GOVERNANCE

Business principle: Business integrity

We insist on honesty, integrity and fairness in all aspects of our business and expect the same in our relationships with all those with whom we do business. The direct or indirect offer, payment, soliciting or acceptance of bribes in any form is unacceptable and we strongly reject any kind of associated behaviour. KPO staff must avoid conflicts of interest between their private activities and their part in the conduct of KPO’s business, and any actual or potential conflict of interest must be declared to KPO.

Business principle: Compliance

We comply with all applicable laws and regulations of the countries in which we operate.

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 its five Contracting Companies, represented by their respective affiliates, named herein:

Agip Karachaganak B.V., Shell Kazakhstan, Chevron International Petroleum Company, Lukoil Overseas Karachaganak B.V. and KMG Karachaganak LLP.

Organisational structure

KPO organisational structure was designed to enable KPO to meet its business objectives and to satisfy the requirements from the Republic of Kazakhstan (the Authority represented by the PSA LLP) and the Contracting Companies by continuously assessing 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 high 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. As per the FPSA requirements, the Chair of the JOC is always a representative from the Authority, and the JOC Secretary is a senior executive from the Operating Contracting Companies.

In addition, 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 7.

KPO HAS TWO HIGH GOVERNING BODIES: THE JOINT OPERATING COMMITTEE (JOC) AND THE JOINT MARKETING COMMITTEE (JMC).

Fig. 7.Karachaganak venture senior management structure (as of 31.12.2023)

Nomination, selection, and performance evaluation of Parent Company representatives as members of any part of governance structure are carried out in accordance with the internal regulations of the Parent companies themselves and the authorized body on the part of the RoK. KPO, as a reporting entity, does not have access to this information. Parent companies report on these matters individually in their sustainability reports.

KPO submits various types of reports to committees, sub-committees, and to representatives of Operator, Parent Companies, the Authority of the Republic of Kazakhstan, the PSA LLP Authority, and other authorized bodies of the Republic of Kazakhstan. The highest governing body for addressing sustainable development issues is the Joint Operating Committee. In order to support KPO sustainable development, the JOC members control and manage engagements with stakeholders based on the exchange from the above listed formal committees.

THE HIGHEST GOVERNING BODY FOR ADDRESSING SUSTAINABLE DEVELOPMENT ISSUES IS THE JOINT OPERATING COMMITTEE.

Joint Operating Committee

The JOC is responsible for the overall supervision of petroleum operations and of social and infrastructure projects to ensure that activities are carried out in accordance with the FPSA and Settlement Agreement. Matters pertaining to the JOC include: review and approval of the annual Work Programme and Budget, social and infrastructure projects, and any changes to the Field Development Plan. JOC meetings take place normally no less than two times per year. In 2023, the JOC meetings were held in June and November.

The JOC is chaired by a representative from the Authority. The Authority and the Contractor (Parent companies) each appoint five representatives to attend the JOC. The JOC representatives shall have deputies, who shall also be appointed by the Authority and the Parent Companies respectively. The Akim of the West Kazakhstan Oblast attends the JOC meetings as the community representative, but without voting rights. KPO is invited as a guest, and is not a member of this committee.

JOC members are remunerated by their respective companies and selected by the senior management of each participating entity, based on each candidate’s individual experience and respective companies’ policies.

JOC Sub-Committees

The JOC has established several sub-committees, such as the Joint Procurement Committee (JPC) and the Local Content Sub-committee (LCS).

The JPC is responsible for the approval or endorsement of the main contracts to be awarded by KPO, and acts in accordance with the JOC Tender Procedures as approved by the JOC. Membership and voting rights for the JPC are similar as for the JOC, and its decisions also need to be unanimous.

The Local Content Sub-committee consists of KPO representatives and the PSA Authority. The LCS is responsible for the provision of assistance to the JOC on issues related to local commodities, works and services, increase of local staff employment, training and development of Kazakhstani employees. The LCS is also involved in discussions and reviews of plans and programmes related to local content as proposed by the Republic, the Authority, or Parent Companies.

Joint Marketing Committee

The JMC is responsible for all activities relating to the marketing of hydrocarbon and non-hydrocarbon products under the FPSA. This Committee approves proposals concerning transport, processing, swaps and the sale of petroleum products. Decisions are taken with the objective of maximising net revenues. The JMC is chaired by a representative from one of the Parent Companies. The KPO Marketing Director has the right to participate in JMC meetings without voting rights.

Contractor’s Committee (ConCom) and Operating Committee (OpCom)

As defined by the Joint Operating Agreement (JOA), the Karachaganak Joint Venture operates utilising two bodies for management and decision-making. Оne body is the Contractor’s Committee (ConCom), which is responsible for determining all the Parent (Contracting) Companies’ position on matters subject to the decisions of the JOC. The other body is the Operating Committee (OpCom), which oversees the management of the Venture and ensures compliance with the FPSA requirements.

THE HIGHEST GOVERNING BODY FOR DEVELOPING SUSTAINABLE DEVELOPMENT STRATEGIES IS THE CONTRACTOR’S COMMITTEE.

The highest governing body for developing sustainable development strategies is the Contractor’s Committee. These activities to deliver the strategic objectives are initiated and submitted for discussion at the meetings of the Operating Committee by KPO representatives, discussed at the level of the Operating Committee. Contractor’s Committee monitors the design and implementation effectiveness of the organization’s processes as part of the annual internal audit by all Parent companies.

ConCom and OpCom Sub-Committees

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 also the sustainability reporting.

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:

1. De-Carbonization Process affecting business;
2. Road traffic incidents (loss of vehicle control);
3. Asset integrity failure;
4. Failure to recover cost;
5. Suspension of environmental emissions permit with further potential withdrawal;
6. Lack of clear long-term Parent Companies’ strategy;
7. Exposure to major cyber security incidents;
8. Mitigate the reliance on Oil Gas Plant gas acceptance while stabilizing and diversifying revenue;
9. Loss of political and social stability;
10. Exposure to major breach of the Code of Conduct and of the Ethics and Compliance policies and procedures;
11. Lack/Loss of people capability and resources to achieve KPO Targets.
12. International geopolitical and economic factors/sanctions and counter sanctions.

KPO works on mitigating above risks through its management systems and continuous assessment in order to positively shape business strategy and change management.

Aiming to obtain reasonable assurance that our 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 has developed an Integrated Risk Management Tool, which has allowed from 2021 to qualitatively assess and effectively manage business and safety risks. Earlier, a system called Barrier Model has been introduced to manage process safety risk.

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.

Business and 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, covering both business and safety risks.

For business risks, this process is regulated by the Integrated Risk Management Procedure, and risks are reported through Corporate Risks Register, which is a risk model listing main business risks as well as relevant preventive and remedial actions.

For safety risks, this process is regulated by the HSE Risk Management Framework. Risks are reported through Corporate HSE Risks Register, which is a risk model listing main safety risks as well as relevant preventive and remedial actions. The HSE risk model outcomes feature into the business risk model.

The final risk model is reviewed and summarized in the preparation for the KPO Risk Committee meetings, which is participated by KPO senior management.

Process Safety risks: 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. More details are provided in the Asset Integrity chapter.

Assurance

At KPO, the commitment to fostering a culture of internal assurance is paramount for promoting the sustainability and responsible growth of the Сompany. KPO demonstrates its commitment by delivering two key processes to support its business objectives:

1. a value assurance process for capital expenditure projects,
2. an audit process for internal, external and contractor audits.

In 2023, KPO has continued prioritizing value assurance, rigorously evaluating all development projects to ensure sound decision-making. This comprehensive process, from opportunity identification through the operational phase, is meticulously detailed in our updated documents: the Projects Value Assurance Policies and Management System, and the Projects Value Assurance Events Guideline. Our objective remains steadfast: to maximize investment value, while placing a heightened focus on sustainability and environmental stewardship.

With the substantial nature of our investments, KPO engages in a mix of both internal and external value assurance events, including participation from Parent Companies, to guarantee the optimal performance of our project maturation processes. Such thorough assurance procedures serve a dual purpose: they enhance transparency and accountability, and they are pivotal in driving sustainable, long-term growth for KPO.

A key highlight for 2023 was the integration of our KPO Green Strategy. This forward-thinking initiative has led us to develop innovative conceptual proposals aimed at minimizing environmental impact in our new capital projects. This strategic move underscores our commitment to not only maintaining but elevating the sustainability of our operations, aligning with our vision for a greener future.

Regarding audit assurance, which is captured in the Internal Corporate Audit Procedure, the internal audit function provides risk based independent assurance on the design and operating effectiveness of governance, internal controls and processes as set out in KPO Control Framework, and systems. The internal audit function identifies any gaps which may impact the capability of KPO to deliver its business objectives.

KPO implements its annual audit plan covering risk areas across the business activities such as: governance, contracting and procurement, internal and contractor HSE management, financial, accounting, production operations, logistic processes and many others. Besides of that, the internal audit function follows-up of identified audit actions. The results of these audits are reported to KPO management and Parent Companies at the Audit Sub-Committee.

Further, KPO Parent Companies conduct audit on annual basis based on their own internal risks assessments. This provides an additional independent assurance level on the design and operating effectiveness of the KPO Control Framework. The results of these audits are reported to KPO management and Parent Companies at the Audit Sub-Committee.

Finally, external certified auditors provide assurance on effectiveness of the KPO Control Framework and compliance with the international standards and RoK laws is provided through ISO certification including surveillance audits.

Moreover, KPO carries out its own HSE internal audit plan on annually basis. For example, in 2023 KPO held 15 HSE audits.

Integrated HSE Management System

Continuous improvement and commitment are KPO’s priority in ensuring the health and safety of the workforce with minimum impact to the environment.

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). Additionally, from 2022, KPO has obtained the ISO 39001:2012 (Road Traffic Safety Management System) certificate.

In order to maintain its credentials in relation to the ISO requirements, in 2023, KPO had passed through the re-certification process of ISO 14001:2015, ISO 45001:2018 and ISO 50001:2018 and surveillance auditing process of ISO 39001:2012. Both 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 Programme, HSE Award Incentive Scheme, Health Risk Assessments, Resilience Programme, Environmental Culture and Awareness Enhancement Programme, and other.