively towards maintaining these processes.

The KPO HSE requirements are extensively communicated at internal and external levels, such as to all KPO staff but also with all contractors and subcontractors (i.e. inclusion of HSE requirements in each awarded contract).

Each year KPO undertakes a range of HSE programmes, trainings, initiatives and campaigns. These include but are not limited to HSE inductions, job specific HSE training, and various other HSE programmes, such as Safety Leadership and Culture Programme, HSE Card, HSE Award Incentive Scheme, Health Risk Assessments, Environmental Culture and Awareness Enhancement Programme, and other.

Moreover, KPO carries out its own HSE internal audit plan on annually basis. For example, in 2021 KPO held 14 HSE audits.

ASSURANCE

For the purpose of internal assurance, KPO has designed two types of processes: i) value assurance process related to main capital expenditures projects decision making process and ii) internal audit.

In relation to assurance processes, all KPO development projects are evaluated to assure adequate rationale in the decisions making process, from identification of opportunities to operation’ as well as to optimise the value of investments for the venture. Depending on the level of investment, there are internal and external (engaging Parent Companies) value assurance events in order to guarantee effective performance of the operations.

On the other hand, there is the internal audit process to provide internal and independent assurance designed to verify the compliance in all operations while achieving its business objectives through a systematic and disciplined management approach. This approach helps evaluate and improve the effectiveness of governance, internal controls and processes.

KPO implements its annual audit plan covering topics, such as effectiveness of business processes and HSE management systems, compliance with laws, regulations and internal procedures, reliability of financial and management reporting, and the follow-up of identified audit actions.

Secondly, KPO Parent Companies conduct an annual procedural audit to provide an additional independent assurance level in respect of performance and compliance assessing areas of governance, internal controls and risk management. The results of the audit are reported to KPO management and Parent Companies at the Audit Sub-Committee.

Thirdly, the assurance of effectiveness of the KPO’s Control Framework and compliance with the international standards and RoQ laws is provided through ISO certification including surveillance audits as mentioned above.

HUMAN RIGHTS ISSUES

In conducting petroleum operations, KPO complies with local and international applicable laws and regulations, including the United Nations Universal Declaration of Human Rights and the core conventions of the International Labor Organization in relation to human rights.

Human rights provisions are embedded in the internal procedural framework addressing requirements in terms of social performance, security, human resources, and contracting and procurement. Alongside with this, KPO is committed to conduct due diligence in its procurement processes to ensure fair business opportunities and exclude corruption.

In pursuing the aim of respect and protection of human rights of own people and the local communities, KPO regularly engage with local external stakeholders in order to positively contribute, both directly and indirectly, to the general well-being of the communities in which it operates.

KPO has a zero-tolerance approach to modern slavery and child labor and is committed to identifying and removing any risk of child labor, slavery and human trafficking occurring in its supply chains and in all areas of its business.