Beach Energy : 2018 Beach Energy Ltd Corporate Governance Statement

2018 Corporate Governance Statement

Part 1 - Introduction

This is a summary of Beach's main corporate governance principles and practices. It explains how Beach followed the Corporate Governance Principles and Recommendations (Principles) during the financial year ended 30 June 2018.

This statement is accurate and is up to date as at 21 September 2018. The Board approved this statement on that date.

Beach's vision is to be Australia's premier multi-basin upstream oil and gas company. It conducts a business that values safety, creativity, respect, integrity, performance and teamwork. It has policies, procedures and systems designed to promote high standards of governance.

Beach reviews its policies, procedures and systems. It updates them as required to reflect changes in governance standards and practice.

Details or summaries of Beach's main policies are on its website:www.beachenergy.com.au.

Part 2 - The Board

The respective roles and responsibilities of the Board and management are in Beach's Board Charter. The Board Charter is available in the corporate governance section of Beach's website.

2.1 The role of the board and senior executives

The Board has general responsibility for overseeing the management of Beach. It approves Beach's corporate strategy and annual budgets. It appoints the Chief Executive Officer. The Board also oversees and monitors Beach's systems of risk management and internal control. It sets and monitors the performance of management against company goals. More specifically the Board:

• ● provides oversight and final approval of Beach's corporate strategy;

• ● monitors senior executives' implementation of Beach's corporate strategy;

• ● approves and monitors the business plan, budget and corporate policies;

• ● monitors and assesses the performance of Beach and the Board itself;

• ● oversees the risk management framework and monitors material business risks;

• ● requires and monitors legal and regulatory compliance;

• ● approves financial reports;

• ● ensures an effective system of internal controls exists and operates as expected;

• ● establishes Beach's vision, mission, values and ethical standards to be reflected in its Code of Conduct;

• ● delegates an appropriate level of authority to management;

• ● appoints or dismisses, manages the performance and determines the remuneration of the Chief Executive Officer;

• ● approves and monitors the progress of major capital expenditure, capital management and acquisitions and divestments.

The Board has delegated management of the company to the Chief Executive Officer and to senior executives. The Board has made the delegation through the Board Charter and an approved delegation of authority. The Chief Executive Officer and senior executives:

• ● implement the corporate strategy set by the Board;

• ● assume day to day responsibility for Beach's conformance with relevant laws and regulations and its compliance framework;

• ● seek to achieve performance targets set by the Board;

• ● develop, implement and manage Beach's risk management and internal control frameworks;

• ● provide sufficient and relevant information to the Board to enable the Board to effectively discharge its responsibilities;

• ● conduct the business of Beach.

The Company Secretary is accountable to the Board through the Chairman on all matters to do with the proper functioning of the Board. The Board has direct access to the Company Secretary.

2.2 Board composition and skills, diversity and competencies

At the date of this report, the Board has eight directors, of a maximum of nine. The Directors' Report in the 2018 Annual Report summarises the following:

• ● the skills, experience, qualifications and expertise of each director;

• ● their special responsibilities; and

• ● their term of office.

Beach conducts regular Board reviews. The reviews ensure directors have continuing capacity and commitment to meet the Beach vision.

The size and composition of the Board is also reviewed. The reviews ensure Beach has the right combination of experience, diversity and competence.

Beach links the mix of board skills to its goal to be Australia's premier multi-basin upstream oil and gas company. The Board has identified four strategic pillars to support this goal:

• 1. Optimise our core in the Cooper Basin.

• 2. Build a complementary gas business in east coast basins.

• 3. Pursue compatible growth opportunities in Australia and nearby.

• 4. Maintain financial s trength.

Table 1 below is the Board's own assessment against what it considers to be the desirable skills, experience and diversity.

Directors rated their capability against each area based on:

H = High - A clear strength based on tertiary qualification or extensive organisational experience leading in the area such that it is sufficient to be considered by peers (within the skill area) an expert. For example, an oil & gas geoscientist with seasoned exploration technical and leadership experience perceived as an expert by peer oil & gas leaders.

S = Sufficient - Sufficient skill and expertise to be a respected contributor in the area.

Only the 'high' ratings are reported in Table 1 to properly reflect the skills, experience and diversity across the Board.

TABLE 1

Skills, Experience & Diversity

Industry experience

• ● Oil & gas

• ● Infrastructure

• ● Engineering or science qualification

• ● Depth of experience in one area or across Exploration, Development, Major Projects, Production & Abandonment

• ● Membership of industry related organisations

Executive leadership/ management

• ● Outside directorships

• ● Senior management positions

Financial acumen

• ● Financial literacy

• ● Accounting or finance qualification

Health safety and environment

• ● Experience related to managing HS&E issues in an organisation

Governance

• ● Experience in the governance of organisations

• ● Membership of governance industry bodies or organisations

Public policy

• ● Government engagement

• ● Experience in regulatory policy

• ● Community/stakeholder engagement

TABLE 1 - continued

Skills, Experience & Diversity

Strategy

• ● Ability to analyse information, think strategically and review and challenge management in order to make informed decisions and assess performance against strategy including organic and inorganic (particularly M&A)

• ● Experience in setting and delivering on strategy

International experience

• ● Experience in a global organisation

• ● Experience with international assets, business partners, cultures and communities

Risk

• ● Experience in risk management and oversight

Information Technology

• ● Knowledge of information technology governance including privacy, big data utilisation and impacts and cyber security

Diversity of the Board

• ● Gender

• ● Tenure

2.3 Directors' independence

The Board consists of a majority of independent non-executive directors. The Board Charter requires that the roles of Chairman and Chief Executive Officer are not held by the same person. The Chairman should also be an independent director. Beach's Chairman, Mr Davis, is an independent non-executive director.

The Board assesses director independence against its director independence policy. Directors must disclose information that may have an effect on their independence. Applying the criteria in the independence policy the majority of directors are independent. The independent directors are Mr Bainbridge, Mr Beckett, Ms Morton, Mr Davis, Mr McKerlie and Dr Moore.

The director independence policy defines an independent director as a non-executive director (not a member of management) who is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgment. In determining the independence of a director the Board considers whether the director:

• ● is a substantial shareholder of Beach or an officer of, or otherwise associated with, a substantial shareholder of Beach;

• ● is employed, or has previously been employed in an executive capacity by Beach or another group member, and there has not been a period of at least three years between ceasing such employment and serving on the Board;

• ● is or has within the last three years been a partner, director or senior employee of a provider of material professional services to Beach, or another group member;

• ● is, or has been in the last three years, in a material business relationship (for example as a supplier or customer) with Beach, or another group member, or an officer of or otherwise associated with someone with such a relationship;

• ● has a material contractual relationship with Beach or another group member, other than as a director;

• ● has close family ties with any person who falls within the categories described above;

• ● has been a director of Beach for such a period that his or her independence may have been compromised.

The Board has adopted the following materiality thresholds to assist with determining independence:

• 1. A provider of material professional services is one where the fees charged to Beach or the group in a financial year are more than 5% of the annual gross revenue of the provider or $0.5 million, whichever is the lesser. A business relationship such as a supplier to or a customer of Beach or another group member will be material if the value of the purchases or sales in a financial year accounts for more than 5% of the annual consolidated gross revenue of the supplier or more than 5% of the annual consolidated expenditure of the customer, as the case may be or $1 million, whichever is the lesser.

• 2. A contractual relationship will be material where the value of the contract in a financial year accounts for more than 10% of the annual gross revenue or income of the director, or the contract is for more than 3 years.

Mr Davis is a principal of law firm DMAW Lawyers, a firm which provides legal services to Beach. DMAW Lawyers has done specialist oil and gas work for Beach over many years. That accumulated knowledge and experience is of separate value to Beach from Mr Davis' role as a director. The fees charged by DMAW Lawyers to Beach are below the threshold amounts detailed above. This, and the fact the Board has seen no evidence that management's use of DMAW Lawyers impacts on the independence of Mr Davis, has led the Board to determine Mr Davis is independent.

Previous Drillsearch Energy Ltd (Drillsearch) directors, Mr Bainbridge and Mr McKerlie joined the Board following Beach's merger with Drillsearch. Beach and Drillsearch were in joint ventures together in the Western Flank of the Cooper Basin. The Board does not consider that this previous relationship compromises their independence.

Beach has two non-executive directors who are not independent. They are Mr Stokes who was appointed in July 2016 and Mr Richards who was appointed in February 2017. Mr Stokes is the Managing Director and Chief Executive of Beach's largest shareholder, Seven Group Holdings Limited (SGH) and related corporations who collectively have a relevant interest in 25.6% of the shares of Beach. Mr Richards is the Chief Financial Officer of SGH. Arrangements appropriate to the appointment of a director representing a large shareholder have been agreed with SGH, Mr Stokes and Mr Richards to protectthe confidential information of the Beach group, and address any potential conflicts of interest that may arise.

The Board has a Deputy Chairman, Mr Beckett. The Deputy Chairman's role is:

• ● to aid and assist the Chairman and to assume the role of the chairman if the Chairman is unavailable;

• ● to aid and assist the Chairman and the Board in ensuring effective corporate governance in managing the affairs of the Board and of Beach;

• ● to be available as a resource to consult with the Chairman and other directors on corporate governance practices and policies, and assume the primary leadership role in addressing issues of this nature if the Chairman is unavailable;

• ● if the Chairman is unavailable, to consider questions of possible conflicts of interest or breaches of the Code of Conduct by Board members, as such questions arise;

• ● for succession planning, to assist the Board selecting a new Chairman.

2.4 Re-election of directors, director selection and board renewal

The constitution of Beach and the ASX Listing Rules require that at each annual general meeting, one third of directors (excluding a Managing Director) together with any director appointed since the last annual general meeting, retire from office. Retiring directors are eligible for re-election.

The Board reviews the performance of a retiring director before accepting their offer to stand for re-election.

The review includes an assessment of that director's competencies and ongoing capacity and commitment to fulfil the role. A director offering themselves for re-election must confirm they have enough time to meet their obligations to Beach. Beach gives shareholders all information that it has relevant to the decision whether to elect or re-elect a director. The procedure for re-election of directors is set out in the corporate governance section of Beach's website.

The Remuneration and Nomination Committee oversees the Board succession planning process. The procedure for selection and appointment of new directors is set out in the corporate governance section of Beach's website. The Board may, with the help of external consultants, select a candidate or candidates.

The Board assesses candidates against general criteria.