Report to Shareholders Driving. a Difference

Transcription

1 Report to Shareholders 2008 Driving a Difference

2 Contents 1 Group Financial Highlights 2 Chairman s Statement 6 Driving a Difference 12 Key Figures 13 Group Strategic Directions 14 Group at a Glance 16 Board of Directors 20 Key Executives 22 Board of Directors Past Principal Directorships in the Last Five Years 23 Key Executives Past Principal Directorships in the Last Five Years 24 Operations Review Exploration & Production 28 Operations Review Downstream 29 Operations Review Downstream (Refining, Supply & Aviation) 32 Operations Review Downstream (Crude & Products Trading) 35 Operations Review Downstream (Marketing) 38 Building a Sustainable Enterprise 40 Building a Sustainable Enterprise Corporate Governance 57 Building a Sustainable Enterprise Enterprise Risk Management 60 Building a Sustainable Enterprise Environment, Health, Safety and Security 62 Building a Sustainable Enterprise Community Engagement 65 Building a Sustainable Enterprise People 67 Corporate Structure 68 List of Properties Statutory Report and Accounts 70 Financial Review 72 Directors Report 77 Statement by Directors 78 Independent Auditors Report 79 Consolidated Income Statement 80 Balance Sheets 81 Consolidated Statement of Changes in Equity 82 Statement of Changes in Equity Company 83 Consolidated Cash Flow Statement 84 Notes to the Financial Statements Investor Information 136 Corporate Directory 137 Financial Calendar 138 Shareholdings Statistics 139 Share Performance 140 Notice of Annual General Meeting/Closure of Books Proxy Form Notes Driving a Difference Focusing on its core strengths and leveraging its track record as an enterprise with tradition, integrity and compassion, SPC is Driving a Difference by building an integrated and sustainable enterprise. The Group seeks to deliver future growth through exploration and production activities, while enhancing its reputation as a quality supplier in the downstream oil and gas sector. Committed to shareholder value creation, SPC strives to uphold its corporate responsibility by building a sustainable enterprise for its stakeholders. * All currencies stated in this annual report are in Singapore dollars, unless stated otherwise.

3 Group Financial Highlights Revenue $11.1b PATMI $229.7m Earnings per share Change (%) For the year ($ million) Revenue 11,124 8, Profi t Gross Before tax Attributable Operating cash fl ow Per share Earnings (cents) Attributable Net assets ($) Net tangible assets ($) At year end ($ million) Shareholders funds 1,701 1,796-5 Net borrowings Return on equity (%) Profi t before tax Attributable profi t Shareholders value Dividends (cents per share) Interim ordinary dividend Final ordinary dividend Return on equity 13.1% Q 2Q 3Q 4Q Total Group quarterly results ($ million) Revenue 2,714 3,251 3,306 1,853 11,124 Gross profi t Profi t before tax Attributable profi t Earnings per share (cents) Group Financial Highlights 1

4 Chairman s Statement A strong balance sheet, robust enterprise risk management processes, and heightened corporate governance practices will ensure the continued success of SPC even as the Group becomes more proactive in corporate social responsibility, and environmental, health, safety and security issues. Dear Shareholders, 2008 marked a year of extremes. The year started on a promising note with positive prospects for continuing global economic growth despite the unfolding fi nancial crisis in the US. The major concern of most economists and policy makers in the fi rst half-year was infl ation as commodity prices continued their relentless climb. Oil prices broke new highs in the fi rst half-year. The price of the benchmark West Texas Intermediate (WTI) crude surged to an all-time high of US$ per barrel by July. The second half-year, however, presented a sharp contrast. The fast and unrelenting contraction in economic activities brought the global economy to a rapid downward slide by the end of The US fi nancial crisis spread rapidly and morphed into a worldwide fi nancial, credit and economic crisis. Policy makers around 2 Singapore Petroleum Company Limited Report to Shareholders 2008

5 13.1% Return On Equity $229.7m PATMI Revenue ($ million) , ,767 the world have launched a slew of fi scal and monetary stimulus packages to counter the recession in Review SPC s fortunes in 2008 mirrored the dramatic changes of the global economy. In the fi rst half-year, refi ning margins were robust on the back of healthy demand. The Group achieved an average refi ning margin of US$10.00 per barrel for the fi rst half-year and recorded a PATMI (profi t after tax and minority interests) of $278.7 million. The increased turbulence in the global fi nancial markets in the second half of the year however took its toll on consumer confi dence and affected demand. This, coupled with the unwinding of positions by market players, severely impacted the performance of the SPC Group. As the global economy weakened, demand for oil softened, and prices fell sharply. By the end of 2008, oil prices had fallen by more than US$100 per barrel from their record highs in July. Under these conditions, the Group s refi ning margin for the second half-year averaged US$1.00 per barrel. Downstream Earnings Downstream profi tability during 2008 was impacted by the fall in demand and the severe plunge in oil prices towards the end of the year. Although the turnover of $10.8 billion surpassed the 2007 turnover of $8.6 billion by 25.2%, operating profi t for 2008 was lower at $157.6 million compared to the operating profi t of $523.2 million for This refl ected the lower average refi ning margins recorded for the year as well as the write-down in the value of oil inventory at year end. The Singapore Refi ning Company (SRC) successfully completed its scheduled maintenance programme of the Catalytic Reformer and the Hydrocracker upgrading units in the second quarter of the year. This exercise was completed safely and smoothly. The revamp of SRC s hydro-desulphuriser unit to produce ultra-low sulphur diesel, which commenced in mid-2007, has progressed on schedule. SPC s island-wide service station network continued to fi nd new ways to better serve the motoring public, expanding its base of loyal customers during the year. The Singapore retail market was marked by frequent pump price adjustments to refl ect volatile oil price movements, cost infl ation and other operating conditions. SPC introduced another original retailing initiative by launching Singapore s fi rst ever Drive Thru ATM and Drive Thru" take-away food outlet at its Upper East Coast station in January Chairman s Statement 3

6 Chairman s Statement SPC is financially resilient to seize any opportunities that may arise. The Group will continue to invest prudently to benefit from an eventual recovery of the global economy. E&P s Growing Portfolio 2008 was a year of notable progress for SPC s upstream business. Turnover from Exploration and Production (E&P) activities was $329.2 million, up 126.8% from a year before with an operating profi t of $156.0 million for the year. Despite the challenging operating environment, SPC continued to extend its E&P footprint to include its fi rst onshore exploration block, the Mahakam Hilir PSC in Indonesia. SPC holds 100% operatorship for this acreage. During the year, SPC established its Shekou branch offi ce to operate and manage SPC s upstream assets in China. To date, SPC holds interests in three acreages in China, namely Block 26/18 in the Pearl River Mouth Basin (as operator), and Blocks 04/36 and 05/36 in Bohai Bay. SPC's 100% interest in Block 26/18 is the Company's fi rst operatorship since venturing into the upstream sector in Reinforcing this portfolio is SPC's oil production from its Bohai Bay assets, Blocks 04/36 and 05/36, which are currently SPC's largest producing assets. The SPC Group will continue to invest in upstream oil and gas assets in line with its vision to be a strong, integrated oil and gas company, and develop its existing acreages to ensure sustainable growth and diversifi ed earnings. Financial Performance The Group recorded revenues of $11.1 billion, a 26.9% increase over the previous year and a PATMI of $229.7 million, achieving a return on equity of 13.1%. Earnings per share amounted to cents for Dividends In August, SPC paid an interim dividend of 20 cents per share on the back of its fi rst half 2008 earnings. The Board is recommending a fi nal dividend of eight cents per share. Together with the interim payment of 20 cents per share, the total dividend for 2008 would therefore amount to 28 cents per share. These dividends are on the one-tier tax exempt basis. Share Buyback Motivating and retaining staff has been a crucial component of the Group s long-term growth strategy. As part of the incentive for staff to pursue a lifelong career in SPC, the Group has in place a share award programme. Towards fulfi lling this programme, the Group bought back 2.1 million shares as treasury shares in 2008 under the Share Buyback Mandate. 4 Singapore Petroleum Company Limited Report to Shareholders 2008

7 Corporate Sustainability The current economic contraction is seen by many as the most serious economic crisis since the Great Depression. It is therefore likely that the global recession could be prolonged. The Group will need to uphold a sustainable business strategy in the current uncertain operating environment. In these exceptionally challenging times, the Group needs to be especially vigilant about its corporate sustainability. A strong balance sheet, robust enterprise risk management processes, and heightened corporate governance practices will ensure the continued success of SPC even as the Group becomes more proactive in corporate social responsibility (CSR), and environment, health, safety and security (EHSS) issues. Maintaining Financial Resilience The Group is fi nancially robust with a low gearing. It has the necessary fi nancial resources to meet the challenges ahead. SPC will maintain tight fi scal discipline to ensure that the Group emerges stronger from this global crisis. Accolades While the year had been one of sharp contrasts, there were nevertheless many successes that the Group could celebrate. The Group continued to steer a steady course in the area of corporate governance, investor relations, risk management and CSR, winning various accolades in the process. SPC was recognised for its sound corporate governance for the sixth consecutive time, winning the SIAS (Securities Investors Association of Singapore) award for corporate governance. It was also recognised for its investor relations efforts. This resulted in a fi rst ever investor relations award during the year. Other awards included a joint third placing for the Best Managed Board Award for 2007 and the Energy Company of the Year (Gold Award) for the second time. Outlook For The Industry The fortunes of the oil industry are closely tied to global economic growth and progress. The current crisis has resulted in high unemployment and erosion of business and consumer confi dence. These economic issues may therefore take a while to resolve despite the barrage of economic stimulus packages unveiled. Projects and planned investments in the oil industry have been curtailed, delayed or cancelled as the demand for oil products declined as a result of the global economic slowdown. The Group will continue to review all its capital investments and operating expenditures to ensure that these expenditures make economic sense in the current diffi cult environment. In Appreciation As the Company weathers the diffi cult challenges ahead, I am reassured that SPC has a strong leadership team to steer the Group through these tumultuous times. SPC has over the years built a robust corporate governance and risk management framework, and is positioned to overcome the diffi culties ahead. The Group is also fi nancially resilient to seize any opportunities that may arise. The Group will continue to invest prudently to benefi t from an eventual recovery of the global economy marks SPC s 40 th anniversary. We are proud that in just four decades, SPC has grown into a multi-national enterprise with a multi-talented team, ready to bring it to the next level as an integrated oil and gas company. Much of this past success was due to the competence, passion and teamwork of the SPC and SRC staff and dedicated Board members. As we continue our journey to build and grow SPC amid trying times, I wish to extend my heartfelt appreciation to fellow Board Members for their counsel and guidance. I would also like to thank our shareholders, customers and business partners, for their continuing support and confi dence. Choo Chiau Beng Chairman 4 March 2009 Chairman s Statement 5

8 Driving a Difference Focusing on its core strengths and leveraging its track record as an enterprise with tradition, integrity and compassion, SPC is driving a difference by building an integrated and sustainable enterprise. By Building a Sustainable Enterprise Committed to shareholder value creation, SPC strives to uphold its responsibility by building a sustainable enterprise for its stakeholders. By Building an Integrated Business The Group delivers future growth through exploration and production activities, while enhancing its reputation as a quality supplier in the downstream oil and gas sector. Singapore Petroleum Company Limited Driving a Difference 6 Report to Shareholders

9 Building an Integrated Business Value Creation From its refining roots, SPC has continued to realise its vision of being an integrated oil and gas enterprise. SPC is positioned to deliver more value with its diversified earnings stream. SPC seeks to realise its long-term strategy and drive future growth by building an integrated business. The Group will strengthen its E&P portfolio by acquiring high potential acreages and optimising the value of its existing assets. Growing Presence From a homegrown company, SPC has expanded its presence to Australia, Cambodia, China, Hong Kong, Indonesia, Taiwan, Thailand and Vietnam. Diversified Earnings SPC has strengthened its position with an E&P business that will continue to fuel future growth.

10 Building a Sustainable Enterprise SPC sets the pace for continued progress and growth by building a sustainable enterprise. The Group will hone its core competencies to create sustainable shareholder value. Sustainable Growth Promoting transparency, accountability and a high standard of corporate governance, SPC is positioned for sustained growth. Corporate Responsibility With compelling qualities of tradition, integrity and compassion, SPC will grow its business responsibly. Beyond Compliance SPC s mindset of going beyond mere compliance will set it apart as a responsible enterprise.

11 Key Figures Revenue $11.1b The SPC Group achieved a record revenue of $11.1 billion, an improvement of 26.9% PATMI $229.7m The Group achieved a PATMI of $229.7 million Return On Equity 13.1% The SPC Group achieved a ROE of 13.1% Cash and Cash Equivalents $319.5m Cash and cash equivalents as at 31 December 2008 was $319.5 million Earnings Per Share The Group achieved an EPS of cents for 2008 Net Asset Value $3.31 The Group s NAV per share as at 31 December 2008 was $3.31 E&P Operating Profit $156.0m E&P operating profi t increased 186% year-on-year to $156.0 million, its best performance to date Dividend Payout Ratio 63% The Board has recommended a dividend payout of eight cents per share for approval at the forthcoming AGM. Together with the interim dividend of 20 cents per share, the total payout will be 28 cents per share, or a payout ratio of 63% of the Group s PATMI 12 Singapore Petroleum Company Limited Report to Shareholders 2008

12 Group Strategic Directions Strategic Directions Strategy in Action Realising its long-term strategy to fuel growth through upstream activities E&P contributed signifi cantly to the Group s PATMI Extended E&P footprint to 10 acreages across fi ve countries in the Asia-Pacifi c region Total oil and gas production of 3.11 million barrels of oil equivalent Awarded SPC s fi rst operatorship in Indonesia Mahakam Hilir PSC Set up Shekou Branch Offi ce to manage and operate SPC s China assets Maintaining its reputation as a reliable supplier of quality petroleum products Handled a total sales volume of 76.6 million barrels Achieved average refi ning margin of about US$5.50 per barrel Achieved average refi nery utilisation rate of about 95% Marketed crude production from the Bohai Bay oilfi elds Expanded fuels marketing business into Indonesia Building a sustainable enterprise Awarded a joint third placing for the Best Managed Board award Awarded the SIAS Corporate Governance award for the sixth consecutive year Awarded Energy Company of the Year (Gold Award) for the second time Awarded fi rst ever Investor Relations award Most Improved IR in Southeast Asia Established the SPC Risk Group to develop an integrated risk management framework Achieved 8 million man-hours without any loss time injury at SRC Achieved 125,000 man-hours without any loss time injury at Jurong Bulk Plant SPC s Engineering department achieved 61,000 man-hours without any loss time injury Upheld responsible corporate citizenry through sustained CSR efforts Group Strategic Directions 13

13 Group at a Glance Singapore Petroleum Company Limited Exploration & Production Singapore Petroleum Company Limited (SPC) is a regional oil and gas company listed on the Singapore Exchange. Since its inception in 1969, SPC has grown in tandem with Singapore s development as a refi ning centre. The SPC Group has today established itself as a reliable supplier of quality energy products in the Asia-Pacifi c region. Revenue ($ million) With its roots in refi ning, SPC diversifi ed into exploration and production (E&P) in 2000 to fuel future growth. The Group s business encompasses the entire oil and gas value chain. Its upstream activities include oil and gas exploration, development and production, and gas pipelines and transmission. The Group s downstream activities include refi ning, terminalling and distribution, marketing and trading of crudes and refi ned petroleum products. $156.0m Operating Profit In 2008, the SPC Group achieved a record revenue of $11.1 billion and a PATMI of $229.7 million. SPC s strategy to build an integrated oil and gas business has delivered tangible results. In 2008, SPC s E&P business contributed close to 40% of the Group s after-tax earnings, exceeding SPC s near-term target to have E&P contribute at least 30% of the Group s bottom-line. This validates SPC s venture into E&P to diversify its earnings base for long-term sustainability. Leveraging its core strengths and business segments to ensure corporate sustainability amid global economic uncertainties, SPC remains vigilant and focused on creating shareholder value. A strong balance sheet, robust enterprise risk management processes, heightened corporate governance policies as well as sound environmental, health, safety and security practices will ensure SPC s success as a sustainable enterprise. In 2000, SPC diversifi ed into the upstream oil and gas sector to build an integrated business. Towards this strategic goal, the SPC Group has successfully acquired E&P assets that span across fi ve countries in the Asia-Pacifi c region. SPC will continue to extend its E&P footprint and reinforce its upstream brand equity by seeking further growth opportunities. E&P segment contributed signifi cantly to the Group s after-tax earnings Awarded fi rst operatorship in Indonesia, the Mahakam Hilir PSC Established fi rst branch offi ce in Shekou, China 14 Singapore Petroleum Company Limited Report to Shareholders 2008

14 Downstream Revenue ($ million) , ,621.6 $157.6m Operating Profit Refining, Supply & Aviation Crude & Products Trading Marketing SPC is an established and reliable supplier of quality refi ned petroleum products. It has a 50% interest in SRC, a refi nery with a nameplate capacity of 290,000 barrels per day. Refi ned products from the refi nery include liquefi ed petroleum gas, naphtha, motor gasoline, kerosene, diesel, fuel oil, asphalt and sulphur. Achieved an average refi ning margin of about US$5.50 per barrel Achieved 8 million man-hours without any loss time injury at SRC Achieved refi nery utilisation of about 95% SPC is one of the fi rst companies in Singapore to be granted Approved Global Trader status. Its oil trading activities include the buying and selling of crudes, feedstocks and fi nished petroleum products to an established network of regional and international customers. Commenced marketing of crude production from Bohai Bay Sourced more than 25 different crude types for SRC Procured 48 million barrels of crude for processing at SRC SPC markets petroleum products to commercial, industrial, wholesale and retail customers, both in the domestic and international markets. SPC has a network of 38 retail service stations in Singapore. The service stations provide round-theclock products and services to the motoring public. Introduced Singapore s fi rst ever Drive-Thru ATM and Drive-Thru take-away food outlet at a service station Achieved 186,000 man-hours without any loss time injury at SPC Group at a Glance 15

15 Board of Directors SPC achieved a joint third placing for the Best Managed Board award in Choo Chiau Beng, 61 Chairman Chairman of SPC and SRC, Chief Executive Offi cer of Keppel Corporation Limited, Chairman of Keppel Offshore & Marine Limited and Chairman of SMRT Corporation Ltd. Mr Choo sits on the Board of Directors of Keppel Land Limited, k1 Ventures Ltd and is a Board Member of the Singapore Maritime Foundation, the Maritime and Port Authority of Singapore and the Nanyang Business School Advisory Board. Mr Choo holds a Bachelor of Science (First Class Honours), University of Newcastle upon Tyne (awarded the Colombo Plan Scholarship to study Naval Architecture), Master of Science in Naval Architecture, University of Newcastle upon Tyne. He attended the Programme for Management Development in Harvard Business School in 1982, and is a Member of the Wharton Society of Fellows, University of Pennsylvania. He is also Chairman of Det Norske Veritas South-east Asia Committee and Board Member of the American Bureau of Shipping and member of the American Bureau of Shipping s Southeast Asia Regional Committee and Special Committee on Mobile Offshore Drilling Units. He is Singapore s Non-Resident Ambassador to Brazil. 16 Singapore Petroleum Company Limited Report to Shareholders 2008

16 Koh Ban Heng, 60 Executive Director & Chief Executive Officer Mr Koh is the Chief Executive Offi cer (CEO) of SPC. He joined SPC in February 1974 and held several key positions in the Company before being appointed CEO in August Mr Koh retired on 6 February 2009 and was re-appointed Executive Director and CEO on a contract basis, effective 1 March Mr Koh s experience spans refi ning operations and planning, marketing and distribution, supply and trading, oil and gas exploration and production including the development and establishment of new businesses. Mr Koh was instrumental in the landmark refi ning and retail acquisitions in He also led and paved the way for several key capital investments in Exploration & Production which were in line with SPC s corporate vision to be an integrated oil and gas company. He holds directorships in several SPC subsidiaries and associate companies. Mr Koh has a Bachelor degree in Applied Chemistry and post-graduate diploma in Business Administration, University of Singapore. Bertie Cheng Shao Shiong, 71 Independent Director Mr Cheng was appointed Director of SPC in Mr Cheng retired as Chief Executive Offi cer of POSBank in July He holds and has held directorships, in both listed and unlisted companies. Currently, he is the Chairman of TeleChoice International Limited and Tee International Limited. He is also a Director of Hong Leong Finance Limited, Pacifi c Andes (Holdings) Limited, Thomson Medical Centre Limited and CFM Holdings Limited. Other appointments include being the Chairman of the Medifund Committee, Singapore General Hospital. Mr Cheng holds a Bachelor of Arts (Honours) Economics from the University of Malaya (in Singapore). He received the Public Administration Medal (Silver) in 1984 and the Public Service Medal in He also received the Friend of Labour Award from the National Trades Union Congress (NTUC) in Dr Chin Wei-Li, Audrey Marie, 51 Independent Director Dr Chin is Chairman of Vietnam Investing Associates Financials (S) Pte Ltd. Previously, she was Head, Investment Services, Fortis Private Bank and Partner Asset Allocation Strategies at Pacifi c Asset Management (S) Pte Ltd, and Executive Director of Rossignol Pte Ltd, an investment adviser providing consulting services to institutional fund managers. Between 1994 and 1999, Dr Chin was Division Head, Asset Allocation in the Economics and Strategy Department of the Government of Singapore Investment Corporation. Currently, Dr Chin is also a Director of K-REIT Asia Management Limited, NTUC Income Insurance Co-Operative and JC Trust Limited. Dr Chin holds a Bachelor of Laws (Honours), Manchester University, a Master of Science, Public Policy, Oxford University, and PhD, Public Policy, Rand Graduate School. Board of Directors 17

17 Board of Directors Geoffrey John King, 61 Independent Director Mr King has been a Director of SPC since He brings with him 35 years of diversifi ed administrative, legal and management expertise, covering employment with the Australian Government Public Service, Esso Australia Ltd and Ampolex Limited where he served as General Counsel and member of the Executive Committee. Mr King is the principal of a New South Wales legal fi rm specialising in energy law and he provides legal services to energy businesses operating in Australia. He is also currently a Director of Vermilion Oil & Gas Australia Pty Ltd, Phoenix Oil and Gas Limited, and Carpathian Resources Limited. Mr King was engaged by the World Bank in 2000 and the Asian Development Bank in 2006 to consult on oil and gas matters. He is currently acting as legal adviser to the Papua New Guinea government on energy developments as a result of the World Bank engagement. Mr King holds a Bachelor of Laws, Australian National University, Bachelor of Arts, University of New South Wales. He is a Barrister and Solicitor, Australian Capital Territory and Victoria. Dato Paduka Timothy Ong Teck Mong, 55 Independent Director Dato Paduka Ong is a leading Brunei businessman who is also the Acting Chairman of the Brunei Economic Development Board established by His Majesty, The Sultan of Brunei to create new employment and business opportunities in Brunei Darussalam. He is also a member of the board of the Sungai Liang Authority which is responsible for the development of a world-class petrochemical hub in Brunei. His business roles include being Chairman of BruCapital Holdings, Co-Chairman of The Edge Asia Inc, Chairman of Asia Inc Forum, Chairman of Hotel Associates and Deputy Chairman of National Insurance Company of Brunei Darussalam. Dato Paduka Ong is active in public affairs in Brunei and abroad. He was Chairman of the APEC Business Advisory Council (ABAC) in 2000 and Co-Chairman of ABAC in He represented Brunei in the APEC Eminent Persons Group (EPG) from 1993 to 1995 and was Chairman of the 23 rd ASEAN-Japan Business Meeting. In 2003, he served as Deputy Chairman of the Pacifi c Economic Cooperation Council (PECC). He was Advisor to the APEC CEO Summit in 2003, 2004 and 2006 and was an Advisor to the APEC CEO Summit in Lima, Peru in Dato Paduka Ong sits on a number of regional councils including the Asian Advisory Board for Prudential Financial Inc, the Asian Institute of Management (AIM) and the East-West Center. Dato Paduka Ong is the recipient of a number of state honours including most recently, the Most Honourable Order of Seri Paduka Mahkota Brunei (DPMB) which confers the title Dato Paduka. He was conferred the Grand Cross of the Order of Bernardo O Higgins (highest civilian award) by the President of Chile in 2006 for his contribution to regional economic cooperation. Dato Paduka Ong read Economics and Political Science at the Australian National University where he graduated with B.A. (Honours) at the top of his class. He obtained a M.Sc. (with Distinction) in International Relations from the London School of Economics. 18 Singapore Petroleum Company Limited Report to Shareholders 2008

18 Goon Kok-Loon, 66 Teo Soon Hoe, 59 Cheng Hong Kok, 66 Independent Director Mr Goon received both the Silver and Gold Public Administration Medals from the Singapore Government. He was Deputy Group President and President (International Business Division) of PSA Corporation Ltd (PSA). He has over 40 years of extensive experience in corporate management, operation and administration, both locally and internationally, from his service with PSA. Currently, he is Executive Chairman of Global Maritime & Port Services Pte Ltd and a Director of Jaya Holdings Ltd, Singapore Offshore Petroleum Services Pte Ltd, Yongnam Holdings Ltd and Venture Corporation Ltd. Mr Goon holds a Bachelor of Engineering (Electrical) (First Class Honours), University of Liverpool, UK, and attended Postgraduate Study Programme, Massachusetts Institute of Technology, USA. Director Mr Teo has been a Director of SPC since Currently, he is Senior Executive Director and Group Finance Director of Keppel Corporation Limited. He is Chairman of Keppel Telecommunications & Transportation Ltd, Keppel Philippines Holding Inc. and MobileOne Ltd. In addition, he is a Director of Keppel Land Limited, Keppel Offshore & Marine Limited and k1 Ventures Ltd. Mr Teo commenced his career with the Keppel Group when he joined Keppel Shipyard Limited in He rose through the ranks and was seconded several times to various subsidiaries of the Keppel Group before assuming the position of Group Finance Director in Mr Teo holds a Bachelor of Business Administration, University of Singapore, and is a Member of the Wharton Society of Fellows, University of Pennsylvania. Director Mr Cheng joined the Economic Development Board (Singapore) in 1964 and was Chief of Projects Division from 1968 to He was also a board member of the Economic Development Board from 1987 to 1990 and a member of the Government Economic Planning Committee from 1989 to Mr Cheng was the President and Chief Executive Offi cer of SPC from 1981 to He was Executive Director from 1991 to Through SPC, he was involved in the founding and development of ASCOPE (ASEAN Council on Petroleum). After the takeover of SPC by Keppel Corporation Limited, he was re-appointed Director in Currently, he is a Director of Keppel Oil and Gas Services Pte Ltd, SRC, SPC Refi ning Company Private Limited, Orchard Parade Holdings Limited, Gul Technologies Singapore Limited, SP Corporation Limited and GITI Tire Company Ltd. Mr Cheng holds a Bachelor of Science (First Class Honours) Chemical Engineering, University of London; and Advanced Executive Management Certifi cate at J.L. Kellogg Graduate School of Management, Northwestern University, USA. Mr Cheng was a Singapore State Scholar as well as an Eisenhower Fellow. Board of Directors 19

19 Key Executives The management team headed by the CEO and comprising senior management, ensured the decisions and guidelines of the Board and Board Committees are implemented. Koh Ban Heng, 60 Chief Executive Offi cer Mr Koh is the Chief Executive Offi cer (CEO) of SPC. He joined SPC in February 1974 and held several key positions in the Company before being appointed CEO in August Mr Koh s experience spans refi ning operations and planning, marketing and distribution, supply and trading, oil and gas exploration and production (E&P) including the development and establishment of new businesses. Mr Koh has delivered exceptional results since his appointment as CEO. He was instrumental in the landmark refi ning and retail acquisitions in He also led and paved the way for several key capital investments in E&P. These have provided the strategic drive that has led to SPC s current success and will be the foundation for the Company s sustained growth. He holds directorships in several SPC subsidiaries and associate companies. Mr Koh has a Bachelor degree in Applied Chemistry and post-graduate diploma in Business Administration, University of Singapore. Lee Chiang Huat, 59 Chief Financial Offi cer, Senior Vice-President, Finance & Investor Relations Mr Lee has during his 28 years with SPC been responsible for the Group s fi nance and accounting portfolios, which include accounting and reporting functions, treasury, banking and credit management. His current responsibilities include the investor relations & communications, and information technology portfolios. He holds directorships in several SPC subsidiaries and associate companies. Mr Lee holds a Bachelor of Business Administration and Masters of Social Science (Applied Economics), University of Singapore, and Masters of Business Administration, University of New South Wales. Woo Siew Cheng, 58 Senior Vice-President, Refi ning, Supply & Aviation Mr Woo began his oil industry career in 1976 with a major oil company. He joined SPC in With over three decades of experience in the industry and with extensive knowledge in crude and products trading, refi nery production planning and supply coordination and terminalling, he leads the Refi ning, Supply & Aviation Group in refi ning and supply operations, aviation sales and Pulau Sebarok terminalling operations. Mr Woo has overall responsibility of SPC s business interests in the jointly-owned refi nery, SRC. He played a key role in the implementation of a SRC unitisation plan and system that has resulted in signifi cant effi ciency in crude purchases and refi ning optimisation. He holds directorships in several SPC subsidiaries and associate companies. Mr Woo holds a Bachelor of Science (Honours, Applied Chemistry), University of Singapore. Mrs Helen Chong (nee Chia Foong Lan), 55 Company Secretary, Senior Vice-President, Legal, Secretariat and Insurance Mrs Chong started her career in legal practice and worked in an insurance company prior to joining SPC in 1980 as its Company Secretary/Legal Counsel. She is responsible for the Group s legal, corporate secretarial and insurance matters across all SPC s business, from E&P to downstream activities. Mrs Chong played a key role in SPC s pivotal acquisitions in refi ning, retail and E&P business which laid the foundations of SPC s growth. She has helped grow corporate governance practices in the SPC Group to standards which have won the Company public recognition of its practices. Mrs Chong holds a Bachelor s degree in Laws (Honours), University of Singapore, and was admitted as an advocate and solicitor in Singapore. She is a Member of the Singapore Institute of Directors. 20 Singapore Petroleum Company Limited Report to Shareholders 2008

20 Ms Foo Jang See, 49 Senior Vice-President, Crude & Products Trading Ms Foo joined SPC in During the last 26 years with the Company, she acquired extensive experience in several key functions including crude and products trading, marine sales, derivatives trading, inventory risk management, supply operations, chartering and terminal operations. Ms Foo has managed and led the products trading team to position SPC as a signifi cant player in the oil industry. Ms Foo s international networking, together with extensive knowledge of oil markets, is advantageous in her leadership of the Crude & Products Trading Group. She holds directorships in several SPC subsidiaries and associate companies. Ms Foo holds a Bachelor of Science in Chemical Engineering, National University of Singapore. Gan Tiong Aik, 57 Chief Risk Offi cer, Vice-President, Risk Mr Gan started his career in an international public accounting fi rm prior to joining SPC in 1980 as Audit Manager. He led the Group s Internal Audit function for 27 years with overall responsibilities for the fi nancial, operational, and information technology audits with functional reporting to the SPC Audit Committee. Following the formation of the Risk Committee in 2008, SPC established the Risk Group. Mr Gan leads the Risk Group as Vice-President. He is responsible for the development and management of SPC s enterprise risk management framework and processes, which include middle offi ce, and environment, health, safety and security functions. He holds directorship in a SPC subsidiary. He is a member of the Institute of Internal Auditors Singapore and the Institute of Certifi ed Public Accountants of Singapore. Mr Gan holds a Bachelor of Accountancy, University of Singapore. Tay Lee Kiang Vincent, 50 Vice-President, Marketing Mr Tay began his oil industry career in 1982 with a major oil company. He joined SPC in He has over 25 years of experience with extensive knowledge of the sales, marketing and operations functions of SPC. He leads the SPC s Marketing Group with overall responsibility for managing the retail, commercial, lubricant and special products sales business. He is also responsible for several Marketing support units in the area of operations and logistics, as well as market development and ventures. He holds directorships in several SPC subsidiaries and associate companies. Mr Tay holds a Diploma in Mechanical Engineering, Singapore Polytechnic, Advance Diploma, Marketing Management, Ngee Ann Polytechnic, Marketing Management, CIM, UK, and Masters of Business Administration, University of South Australia. Key Executives 21

21 Board of Directors Past Principal Directorships in the Last Five Years ( ) Choo Chiau Beng EDB Investments Pte Ltd FELS Property Holdings Pte Ltd FELS Realty (Texas) Inc FELS (USA) Inc Keppel Asia Limited Keppel Infrastructure Pte Ltd Keppel Marine Agencies Inc Keppel Norway AS Keppel Regional Infrastructure Pte Ltd Kepventure Pte Ltd WIIG Global Ventures Pte Ltd Koh Ban Heng SPC Cambodia Ltd Bertie Cheng Shao Shiong EPEX Industrial Pte Ltd Grand Pacifi c Properties Ltd Mobile Solutions and Payment Services Pte Ltd Nobel Design Holdings Limited Performance Group Pte Ltd Project Greenearth Pte Ltd SembCorp Engineers and Constructors Pte Ltd SHC Capital Ltd SHC Engineering Pte Ltd SHC Technology Pte Ltd Singapore Technologies Telemedia Pte Ltd ST Mobile Data Pte Ltd ST SunPage Pte Ltd ST Teleport Pte Ltd STT Communications Ltd SunPage Communications Pte Ltd The Nanyang Insurance Company Ltd Dr Chin Wei-Li, Audrey Marie Rossignol Pte Ltd Geoffrey John King Wood, King & Associates Pty Ltd Dato Paduka Timothy Ong Teck Mong Alif Technologies Sdn Bhd BruTechnology Sdn Bhd Jasra Harrisons Sdn Bhd Primrose Investment Sdn Bhd Watkin Syndicate Willis Insurance Brokers (B) Sdn Bhd Asia Inc Forum The Edge Asia Inc Baiduri Finance BruVenture Sdn Bhd Goon Kok-Loon Grocery Logistics of Singapore Pte Ltd ipbio Pte Ltd ipmedia Pte Ltd Jiwa Harmonia Sdn Bhd Singapore Offshore Petroleum Services Pte Ltd Teo Soon Hoe Centurion Bank Limited Creek & Cove Properties Pte Ltd Keppel Bank Philippines, Inc Keppel Shipyard Limited 22 Singapore Petroleum Company Limited Report to Shareholders 2008

22 Key Executives Past Principal Directorships in the Last Five Years ( ) Koh Ban Heng SPC Cambodia Ltd Lee Chiang Huat Jiangmen City Sinjiang Gas Co. Ltd SPC Shipping Company Limited Singapore Petroleum Dovechem Pte Ltd SPC Kakap Limited Tiger Oil Corporation SPC Indo-Pipeline Co. Ltd. SP-CYC Venture Pte. Ltd. Singapore Petroleum (Indonesia) Private Limited SPC Cambodia Ltd Woo Siew Cheng Singapore Petroleum Dovechem Pte Ltd Tiger Oil Corporation Changi Airport Fuel Hydrant Installation Pte. Ltd. Foo Jang See Tiger Oil Corporation Tay Lee Kiang, Vincent Petmal Oil Corporation Sdn. Bhd. ENEOS ItalSing Pte. Ltd. Singapore Carbon Dioxide Company Private Limited Key Executives Past Principal Directorships in the Last Five Years 23

23 Operations Review Exploration & Production 2008 was a year of notable progress for SPC s upstream business. E&P contributed signifi cantly to the Group s bottom-line. Since venturing into the upstream sector in 2000, the SPC E&P footprint has extended across fi ve countries Australia, Cambodia, China, Indonesia and Vietnam. Financial Highlights Revenue ($ million) Operating Profit ($ million) Major Developments in 2008 E&P contributed close to 40% of PATMI in 2008 Total oil and gas production of 3.11 million barrels of oil equivalent from four producing assets Awarded the Mahakam Hilir PSC, SPC s fi rst Indonesian operatorship Extended E&P footprint to 10 acreages across fi ve countries in the Asia-Pacifi c region, namely Australia, Cambodia, China, Indonesia and Vietnam Drilled two exploration, one appraisal and 32 infi ll and workover wells Set up Shekou branch offi ce to manage and operate SPC s upstream assets in China Focus for 2009 Develop skill sets and technical expertise Enlarge E&P footprint and forge stronger partnerships Strengthen EHSS practices across all assets 24 Singapore Petroleum Company Limited Report to Shareholders 2008

24 Introduction In line with its vision to be a strong, integrated oil and gas company, SPC has further enhanced its exploration and production (E&P) portfolio in With the award of the Mahakam Hilir Production Sharing Contract (PSC) in Indonesia, and the opening of the Shekou branch offi ce, SPC has strengthened its portfolio and operational base across the Asia-Pacifi c region. SPC was awarded the Mahakam Hilir PSC through a competitive bidding process in the Indonesian License Round in November This 100% PSC operating interest will strengthen SPC s operational capability and provide growth opportunities in the Kutai Basin, one of the largest and most prolifi c oil and gas producing basins in Indonesia. SPC also established its fi rst E&P branch offi ce in Shekou, China, in September This offi ce will support the Group s E&P activities in China including the 100% SPC-operated Block 26/18, and the Bohai Bay producing assets. Today, the E&P portfolio has grown to comprise 10 E&P assets stretching across fi ve countries Australia, Cambodia, China, Indonesia and Vietnam. SPC s producing assets comprise the Indonesian Kakap and Sampang PSCs, and the Bohai Bay Blocks 04/36 and 05/36 in China, while the six exploration assets that SPC holds interests in are Block /04 and Blocks 102 and 106 (Vietnam), Block B (Cambodia), Block T/47P (Australia), Block 26/18 (China) and Mahakam Hilir PSC (Indonesia). In 2008, SPC participated in the drilling of two exploration, one appraisal and 32 infi ll and workover wells to further create value through the exploration and development of the Company s resources base. In addition to the exploration and producing assets, SPC holds interests in midstream gas pipeline assets in Indonesia through its indirect stakes in PT Transportasi Gas Indonesia and the West Natuna Transportation System. Performance 2008 oil and gas production was strong with SPC s four producing assets yielding an average net production of 8,475 barrels of oil equivalent per day (boepd). The combined production from Kakap PSC, Sampang PSC, and Blocks 04/36 and 05/36 totalled 3.11 million barrels of oil equivalent (boe) net to SPC during the year. With a net realised oil price that averaged US$90.67 per barrel, E&P s bottom-line contribution to the Group has been its largest to date. E&P revenue totalled $329.2 million with an operating profi t contribution of $156.0 million, representing a 127% and 186% increase respectively over the previous year. SPC is poised to grow in China with the opening of its first upstream branch office. SPC was awarded the Mahakam Hilir PSC, as operator. This PSC will strengthen SPC s operational capability and provide growth opportunities in Indonesia. Operations Review Exploration & Production 25

25 Operations Review Exploration & Production Business Highlights Producing Assets Kakap PSC, Indonesia SPC holds a 15% interest in the Kakap PSC. The PSC consists of two separate blocks, covering an approximate combined acreage size of 2,006 km 2. The offshore acreage is located in West Natuna Sea, 486 km northeast of Singapore. The Kakap PSC currently has nine producing oil and gas fi elds, integrated by four platforms and seven subsea wellheads. Oil is processed by a Floating Production Storage and Offl oading (FPSO) vessel, and gas is transported through the West Natuna Transportation System pipeline to Singapore. The Kakap PSC contributed 2,142 boepd in 2008, net to SPC. During the year, the block s coventurers committed to the KG Development which is scheduled for completion in Two subsea wellheads will be tied back to the KG platform, and are expected to increase gas production by approximately 20 million standard cubic feet per day (mmscfd). Sampang PSC, Indonesia SPC holds a 40% interest in the Sampang PSC. The PSC is located in the Madura Strait, offshore East Java, and covers approximately km 2. The block consists of the producing Oyong fi eld, the Wortel gas fi eld development and the Jeruk oil discovery. Oyong 2008 Oyong oil production averaged 2,527 bpd, net to SPC. During the year, the PSC partners embarked on the second phase of the Oyong development to commercialise the gas reserves. Gas production from Oyong remains on schedule and is expected to commence in Wortel Development of the Wortel gas fi eld is in progress, pending the approval of the plan of development by the Indonesian authorities. First gas production is expected in Jeruk The PSC partners continue to examine possible development scenarios to commercialise Jeruk s resources. Blocks 04/36 and 05/36, China SPC holds a 8.91% interest in Block 04/36 and a 7.82% interest in the unitised fi elds in Block 04/36 and Block 05/36. The blocks are located in western Bohai Bay, 190 km east of Beijing, covering approximately 225 km 2. Blocks 04/36 and 05/36 contain six producing fi elds, which are tied back to an FPSO vessel. These fi elds have a total gross oil production of 44,664 bpd (3,806 bpd net to SPC) SPC net cumulative production from the blocks was approximately 1.4 million barrels of oil. Thirty-two infi ll and workover wells were drilled during the year. The blocks partners will continue to identify new development opportunities in these oil fi elds. Operated Exploration Assets Mahakam Hilir PSC, Indonesia Mahakam Hilir PSC covers approximately km 2 and is located onshore in the Kutai Basin, East Kalimantan. The Kutai Basin is one of the largest and most prolifi c oil and gas producing basins in Indonesia. SPC holds a 100% operating interest in the block, and will conduct seismic surveys and exploration drilling under the PSC. SPC will establish a branch offi ce in Jakarta in 2009 to facilitate and manage the operations of the block. Block 26/18, China SPC holds a 100% operating interest in Block 26/18. Located in the Pearl River Mouth Basin, South China Sea, the block covers approximately 4,961 km 2 and is 150 km from shore in water depths of between 85 and 200 metres. Block 26/18 is the fi rst offshore block operated by SPC. In September 2008, SPC established the SPC E&P (China) Pte Ltd branch offi ce in Shekou, China, to manage the operations of the Group s E&P assets in China. In 2009, SPC plans to acquire and process 3D seismic data over the block and will continue to perform further geological and geophysical studies in preparation for exploration drilling. Exploration and Non-Operatorship Assets Blocks 102 and 106, Vietnam SPC holds a 20% participating interest in Blocks 102 and 106. Located in the Song Hong Basin offshore Vietnam in the Gulf of Tonkin, the blocks cover an area of approximately 8,560 km 2 and contain several oil and gas discoveries along with several undrilled exploration prospects and leads. The Ham Rong-1X exploration well was drilled in July 2008 to test the presence of oil in pre-tertiary Carbonate basement structures in the block. In December, the well reached a total depth of 3,767 metres and fl owed approximately 4,859 bpd of 39 o API gravity oil and about 6 mmscfd of gas upon drill stem testing. Following this exploration drilling of Ham Rong-1X, the block partners drilled the Yen Tu-2X appraisal well. This well reached a total depth of 2,636 metres in the pre-tertiary basement. The well was plugged and abandoned on 29 January The block partners will continue to work closely together to evaluate the drilling results and the hydrocarbon potential of Blocks 102 and Singapore Petroleum Company Limited Report to Shareholders 2008

26 Block /04, Vietnam SPC holds a 45% interest in Block /04. The block covers approximately 6,174 km 2. Located in the Gulf of Tonkin, it is adjacent to Blocks 102 and 106. During the year, the block partners continued to fulfi ll their commitments under the terms of the PSC which included the acquisition and interpretation of 3D seismic data. Exploration drilling is planned for the fi rst half of Block B, Cambodia SPC holds a 33.33% interest in Block B. The block is located 250 km offshore Cambodia, east of the Khmer Basin, where a number of oil and gas discoveries were previously made. It covers an area of approximately 6,560 km 2. The Vimean Morodok MahaNorkor-1 exploration well was drilled in June It was later plugged and abandoned with non-recoverable oil shows. In December 2008, SPC and its partners extended the exploration phase of the block for two years to undertake technical study to further evaluate the block s remaining potential. Block T/47P, Australia SPC holds a 35% interest in Block T/47P. The block covers approximately 2,890 km 2 and is located offshore southeast Australia, about 200 km from Melbourne, at water depths of between 50 and 100 metres. The block contains the existing Cormorant oil, condensate and gas discovery. SPC and its partners are actively evaluating the potential of the block in preparation for exploration drilling. 2D and 3D seismic acquisition and processing of the surveys were completed in Exploration drilling for the block is planned to commence in Midstream SPC has a deemed 6% interest in PT Transportasi Gas Indonesia (PT TGI) through its 15% interest in the Transasia Pipeline Company Private Limited (Mauritius). PT TGI owns and operates two gas transmission lines: the 536 km Grissik-Duri pipeline and the 468 km Grissik-Batam-Singapore pipeline. Proven plus Probable Reserves based on Working Interest (SPC Share) Net SPC Share Estimated Net Reserves Year End 2008 (million of boe) 21.9 Net Average 2008 Production (boepd) 8,475 SPC Assets Summary Location Working Interest (%) Status Kakap PSC Indonesia 15.0 In production (oil and gas) Sampang PSC Oyong Wortel Jeruk Indonesia In production (oil) Development (gas) Development (gas) Pre-development (oil) Block 04/36 China 8.91 In production (oil) Block 04/36 and Block 05/36 (unitised) China 7.82 In production (oil) Mahakam Hilir PSC Indonesia Exploration Block 26/18 China Exploration Blocks 102 and 106 Vietnam 20.0 Exploration Block /04 Vietnam 45.0 Exploration Block B Cambodia 33.3 Exploration Block T/47P Australia 35.0 Exploration Operations Review Exploration & Production 27

27 Operations Review Downstream SPC s downstream business remained its mainstay revenue generator. The Group s downstream activities include refi ning, terminalling and distribution, marketing and trading of crudes and refi ned petroleum products. In the retail sector, innovation and partnerships continued to be SPC s competitive edge. Financial Highlights Revenue ($ million) Operating Profit ($ million) , , Major Developments in 2008 Total downstream sales volume of 74.2 million barrels Average refi ning margins of about US$5.50 per barrel Average refi nery utilisation rate of about 95% Achieved 8 million and 186,000 man-hours without any injury loss time at SRC and SPC respectively Marketed crude production from the Bohai Bay oilfi elds Introduced Singapore s fi rst Drive- Thru ATM and Drive-Thru takeaway food outlet at a service station Restructured the Refi ning, Supply & Trading Group to Refi ning, Supply & Aviation Group and Crude & Products Trading Group Focus for 2009 Maintain reliability and quality of products and services Imbue safety culture across all business units Ensure cost effi ciency and effectiveness across all operations 28 Singapore Petroleum Company Limited Report to Shareholders 2008

28 Refining, Supply & Aviation Restructuring of the Refining, Supply and Trading Group In February 2008, SPC restructured the Refi ning, Supply & Trading Group into the Refi ning, Supply & Aviation (RSA) Group and Crude & Products Trading (CPT) Group. RSA comprises Refi ning and Supply Operations, Aviation Sales, and Pulau Sebarok Terminal Operations. The restructuring provided focus for distinct business operations that require specifi c competencies and skill sets. As competition in the refi ning sector intensifi ed during the year, SPC established a dedicated RSA team to address the challenges. Market Environment Crudes and products prices experienced severe volatility in Oil prices increased sharply during the fi rst half-year and the price of the West Texas Intermediate (WTI) crude reached an unprecedented high of US$ per barrel in July. Oil prices, however, retreated rapidly with the WTI falling to US$44.60 per barrel by year end as the global fi nancial crisis impacted consumer demand and GDP growth worldwide. Oil demand for the fi rst half of 2008 proved to be relatively price inelastic, mainly supported by subsidies in countries such as China, India and Indonesia. Demand from these countries accounted signifi cantly for the global oil demand growth for the fi rst half-year. The relative oil price inelasticity coupled with the depreciation of the US dollar, resulted in a rapid vertical climb in prices for the fi rst six months. However, the fast deteriorating global economy exacerbated the fall in prices in the second half-year. Oil prices fell by an average of 68% in the second half of global oil demand was 85.8 million barrels per day (bpd), a 0.2 million bpd decrease from The Asia-Pacifi c region accounted for about 30% of the total global demand, with an incremental growth of 0.2 million bpd over Demand growth in the fi rst half-year was driven mainly by China s preparation for the Beijing Olympics and India s growing appetite for energy. Consumption of energy in the Middle East also grew as high oil prices sparked a construction boom across the region. In line with its commitment towards a clean and green environment, SRC is upgrading its ultra-low sulphur diesel production capability and volume. Operations Review Downstream 29

29 Operations Review Downstream Refi ning margins were relatively strong in the fi rst half of the year with the Group achieving an average refi ning margin of about US$10.00 per barrel. This was due to higher product demand and tight refi ning capacities in the region. Refi ning margins were supported by middle distillate demand from China as a result of the Sichuan earthquake relief efforts and the preparation for the Beijing Olympics. In the second half of 2008, refi ned product prices plunged on the back of the global fi nancial crisis. Demand for distillate products in China eased after the Beijing Olympics. The shutdown of many Chinese manufacturing plants due to low consumer demand from the US led to further decline. Weak demand from the rest of the region led to poorer refi ning margins in the second half-year. As a result, the Group achieved an average refi ning margin of about US$5.50 per barrel for the year. Refining and Supply Operations The Singapore Refi ning Company (SRC) is capable of processing a wide variety of crudes from light sweet to heavy sour. SPC s share of the crude throughput totalled 49.7 million barrels (bbls) in 2008, consisting predominantly of heavy and sour crudes. The refi nery uses rigorous planning tools for crude selection. The planning focuses on optimising utilisation and maximising profi t by considering the inherent operating constraints while ensuring a safe operating environment. In 2008, the refi nery improved its processing capability by adding facilities to handle diffi cult crudes to reduce its overall feedstock cost. During the year, the refi nery achieved maximum utilisation of its crude distillation and upgrading units, and operated safely and reliably throughout the year. SRC achieved an average utilisation rate of about 95% for The refi nery achieved 8 million manhours without any loss time injury, the highest achievement to date. It also pursues excellence in safety performance by fully adopting an Injury and Incident Free culture. The refi nery s upgrading units such as the hydrocracker, catalytic reformer, visbreaker, vacuum distillation as well as other supporting auxiliary units were shut down for a scheduled maintenance programme in April and May Nearly 1,350 contract workers were engaged for the programme, which was completed safely and without any incident. Increasing environmental concerns and the stricter specifi cations for transportation fuels require regional refi ners to address the challenge to supply cleaner fuels. SPC responded quickly to this by initiating adequate measures and adopting market specifi cations to supply cleaner products. In May 2007, SPC and its SRC partner announced an ultra-low sulphur diesel (ULSD) production project ahead of the regional cleaner fuel implementation timelines. Scheduled for completion by the end of the second quarter of 2009, this project will enhance SRC s existing ULSD production capability and volume. SPC has built a solid reputation as a reliable and quality supplier with more than 30 years of aviation fuel sales experience. 30 Singapore Petroleum Company Limited Report to Shareholders 2008

30 This project is progressing on schedule, with detailed engineering and procurement work almost completed. Construction activity is progressing well with the new reactor installed in December 2008 and major equipment already on site. In line with its commitment towards a clean and green environment, SPC will continue to evaluate projects to augment its product quality in tandem with market requirements. Many of these projects will be aimed at reducing emissions and energy consumption. At the same time, such projects should also enhance the overall reliability, integrity and safety of the refi nery. Aviation Sales SPC markets and supplies aviation fuel to airlines at fi ve international airports, namely Singapore, Hong Kong, Bangkok, Taiwan Taoyuan and Taiwan Kaohsiung. The Group has built a solid reputation as a reliable and quality supplier with more than 30 years of aviation fuel sales experience. Jet fuel sales in Singapore accounted for the largest segment of the Group s aviation volume. The Singapore Changi Airport handled close to 40 million passengers and nearly 2 million airfreight movements in With the inauguration of Terminal 3 in January 2008, the airport now serves more than 80 international airlines fl ying to 180 cities worldwide. Growing in tandem with the Singapore Changi Airport as a key Asian aviation hub, SPC is well-placed to meet Singapore's aviation needs. With the global economic slowdown, demand for air travel weakened in the second half of While airlines may scale back operations and review expansion plans, the aviation industry as a whole, is expected to retain its medium to long-term viability. Pulau Sebarok Terminal Operations The Company s storage terminal for petroleum products at Pulau Sebarok supports its marine bunker operations, distribution and trading business. The 220,000 cubic metre terminal consists of 13 storage tanks and is equipped with a deepwater jetty for tankers up to 160,000 tonnes displacement. A smaller jetty for barges up to 10,000 tonnes displacement is also available for smaller cargo sizes. The terminal has a comprehensive laboratory, which has the SINGLAS (Singapore Laboratory Accreditation Scheme) accreditation, and a highly advanced automated Distributed Control System to provide quick turnaround for tanker and barge operations. In 2008, the terminal handled a product throughput of 2.2 million tonnes (2.3 million cubic metres). SPC s offshore storage facility at Pulau Sebarok is capable of performing assurance tests round-the-clock. Operations Review Downstream 31

31 Operations Review Downstream Working closely with SRC, CPT evaluates more than 50 different crude types each year to optimise refining margins. Crude & Products Trading The Crude & Products Trading (CPT) Group comprises the Crude Supply & Trading, Distillates and Residue units, and was the result of the restructuring of the Refi ning, Supply & Trading Group. The restructure provides a more focused platform to optimise SPC s trading performance by managing the increased volatility in oil prices, crude purchases, products trading, and counterparty risks amid intense competitive pressures. Crude Supply & Trading The Crude, Supply and Trading unit is responsible for the supply, trading and marketing of crudes, crude vessels chartering, shipping and cargo operations, managing refi ning margins as well as freight and crude inventory price risks. A key responsibility of the unit is to secure a regular supply of crudes for processing at SPC s 50%-owned refi nery, SRC. Working closely with SRC and applying the latest analytical tools and models, the unit acquires high value crudes to optimise refi ning margins. Each year, the unit evaluates more than 50 different crude types from the Middle East, West Africa, Europe, Mediterranean, Latin America, North Asia and Southeast Asia. In 2008, the unit sourced about 25 different crude types for the refi nery. During the year, SPC imported 48 million barrels of crude to be processed at SRC had been an extremely volatile year in the oil markets. Despite a challenging trading environment, the unit secured high value crudes for the refi nery. The team also actively managed the vessel chartering and operations to minimise crude transportation costs in a volatile freight market. The unit also traded crudes to increase profi tability and enhance the Company s overall performance. 32 Singapore Petroleum Company Limited Report to Shareholders 2008

32 The Crude Supply and Trading unit commenced the marketing of SPC s own crude production in This activity enabled the Group to capture optimum value for its E&P crude production. The Cao Fei Dian crude from the Bohai Bay production blocks in China was marketed to end-users in the Asia-Pacifi c region during the year. The unit manages the Company s crude oil inventory and refi ning margin price risks through strategic and consistent hedging. The unit also manages the Company s exposure to volatile oil price movements and optimises refi ning performance amid the current uncertainties in the global economy. In 2008, SPC hedged against volatile price risks for its physical crude and refi ned products inventory through Over-The-Counter crude and refi ned products commodity derivatives. The tenure for such hedges typically ranges from 3 to 12 months and closely mirrors the Group s exposure in physical oil barrels. Distillates The Distillates unit is responsible for the sale and trading of naphtha, motor gasoline (petrol), gasoil (diesel) and jet (aviation) fuel. The unit sourced the bulk of these products from SRC while a smaller portion was sourced through the unit s trading activities. The trading environment in the fi rst half of 2008 was challenging but favourable due to strong demand and limited supply. Despite the strong upward trend for oil prices, products demand continued to be robust especially from market players with excess storage facilities. In the second half of 2008, the trading environment turned diffi cult due to the global fi nancial crisis, which constrained credit availabilities and increased counterparty risks. Despite these challenging conditions, the Distillates unit continued to monitor the markets meticulously and extract full value from its supply chain network. The unit achieved positive results on a turnover volume of about 33 million barrels in The global fi nancial crisis affected the demand for oil products worldwide. Demand for distillate products is expected to be weak for most of To stay resilient and sustain its performance and contribution under the current operating environment, the Distillates unit will continue to monitor developments in the oil and credit markets to capture trading margins. CPT is responsible for the sourcing and trading of crudes, feedstocks and finished petroleum products. Operations Review Downstream 33

33 Operations Review Downstream Residue The Residue unit combines fuel oil trading and marine sales activities to optimise returns through a synergistic two-pronged approach. While SPC s fuel oil volume is sourced mainly from SRC, a signifi cant portion is also procured from external sources such as national oil companies, international oil majors and trading houses. The unit leverages SPC s operational abilities and storage facilities to enhance its trading capabilities. The fuel oil market was characterised by extreme oil price volatility in Increased commercial storage facilities provided a competitive trading environment, which was apparent in the fi rst half of 2008 where ample product supplies were unevenly matched with limited sales outlets. Fuel oil prices peaked in July but spiralled downwards in the second half of Tightened bank credit facilities affected traders and shippers capability to transact smoothly. SPC exercised vigilance to manage any possible counterparty payment defaults. SPC also continued to create value through increased blending activities while maintaining quality supplies. The synergy between cargoes trading and marine sales activities generated positive contributions to the SPC Group. SPC performed well above the industry average performance indicators under the Maritime Port Authority of Singapore (MPA) scorecard for bunkers supply. The unit will continue to meet the challenges of volatile fuel oil prices amid slowing demand. Nonetheless, with MPA s vision to transform Singapore into a maritime knowledge hub, the Singapore bunkers market will grow in relevance for marine sales and trading activities in the long run. During the year, there was also continuing momentum to improve product specifi cations to address environmental issues. The Residue unit will continue to be mindful of these issues and strive to contribute positively to the environment. SPC has been supplying bunker fuels since its early days, in tandem with Singapore s growth as a maritime hub. 34 Singapore Petroleum Company Limited Report to Shareholders 2008

34 New initiatives have been introduced at SPC s retail network of 38 service stations, delivering greater convenience and value to the motoring public. Marketing Market Review The Marketing Group handles the sales and market development of the SPC Group s refi ned petroleum products both locally and overseas. Refi ned petroleum products include lubricants, motor gasoline, diesel, liquefi ed petroleum gas, asphalt and sulphur. The extreme oil price volatilities, cost infl ation coupled with the global fi nancial crisis created a highly uncertain and competitive operating environment in As the marketing business expanded domestically and overseas, risk management and limiting the Group s credit exposures were key priorities. Market Development and Ventures The Market Development and Ventures unit (MDV) seeks and evaluates marketing business opportunities in the Asia-Pacifi c region. MDV also monitors and reviews the performance of the Marketing Group investments to align them with SPC s long-term strategic objectives. In 2008, MDV enhanced the value of the Group s investment portfolio by strengthening the shareholder base in ItalSing Petroleum Company Pte. Ltd. (now known as ENEOS ItalSing Pte. Ltd.). SPC and Eni International B.V. each divested 27.5% of their 50.0% interest to Nippon Oil (Asia) Pte Ltd. Collectively, the shareholders would develop the joint venture into a premium toll blender in the region. Retail Sales and Development SPC operates the third largest retail network of service stations in Singapore. All 38 friendly neighbourhood stations also incorporate a 24-hour convenience store under the brand name Choices. At selected stations, Speedy Care and Manual Wash outlets are also available for general automobile servicing, grooming and washing. During the year, SPC introduced the fi rst Drive-Thru Operations Review Downstream 35

35 Operations Review Downstream Automated Teller Machine (ATM) and Drive-Thru take-away food outlet at the Upper East Coast station. The Singapore retail market was marked by product prices escalating sharply in the fi rst half and falling rapidly in the second half of This resulted in frequent pump price adjustments to refl ect oil prices as well as other operating conditions. Quality Fuels Being the fi rst-mover of many retail initiatives in Singapore, SPC has a strong track record of quality value offerings. Since 1991, SPC has been retailing unleaded motor gasoline in Singapore, while in 2006, the Company introduced ultra-low sulphur diesel across its entire retail network. In February 2008, SPC launched the fi rst compressed natural gas refuelling kiosk in a service station in Singapore. SPC has built a reputation as a reliable supplier of quality fuels that meet stringent specifi cations. For more than three decades, it has been supplying quality aviation and bunker fuel to international customers. Car owners are therefore assured of the quality of SPC s motor gasoline and diesel fuel. In May and June 2008, loyal customers who participated in the Get Quality. Use SPC. campaign held island-wide stood a chance to win petrol vouchers. Reinforcing Safety In 2008, SPC initiated a campaign to reinforce the safety of passengers with special emphasis on safety for children. LED (light-emitting-diode) messages were displayed on the pylons located at the entrances of all its service stations. Specially-designed posters were placed above all pump dispensers to reinforce the safety message. These precautionary messages served to remind drivers and their passengers to belt up. SPC also held a joint marketing promotion with its credit card partner in September during which free seat belt covers were given away. Commercial Sales The Commercial Sales unit markets a full range of petroleum products. The unit continued to maintain its strong position in the domestic commercial, industrial and wholesale markets. SPC also expanded into Indonesia through its new 60% joint-venture company, PT Solar Premium Central (PT Solar). Despite the volatile and highly competitive markets, SPC was able to secure new contracts with a number of key customers, thereby enhancing the Group s performance and profi tability. PT Solar Premium Central SPC established PT Solar to tap the large Indonesian industrial market which had been liberalised in recent years. After the recruitment of key personnel in Jakarta, PT Solar commenced the marketing of diesel fuel in Jakarta and West Java in July The combination of high quality diesel and the strong service back-up supported SPC s entry into the Indonesian market. Special Products The Special Products unit markets and trades special products such as liquefi ed petroleum gas (LPG), asphalt and sulphur in the Asia-Pacifi c region. Despite the diffi cult environment, the unit grew its trading business and strengthened its portfolio signifi cantly. With a larger trading base of suppliers and customers, and leveraging the Group s logistic capabilities, the Special Products unit was able to provide more value to its regional customers. Trading of special products enhanced the Marketing Group s contribution to SPC. SPC Wearnes Pte Ltd SPC Wearnes Pte Ltd (SPCW) bottles, distributes and retails LPG to the commercial, industrial and retail markets domestically. In order to meet the challenge of escalating product prices in a highly competitive marketplace in 2008, SPCW improved its cost effi ciency through plant optimisation, enhanced logistic performance and streamlined distribution channels. SPC retails LPG in Singapore through its joint venture company, SPC Wearnes Pte Ltd. Lubricants Sales The Lubricants Sales unit markets SPC-branded lubricants in Singapore and the Asia-Pacifi c region. The diffi cult environment in 2008 resulted in the mass lubricant market shifting to lowerpriced products. Customers extended oil change intervals for their vehicles to reduce running costs. Price increases of fi nished products in 2008 were also 36 Singapore Petroleum Company Limited Report to Shareholders 2008

36 lagging behind the sharp escalation of base oil, additives and other material costs. Despite these challenges, SPC s focus on premium products in key markets, regular price reviews and internal supply chain effi ciencies helped enhance the performance of the Lubricant Sales unit. With further rationalisation of the distribution network of automotive independent workshops in Singapore in 2008, SPC concentrated on focused marketing to win new customers. SPC lubricants are also marketed widely in the logistics, maritime, military, utilities and marine sectors. The services to these sectors are supported by a high level of distribution fl exibility and customisation, lubricant quality and timely deliveries. In China, SPC s lubricant marketing company, Singapore Petroleum (Guangdong) Private Limited, continued to grow its distribution network across key provinces during the year. SPC continued to keep pace with new lubricant technology to meet both market and environmental requirements, adding a new diesel engine oil to its product offerings. On top of Original Equipment Manufacturer (OEM) approvals from BMW, Mercedes Benz, Porsche and Volvo, SPC has also obtained approval from Volkswagen for its fully synthetic gasoline engine oil, SYNACE, in Operations and Logistics Engineering The Engineering department conducts feasibility studies, designs, implements and manages the engineering projects for the SPC Group. As part of the Singapore Jurong Port s expansion programme to improve operational effi ciency, SPC relocated its pipelines and discharge points within the port. Despite diffi culties such as tidal constraints, working under wharf decks, and the need to accommodate Jurong Port s busy operations as well as to comply with stringent safety requirements, the Engineering Team and its contractor completed the project without any Loss Time Injury (LTI). The relocated pipelines and discharge points were commissioned in June The department also redesigned the Upper East Coast service station in January 2008 to incorporate a Drive-Thru ATM and a Drive-Thru take-away food outlet. Other key service station projects undertaken by the department included further enhancement of the CCTV (closedcircuit television) system to improve security, installation of canopy LED lightings at 27 stations and the rehabilitation of sewer lines at eight stations. In addition, the Engineering department supported the Commercial Sales unit to revamp SPC s Penjuru Ramp site used for the marketing of diesel to small vessels. In 2008, the Engineering department managed to chalk up 61,000 man-hours without any LTI. Jurong Bulk Plant The SPC Jurong Bulk Plant (JBP) serves as a depot to distribute fuel products to SPC service stations, commercial and industrial customers. The completion of pipeline relocation at Jurong Port and JBP allowed greater fl exibility in fuel replenishment operations. This was further facilitated by the addition of new berthing points at the jetty. JBP held an emergency response exercise and a joint fi re drill with the Singapore Civil Defence Force (SCDF) in the middle of the year. Such exercises served to enhance rapport between both parties. The visit to the SPC terminal by SCDF familiarised them with SPC s facilities and improved their planning and deployment of resources during emergencies. The JBP operations team also participated in SPC s Crisis Management exercise in April For fi ve consecutive years, JBP managed to maintain its zero LTI record. There was also no fi re or major spill incident in For the year, JBP achieved a commendable 125,000 man-hours without any LTI. SPC s Jurong Bulk Plant serves as a depot to distribute fuel products to SPC retail, commercial and industrial customers. Operations Review Downstream 37

37 Sustainable Enterprise Building a Sustainable Enterprise At SPC, Corporate Social Responsibility (CSR) is a core focus. It is an entrenched belief that a sound CSR plan is part of business sustainability, ensuring business decisions and operations contribute positively to the long-term well-being of the business and the community where SPC operates. Today, a company s success is measured not just by profi tability but also accountability, governance and transparency. Hence, there is a need to report its environmental and social performance in addition to its economic performance. At SPC, Corporate Social Responsibility (CSR) is a core focus. It is an entrenched belief that a sound CSR plan is part of business sustainability, ensuring business decisions and operations contribute positively to the long-term well-being of the business and the community where SPC operates. In the ensuing articles of this report, the scope and work of SPC s CSR efforts are categorised and detailed in the respective areas of corporate governance (page 40), enterprise risk management (page 57), environment, health, safety and security (page 60), community engagement (page 62) and human resource practices (page 65). These articles should be read collectively for a holistic insight into the SPC CSR mission. CSR Committee SPC is committed to integrating CSR with its business operations. In March 2008, a cross-functional committee was formed to establish the framework for implementing and promoting CSR initiatives. During the year, the committee met every month for substantive discussions to identify issues and challenges, and disseminate information about the Company s CSR activities to the rest of the Group. At these meetings, members shared and exchanged useful information on CSR topics. Internal training sessions were organised to provide the committee with a sound grounding on global CSR challenges and developments. 38 Singapore Petroleum Company Limited Report to Shareholders 2008

38 These sessions, conducted by a reputable external consultant, were well attended and supported by the SPC senior management. With quarterly reports to the Board of Directors, and clear objectives and targets set, the committee was tasked to establish and drive a structured CSR programme for the Group. Strategy Development In September 2008, SPC appointed an external consultant to conduct a comprehensive benchmarking and gap analysis study of SPC s existing CSR programme. This involved an assessment of the Company s existing CSR initiatives. Completed in December 2008, the study will form the baseline for SPC s CSR strategy development. Stakeholders and CSR Alongside delivering sustainable returns, SPC will endeavour to address and meet the expectations of its stakeholders. Whether it is upgrading the refi nery to produce cleaner diesel, ensuring that all business operations are conducted safely, communicating with investors, extending community outreach or promoting staff volunteerism, SPC strives to do all these responsibly. SPC also seeks to strengthen disclosure of its CSR projects, initiatives and activities through communication platforms such as the Company s quarterly newsletters, annual reports, corporate website, brochures and announcements. CSR is about caring for tomorrow, today, and this is a SPC priority and responsibility. A self-sustaining micro-ecosystem in a bottle, a terrarium. Building a sustainable enterprise is SPC s corporate responsibility. A strong balance sheet, robust enterprise risk management processes, and heightened corporate governance practices will ensure the continued success of SPC. Sustainable Enterprise 39

39 Sustainable Enterprise Corporate Governance SPC s belief that corporate governance is all about having the right corporate mindset and culture, has been translated into positive action programmes through its people, policies and processes. Corporate governance is an integral part of SPC s efforts to build a sustainable enterprise. SPC s belief that corporate governance is all about having the right corporate mindset and culture, has been translated into positive action programmes through its people, policies and processes. To ensure high standards of corporate governance, SPC regularly reviews its internal structures and processes in conjunction with the latest corporate governance developments. With this in mind, in 2008 the Board formed a new Board Risk Committee (RC) and transferred oversight of enterprise risk by the Executive Committee to this new committee. A Risk Group was established to administer middle offi ce, risk and environmental, health, safety and security (EHSS) matters. SPC also reviewed its Corporate Social Responsibility (CSR) programmes and initiatives. Corporate governance will be an integral part of its CSR efforts. SPC is honoured to have been awarded the SIAS Corporate Governance Award for the sixth consecutive year since 2003, achieving third place again in 2008 in a very competitive fi eld. At the beginning of 2008, SPC also achieved a joint third placing for the Best Managed Board Award for In 2008, SPC was also recognised for its investor relations initiatives and efforts by winning its fi rst ever investor relations award. SPC received the Most Progress in Investor Relations award at the IR magazine South East Asia Awards The Company also won the Energy Company of the Year (Gold Award) at the Energy Business Awards, Asia for the second time. Another accolade received was being named one of the top 250 global energy companies in Asia, by Platts in SPC acknowledges with gratitude, the continued support and recognition of the business and social communities for its CSR and corporate governance programmes. The Company confi rms that it has complied with the spirit and requirements of the Listing Manual (Listing Manual) of the Singapore Exchange Securities Trading Limited (SGX-ST) and the Code of Corporate Governance 2005 (Code), unless otherwise stated. The following describes SPC s corporate governance practices in compliance with the Code. There are other sections in this Annual Report that are relevant to corporate governance and as such, this corporate governance report (Report) should be read in conjunction with those sections. Each year, the SPC Chairman presides over the AGM and is accompanied by fellow Board members, the CEO, the CFO and the Company Secretary. 40 Singapore Petroleum Company Limited Report to Shareholders 2008

40 Code of Corporate Governance 2005 Principles and guidelines Principle or guideline Page(s) reference Guideline 1.3 Delegation of authority, by the Board to any Board Committee, to make decisions on certain Page 42 Board matters. Guideline 1.4 The number of Board and Board Committee meetings held in the year as well as the attendance of Page 44 every Board member at these meetings. Guideline 1.5 The type of material transactions that require Board approval under internal guidelines. Page 42 Guideline 2.2 Where the company considers a director to be independent in spite of the existence of a Page 44 to 45 relationship as stated in the Code that would otherwise deem him as non-independent, the nature of the director s relationship and the reason for considering him as independent should be disclosed. Guideline 3.1 Relationship between the Chairman and CEO where they are related to each other. Page 46 Guideline 4.1 Composition of the nominating committee. Page 47 Guideline 4.5 Process for the selection and appointment of new directors to the Board. Page 43 to 45 Guideline 4.6 Key information regarding directors, which directors are executive, non-executive or Page 45 to 47 considered by the nominating committee to be independent. Guideline 5.1 Process for assessing the effectiveness of the Board as a whole, and the contribution of each Page 45 to 48 individual director to the effectiveness of the Board. Guideline 9 Clear disclosure of its remuneration policy, level and mix of remuneration, procedure for Page 50 to 51 setting remuneration, and link between remuneration paid to directors and key executives, and performance. Guideline 9.1 Composition of the remuneration committee. Page 47 Guideline 9.2 Name and remuneration of each director. The disclosure of remuneration should be in Page 49 to 52 bands of $250,000. There will be a breakdown (in percentage terms) of each director s remuneration earned through base/fi xed salary, variable or performance-related income/bonuses, benefi ts in kind, and stock options granted and other long-term incentives. Guideline 9.2 Name and remuneration of at least the top fi ve key executives (who are not also directors). Page 49 to 51 The disclosure should be in bands of $250,000 and include a breakdown of remuneration. Guideline 9.3 Remuneration of employees who are immediate family members of a director or the CEO, Page 49 and whose remuneration exceed $150,000 during the year. The disclosure should be made in bands of $250,000 and include a breakdown of remuneration. Guideline 9.4 Details of employee share schemes. Page 50 to 52 Guideline 11.8 Composition of the audit committee and details of the committee s activities. Page 53 to 54 Guideline 12.2 Adequacy of internal controls including fi nancial, operational and compliance controls, Page 54 to 55 and risk management systems. Sustainable Enterprise Corporate Governance 41

41 Sustainable Enterprise Corporate Governance Board Matters The Board s Conduct of its Affairs Principle 1 The functions and responsibilities of the Board are to: provide entrepreneurial leadership, set strategic goals, and ensure the Company has the necessary fi nancial and human resources to meet its objectives; review management performance; establish prudent and effective system of internal controls, fi nancial reporting, risk management, compliance and corporate governance processes; set standards and values to ensure that obligations to stakeholders are properly discharged at all times. The Board regularly begins its meetings with a segment dedicated to discussion of corporate governance issues without the presence of management. Matters resolved are then conveyed to management. To enhance SPC s risk management system, in the face of economic, commercial, geo-political and other risks that arise in the volatile oil industry, the Board established a Risk Committee in January 2008 comprising, Dr Audrey Chin as Chairperson, Mr Geoffrey King and Mr Cheng Hong Kok. Dr Chin and Mr King are independent directors. Mr Goon Kok Loon, an independent director and member of the Audit Committee, was appointed Chairman of the Audit Committee (AC) on 30 January 2008 in place of Dr Chin, who remained on the committee as a member. In May 2008, Dato Paduka Timothy Ong replaced Dr Chin in the Nominating and Remuneration Committee (NRC). The EHSS concerns affecting global business has driven the Group s push for clean fuels at its refi nery such as the diesel clean fuel project at SRC. This is consistent with SPC s endeavours to achieve its corporate objectives in an environmentally responsible manner. EHSS issues affecting SPC s operations and business, will remain in focus through the newly formed RC and Risk Group. The Board and management also recognised that while the Group had been immersed in various community and social efforts for several years, it was appropriate for the Company to re-align and re-focus its activities, in a sustainable manner. A CSR committee was formed in March 2008 to oversee its planning and development, along with other corporate initiatives. In November 2008, SPC acquired its fi rst Indonesian operatorship, the Mahakam Hilir PSC in East Kalimantan, furthering its plans to grow its portfolio of upstream assets. In the downstream sector, SPC will promote further growth of the lubricants business through Singapore Petroleum (Guangdong) Private Limited. This growth is in line with SPC s strategic vision, To be an integrated oil and gas company with a premium brand in the Asia-Pacifi c region. For the fi nancial year 2008, the Group achieved a creditable performance with a turnover of $11.1 billion resulting in a PATMI of $229.7 million. The upstream acquisitions and upgrading projects at the refi nery described in this Annual Report were the result of the Board and Board Committee decisions based on management recommendations. Such recommendations were subjected to rigorous corporate governance processes at various levels within the organisation that ensured thorough assessment of fi nancial, economic, legal, country risks and other considerations. Board meetings are open and constructive with the Chairman actively encouraging debate and discussion among directors and management. The CEO and senior management provide updates and information to the Board at meetings involving business operations or projects. The Board also receives fi nancial reports on the performance of each business unit including signifi cant developments. With such an active involvement in the Company s business and fi nancial progress, the Board is better able to make informed decisions and exercise objective judgment in the best interests of the Company. The NRC continued to carry out its annual Board Performance evaluation comprising a peer evaluation segment and a self assessment module. The questions ranged from the handling of strategic business issues to the performance of each Board member. The delegations of corporate authority to the Board, Board Committees, management and offi cers were reviewed and updated in SPC has established two sets of delegation of authority for the day-to-day operations of the Company. These delegations are reviewed periodically and updated when required, to cater for changes in operations and organisational structure within the Group. The fi rst, an executive delegation of authority, sets out guidelines on matters requiring Board approval and authority limits for the Executive Committee (ExCo) and management. The second is an internal delegation of authority with differing authority limits for management and staff. Matters that are specifi cally reserved for the Board are those involving annual budgets, fund raising proposals, investment and divestment proposals, strategic business initiatives and signifi cant corporate actions of the Group. To assist the Board in its functions, the Board established and delegated specifi c responsibilities to four Board Committees namely; the ExCo, the NRC, the AC, and the RC. 42 Singapore Petroleum Company Limited Report to Shareholders 2008

42 Board Committees Executive Committee Nominating & Remuneration Committee Board of Directors Management Committee Audit Committee Risk Committee Enterprise Risk Management Committee The new Risk Group established in April 2008, reports to the RC and is headed by Vice-President and Chief Risk Offi cer (CRO), Mr Gan Tiong Aik, formerly the General Manager, Internal Audit. His key areas of responsibility encompass enterprise risk management, middle offi ce and EHSS. The Risk Group assists the RC in the review, evaluation and oversight of SPC s risk policies, profi le and mitigation strategies to manage both identifi ed and unanticipated risks. The RC meets on a quarterly basis and reports its work and recommendations to the Board at its formal meetings. The management team headed by the CEO and comprising senior management, ensures the decisions and guidelines of the Board and Board Committees are implemented in the Group. The Board and, where appropriate, the Board Committees were consulted on urgent matters, in accordance with the delegations of authority and terms of reference of the Board Committees. The respective roles and responsibilities of the ExCo, the NRC, the AC and the RC are presented below. In 2008, the Board met four times, principally for the review and release Executive Committee The ExCo comprises four Board members. They are Messrs Choo Chiau Beng (Chairman), Koh Ban Heng, Cheng Hong Kok and Goon Kok-Loon. The ExCo reviews and recommends to the Board: (1) Strategic business directions and plans of the SPC Group; (2) Substantial acquisitions and disposal of assets (including securities and business undertakings of the Group); (3) Signifi cant joint ventures and matters requiring corporate disclosure under the Listing Manual; (4) Signifi cant matters requiring Board recommendations affecting shareholders interests in the Company. In addition, the ExCo acts as an intermediate forum between the Board and management, facilitating timely review and endorsement of recommendations on the above business matters, subject to the delegations of authority and the fi nal decision of the Board. of the quarterly fi nancial results. The attendances at Board and Board Committee meetings are shown in Table 1. Board and ExCo resolutions by circulation were passed using electronic and ordinary mail. Informal meetings of the Board and Board Committees were convened when required. The Company s Articles of Association allow Board and Board Committee meetings to be conducted by telephone, video conferencing or other electronic means. The Board members kept in regular communication with the management. Directors have access to management and were able to discuss and clarify business and related issues. Further elaboration is provided under the section titled Access to Information. New directors when appointed, will as a practice, be briefed in an orientation programme on the Company s vision, mission, strategy and business. They will also be briefed on the Company s corporate processes. The head of each functional group provides such briefi ngs. Corporate data is also given to new directors to familiarise them with the Group s business. Sustainable Enterprise Corporate Governance 43

43 Sustainable Enterprise Corporate Governance Table 1: Attendance at 2008 Board and Board Committee Meetings Committee Director Board Executive Committee Nominating and Remuneration Committee Audit Committee Risk Committee Choo Chiau Beng 4 of 4 5 of 5 4 of 4 Koh Ban Heng 4 of 4 5 of 5 Bertie Cheng Shao Shiong 4 of 4 4 of 4 4 of 4 Geoffrey John King 4 of 4 4 of 4 4 of 4 3 of 3 Timothy Ong Teck Mong 4 of 4 2 of 4* Chin Wei-Li, Audrey Marie 4 of 4 2 of 4* 4 of 4 3 of 3 Goon Kok-Loon 4 of 4 5 of 5 4 of 4 Teo Soon Hoe 4 of 4 Cheng Hong Kok 4 of 4 5 of 5 3 of 3 * Dato Paduka Timothy Ong replaced Dr Audrey Chin in the NRC in May In line with the recommendation of the Code, the Company has practised the issuance of formal appointment letters to new directors setting out their duties and obligations. SPC has also compiled its own Corporate Governance Manual (SPC Manual) to assist directors and management in the exercise of their legal, fi duciary and statutory duties. This manual was issued to new directors and is updated to keep pace with the developments and amendments in the Code, best practices, the Singapore Companies Act, Singapore securities legislation, and the Listing Manual. It provides guidance on confl ict of interest issues and contains requisite forms and precedents for declarations of directors. When Dato Paduka Ong was appointed to the NRC in 2008, he was provided with an overview of the NRC s function, briefed by the CEO and heads of Human Resource and Legal, Secretariat and Insurance departments on the Code where it concerned remuneration and appointment of directors and issues within the oversight of the NRC. The SPC Manual is provided to the Board members as well as executives appointed to the various boards of the SPC Group of companies. This is to ensure that sound corporate governance principles and processes prevail throughout the Group. In addition, the Company conducts briefi ng sessions, to educate and update its executives on the boards of SPC s subsidiaries, associate and joint venture companies on their duties and obligations, as well as corporate governance principles. SPC recognises director training and professional development of directors as important. Nominee directors to SPC Group companies are also encouraged to attend external courses and continue education on salient subject matters, especially on corporate governance. In order to network and update themselves with the views of energy players and consultants, SPC s directors have attended company organised courses and conferences such as the Asia Pacifi c Petroleum and Energy Conference (APPEC), Australian Petroleum Production & Exploration Association (APPEA), Oil & Money, Asia Oil and Gas Conference (AOGC), Paul Sarbanes in Singapore Forum, Risk Governance for Board Directors, Price Waterhouse Coopers From Compliance to Performance The Art of Effective Business, the Singapore Energy Conference, and the International Oil and Gas Industry Exhibition and Conference (OSEA 2008). The CEO s regular briefi ng to the Board includes strategic business updates and updates on SPC operations. In addition to in-house strategy workshops, external consultants have been engaged to run workshops for the Board and management. Directors are updated on regulatory and compliance issues by attending courses like the Financial Reporting Standards training programme, Temasek learning sessions, Singapore Institute of Directors (SID) courses and legal workshops offered by law fi rms. Relevant material on developments and updates are regularly disseminated to directors. In the SPC strategic workshop held in June 2008, the Board and management interacted to re-evaluate and fi ne-tune the Company s strategic business plan. In this forum, reviews of the Group s business were made and participants who comprised the full Board and management, discussed strategic action plans, and their impact on the fi ve-year fi nancial performance of the Group. Insights to the oil and gas environment and industry trends were shared at the forum. The implications of various scenarios and the forecasts for the Group s funding needs were also discussed. The Board convened a separate strategy session without management to deliberate on the way forward in light of the materials presented on the fi rst day of the workshop. The Board then met with senior management to continue the brainstorming process. The results of 44 Singapore Petroleum Company Limited Report to Shareholders 2008

44 these discussions were then presented to all the participants of the workshop at a plenary session. Nominating and Remuneration Committee The role and functions of the NRC are described on page 47. Audit Committee The role and functions of the AC are described on page 53. Risk Committee The role and functions of the RC are described on page 57. Management Committee The Management Committee is headed by the CEO and comprises senior management. The committee meets weekly to review strategic, business and operational issues, and determines policies of the SPC Group. The committee implements and communicates the directions and guidelines of the Board and Board Committees to relevant committees, departments and employees. These meetings ensure the smooth functioning of the Group to meet specifi c business needs. Board Composition and Balance Principle 2 The Board comprises nine directors. The non-independent and nonexecutive directors are Messrs Choo Chiau Beng (Chairman), Teo Soon Hoe and Cheng Hong Kok. The majority of the Board comprises non-executive independent directors, and they are Messrs Bertie Cheng, Geoffrey King, Dato Paduka Timothy Ong, Goon Kok-Loon and Dr Audrey Chin. Mr Koh Ban Heng is the sole Executive Director of the Company. The nature of directors appointments on the Board and details of their membership on Board Committees in 2008 are set out in Table 2. The NRC annually determines the independence of Board members by having each of them complete a questionnaire crafted to test independence against standards established by the Code. The NRC has reviewed the independence of each director for 2008 and is satisfi ed that more than 50% of the Board consists of independent directors based on the Code s defi nition of independence and guidelines as to the existence of relationships which would deem a director to be not independent. This percentage is above the one-third recommended under the Code. The NRC also examines the size and composition of the Board. It believes that the present Board size and composition is appropriate in facilitating effective decision making. The NRC is of the view that the Board comprises directors capable of exercising objective judgment on the corporate affairs of the Company, independently of management. The NRC considers that the directors, as a group, possess core competencies of and more pertinently, the right balanced mix of background and competencies in fi nance, business, legal, human resource and managerial experience with industry knowledge, risk management and strategic planning experience. All directors have regional and international business exposure and dealings critical to the sustainability, growth and governance of SPC. The NRC further considers that the directors are able to provide the commitment, in terms of time, to discharge their duties effi ciently. This wealth of experience, affords the Board the ability to not only provide effective oversight and strategic direction but also the necessary checks and balances to facilitate effective governance. The NRC noted that the nonexecutive directors had constructively challenged and assisted in developing proposals on strategy and reviewed Table 2: Board and Board Committees Committee Director Board Executive Committee Nominating and Remuneration Committee Audit Committee Risk Committee Choo Chiau Beng Chairman Chairman Member Non-Independent & Non-Executive Koh Ban Heng Executive Director Member Bertie Cheng Shao Shiong Independent & Non-Executive Chairman Member Geoffrey John King Independent & Non-Executive Member Member Member Timothy Ong Teck Mong Independent & Non-Executive Member Chin Wei-Li, Audrey Marie Independent & Non-Executive Member Chairperson Goon Kok-Loon Independent & Non-Executive Member Chairman Teo Soon Hoe Non-Independent & Non-Executive Cheng Hong Kok Non-Independent & Non-Executive Member Member Sustainable Enterprise Corporate Governance 45

45 Sustainable Enterprise Corporate Governance the management s performance in achieving agreed goals and objectives. The non-executive directors have had the opportunity to meet informally before and after Board and Board Committee meetings with and without the presence of management and also communicated through electronic means and at company-organised events to develop and discuss strategy and to monitor the reporting of performance. They helped to monitor management performance in meeting strategic goals and objectives. The profi les and key information of the Board members are found in the Annual Report section titled Board of Directors on page 16 to 19. Chairman and Chief Executive Officer Principle 3 The roles and responsibilities of the Chairman and CEO in the Company are distinct and separate. The Chairman, Mr Choo Chiau Beng, is a non-independent and nonexecutive director, from the Keppel Group. He does not have any relationship with the CEO and SPC management that could interfere with his judgment and decision making. The Chairman leads the Board in ensuring its effectiveness on all aspects of its function. To this end, he ensures that the Board receives accurate, timely and clear information. He also facilitates constructive interface between Board and management, and encourages the effective contribution of the other directors in their sessions, with or without the presence of management. The Chairman has openly interacted with the shareholders of the Company at its general meetings. As Executive Director and CEO, Mr Koh Ban Heng plays a critical role in shaping business directions and decisions with the Board. As CEO, he leads the management team and directs the business of the Group in alignment with strategic decisions and goals approved by the Board. The Chairman and the Board together approve the schedule of Board meetings for the fi nancial year with additional meetings called as and when required. The Board agenda is prepared by the Company Secretary after consultation with the Chairman, the CEO and senior management. The CEO keeps in regular communication with the Chairman to update him of corporate issues and developments. Mr Koh Ban Heng retired from SPC, effective 6 February 2009 in accordance with his employment contract. The NRC reviewed the matter and recommended to the Board, the re-appointment of Mr Koh as Executive Director and CEO on a mutually renewable contract basis. The Board accepted the NRC recommendation and Mr Koh s re-appointment as Executive Director and CEO took effect from 1 March Board Membership Principle 4 The NRC has the responsibility and objective of ensuring that there is a formal and transparent process in the nomination, appointment and reappointment of directors to the Board. The NRC is also tasked to assess the effectiveness and contributions of the Board and its members, to the strategic growth and development of the Company. Consistent with the Code, the Chairman of the NRC is an independent director, not associated with any substantial shareholder. In addition, the Company s Articles of Association had, from the onset, provided that one-third of the directors are to retire from offi ce at its Annual General Meeting (AGM) every year. Messrs Choo Chiau Beng, Teo Soon Hoe and Cheng Hong Kok having served longest since their last election, will retire at the AGM fi xed for 22 April 2009 and offer themselves for re-election. They were selected by lot in accordance with Article 110 of the Articles of Association of the Company. Mr Koh Ban Heng who was re-appointed as Executive Director under Article 119 will also be standing for re-election at the AGM. Mr Bertie Cheng, who has reached 71 years of age, will also retire at the coming AGM and offer himself for reelection pursuant to Section 153(6) of the Companies Act. The NRC has reviewed directors with multiple directorships and is of the view that suffi cient time and attention had been given to the affairs of the Company through attendance at Board and Board Committee meetings and other meetings held on a less formal basis including electronic and telephone communications. The NRC has encouraged directors to make every effort to attend Board and Board Committee meetings and other meetings either physically, or through electronic media. Full attendance for all formal Board and Board Committee meetings was recorded in Throughout 2008, directors maintained dialogue with other Board members and management on matters within their purview, over and above their attendance at convened meetings. Pursuant to its 2008 annual review of the performance of the Board and its skill sets, the NRC is of the view that the current Board has the necessary mix of capabilities, expertise and work experience to serve the Company and its shareholders. The NRC is charged with the responsibility to evaluate the nomination of new candidates to the SPC Board. The NRC continues to hold the view that additional directors could be invited to join and further strengthen the Board, taking into consideration the growth of the Company s exploration and production business. Several candidates 46 Singapore Petroleum Company Limited Report to Shareholders 2008

46 Table 3: Date of Directors Last Re-election Name Age Position Date of Initial Appointment/ Re-appointment Date of Last Re-election Choo Chiau Beng* 61 Chairman 3 May April 2006 Koh Ban Heng^ 60 Executive Director 1 March 2009 Bertie Cheng Shao Shiong # 71 Director 18 July April 2008 Geoffrey John King 61 Director 1 August April 2008 Timothy Ong Teck Mong 55 Director 1 August April 2007 Chin Wei-Li, Audrey Marie 51 Director 1 August April 2008 Goon Kok-Loon 66 Director 30 July April 2007 Teo Soon Hoe* 59 Director 3 May April 2006 Cheng Hong Kok* 66 Director 3 May April 2006 * Mr Choo Chiau Beng, Mr Teo Soon Hoe and Mr Cheng Hong Kok will retire at the AGM fi xed for 22 April 2009 and offer themselves for re-election. They were selected by lot in accordance with Article 110 of the Articles of Association of the Company. ^ Mr Koh Ban Heng, who retired effective 6 February 2009, and re-appointed on 1 March 2009 will offer himself for re-election pursuant to Article 119 of the Articles of Association of the Company. # Mr Bertie Cheng Shao Shiong, who has reached 71 years of age, will retire at the AGM fi xed for 22 April 2009 and offer himself for re-election pursuant to Section 153(6) of the Companies Act. have been considered and the matter continues to be under review. In accordance with the terms of reference of the NRC, new candidates will be assessed based on criteria such as background, academic and professional qualifi cations, relevant experience, independence and track record. Board Performance Principle 5 At the close of fi nancial year 2008, the NRC reviewed the performance of the Board as a whole and the performance of each director through questionnaires tailored to the Company s business and requirements. Each director was asked to return written responses on the Board s performance for the year and of the performance of each of the other directors. The returns were made known only to the NRC Chairman, Mr Bertie Cheng and Board Chairman, Mr Choo Chiau Beng. As part of regular efforts to keep current with corporate governance developments, the NRC will continue to review and update the evaluation questionnaire. A report of the fi ndings of the 2008 Board performance review was presented to the NRC by its Chairman. Upon its endorsement, the report was presented to the Board for discussion and endorsement during the corporate governance segment of the Board meeting earlier described in this Report. The individual performance ranking of each director was advised separately to the Board Chairman. Nominating and Remuneration Committee The NRC has four Board members, the majority of whom are independent. They are Messrs Bertie Cheng Shao Shiong (Chairman), Choo Chiau Beng, Geoffrey John King and Dato Paduka Timothy Ong. Dato Paduka Ong replaced Dr Audrey Chin on 15 May The NRC s principal functions are as follows: (A) On evaluation, appointment, nomination and re-appointment of a director, the committee: (1) Reviews the background, academic and professional qualifi cations of nominees; (2) Ensures that all directors submit themselves for re-nomination and re-election at least once in every three years; (3) Determines the independence of the directors annually; (4) Evaluates the performance of each member of the Board and as a whole. (B) On the remuneration of directors and key employees of the Company, the committee: (1) Establishes a competitive remuneration framework to attract, retain and motivate directors and key employees; (2) Reviews the Company s relative performance and the performance of individual directors and key executives and considers their remuneration in totality with long-term incentive schemes such as share option and share-based schemes; (3) Assesses the performance of the Executive Director; (4) Administers and implements the share option and share-based schemes of the Company in accordance with the rules of such schemes and determines offers of options or awards of share grants to directors and key employees. The nominating and remuneration committees were merged in April 2004 to form the NRC. Sustainable Enterprise Corporate Governance 47

47 Sustainable Enterprise Corporate Governance The assessment parameters included overall contribution by each Board member, attendance and performance at Board and Board Committee meetings, knowledge of the industry and the Group s business activities. The peer evaluation addressed issues such as whether a director continued to contribute effectively, the dedication and commitment demonstrated as well as whether insightful issues were raised. The evaluation parameters for the 2008 Board performance review incorporated the guidelines and directions of the Code and the feedback received from the previous year s evaluation exercise. These factors are also taken into consideration for re-appointments. In its review, the NRC used a variety of fi nancial indicators to measure the Company s performance and took into account the business environment for the year These included return on assets (ROA), return on capital employed (ROCE), total shareholder s return (TSR), return on equity (ROE), return on investment (ROI), economic value added (EVA) and earnings per share (EPS). The 2008 Board performance review found that the directors have made strong contributions to the Board. Directors scored well on areas such as commitment, industry awareness, providing valuable inputs, knowledge and understanding of fi nance and accounts, risk management, meeting preparation and raising insightful issues. The NRC also took note of the continued in-depth and open discussions at Board and Board Committee meetings. In addition to the above, the NRC assessed the performance of the CEO, Mr Koh Ban Heng, for the fi nancial year 2008 according to the performance criteria approved by the NRC earlier in the year. The NRC feedback on Mr Koh s performance was considered against the backdrop of the business environment of 2008 before deciding on the variable component in his remuneration. The review process on Mr Koh was instrumental in the decision to re-appoint Mr Koh as CEO and Executive Director. More information on the remuneration of Mr Koh and other key executives is on page 51. Access to Information Principle 6 SPC s management updated the Board regularly on the Group s business and performance through fi nancial and other reports. Such updates and reports covered background and explanatory notes, and included disclosure statements, documents, budgets and forecasts. The Board was kept updated on strategic business developments concerning the SPC Group at its quarterly meetings by the CEO and senior management. The information provided contained important business developments, signifi cant investments/ divestments, and projects including reports on fi nancial performance and other performance indicators. Directors had affi rmed in the 2008 Board performance evaluation that timely, clear, concise and pertinent information concerning the Board agenda items had consistently been provided to directors. The reports were also intended to keep directors advised of key concerns and issues affecting the oil and gas industry including the challenges faced by and opportunities open to the SPC Group. Such information aided the Board in making informed, sound and appropriate decisions. Board and Board Committee papers were sent to directors approximately seven days prior to the meetings for their review. SPC s management was invited to attend and present the papers/updates at Board meetings and to discuss issues which the directors raised. Directors have access to management to discuss the Group s operations and business. In addition, the Board has separate and independent access to senior management including the Company Secretary, who attended all the scheduled Board meetings in the year The Company Secretary is also secretary to the ExCo and the NRC. The Company Secretary has the responsibility to ensure that Board procedures are followed and, that applicable rules and regulations established by the Board and Board Committees are complied with. The Board and Board Committees acknowledged in the 2008 Board performance review that there were good information fl ows within the Board, Board Committees and management. Directors were also invited from time to time to attend seminars pertaining to corporate governance and strategic business affairs. On company matters, consistent with the delegation of authority of the Board, directors have the discretion, whether as a group or individually, to obtain or require independent professional advice. The NRC has sought professional advice from independent legal, fi nancial and audit consultants on various issues. Remuneration Matters Procedures for Developing Remuneration Policies Principle 7 Level and Mix of Remuneration Principle 8 Disclosure on Remuneration Principle 9 SPC s Remuneration Policy The Company s focus on ongoing creation and enhancement of stakeholder value emphasises the importance of having a committed and motivated workforce. This is where SPC s remuneration policy continues to be of critical importance to drive the Company s workforce towards performance excellence. The policy is 48 Singapore Petroleum Company Limited Report to Shareholders 2008

48 anchored by its key principles to: attract, motivate and retain high potential and high performing individuals; align employees interest with those of the Company s stakeholders. The policy is supported by the Company s performance review and assessment programme. This programme provides a platform for the Company and its employees to set targets, develop and implement initiatives focused on performance and competency enhancements (see below). The Company applies the Balanced Scorecard (BSC) matrix to set goals and targets, as well as develop and implement action plans, to help realise its vision and strategies. This matrix would align the workforce to deliver from the perspectives shown in diagram 'Balanced Scorecard' on page 50. The process involves regular discussions between managers and their respective group leaders on the progress towards achieving their performance goals and targets, as well as identifying and reviewing enhancements and modifi cations of business and corporate processes, models, practices, and people capabilities required to keep pace with challenges in the marketplace. It concludes in a formal year end performance assessment for each employee across all levels. The performance ratings are built into the performance incentive matrix for consideration by the Company s senior management for remuneration purposes. Role of the NRC in SPC s Remuneration Policy The NRC leverages the Group s performance and assessment reviews to determine the performance reward for the CEO and senior management. The NRC, when required, engages external consultants to advise the latest trends and recommend best practices in executive remuneration philosophy SPC s management, in consultation with the NRC, reviews, plans and when appropriate, introduces new measures to the Company s remuneration practices to enhance its competitiveness in attracting, motivating and retaining talent, and aligning employees interests to that of the Company s stakeholders. The NRC also reviews appointments, promotions and succession plans of senior management, as well as SPC management s development plans for the Company s high potential individuals. This is to ensure that the Company has a readily available pool of talents for future leadership renewal, to sustain the success of the Group. Remuneration of Non-Executive Directors Non-executive directors do not have any service contracts with the Company. Their terms of appointment are governed by the Company s Articles of Association and the requirements of the Listing Manual. Non-executive directors are paid an annual basic retainer fee with additional fees for serving on Board Committees. They are participants in the Restricted Share Plan (RSP) of the Company. Non-executive directors are required to hold the awarded shares for three years or the duration of their term as Board members, whichever is shorter. A breakdown, showing each director s fee proposed for the year 2008 is in Table 4. The table also refl ects the fees paid to directors for the year The CEO and Executive Director, Mr Koh Ban Heng, is remunerated as a member of management and does not receive director s fees. There is no employee in the SPC Group who is an immediate family member of a director on the SPC Board, or CEO, and whose remuneration exceeded $150,000 during the year. Details of awards of share options and shares under the SPC Share Option Scheme 2000 (the Scheme) and the RSP and Performance Share Plan (PSP) (collectively, the Share Plans) to the CEO/ Executive Director and non-executive directors are described in the Directors Report to the Financial Statements. The Scheme was suspended in 2004 with the launch of the Share Plans. Remuneration of Key Executives The NRC applies a stringent performance focused remuneration philosophy to the remuneration of key executives. The remuneration package for each fi nancial year varies and is largely governed by the extent to which performance targets of the Group are achieved. In essence, it comprises primarily the fi xed and variable performance based components. The pay-for-performance principle is also applied across all levels of employees. Performance and Competency Enhancement Set performance targets at company, department and individual levels Identify performance success factors and areas for improvement Develop and implement initiatives focused on enhancing competencies The fi xed component is made up of the base salary and the annual wage supplement of one month salary. The variable performance based component is made up of an annual performance bonus and share grants. The awards of these variable incentives are based on the extent of the corporate and individual performance achievements relative to pre-determined goals. Sustainable Enterprise Corporate Governance 49

49 Sustainable Enterprise Corporate Governance Balanced Scorecard (BSC) Financial Imperatives Focused on increasing financial returns to shareholders Vision & Strategies People Capabilities Focused on building a competent, committed and motivated workforce Customer Service Values Focused on creating higher service values for customers Internal Processes Focused on enhancing process efficiencies and effectiveness Table 4: Directors/Board Committees Fees* Name 2008 # 2007 Choo Chiau Beng 58,000 58,000 Koh Ban Heng^ Bertie Cheng Shao Shiong 38,000 38,000 Geoffrey John King 37,500 32,000 Timothy Ong Teck Mong 23,750 20,000 Chin Wei-Li, Audrey Marie 39,750 38,000 Goon Kok-Loon 37,500 32,000 Teo Soon Hoe 20,000 20,000 Cheng Hong Kok 31,500 26,000 Total 286, ,000 * Excludes share options and awards under the Restricted Share Plan which are disclosed in the Directors Report. # The total fee (rounded to the nearest thousand) is subject to shareholders approval at the AGM for the fi nancial year ^ The Executive Director is compensated in his executive compensation package. Note: The proposed basic director s fee is $20,000 per annum same as in The level and mix of remuneration of key executives is disclosed in Table 5. SPC Annual Performance Bonus, RSP and PSP SPC s success in motivating employees and inculcating a mindset of engagement and ownership is to a large extent attributed to the shortterm, annual performance bonus and the long-term share ownership incentive schemes of RSP and PSP adopted by the Company. Each of these incentive schemes has an intended purpose to motivate employees to strive for performance excellence. A summary is provided in Table 6. In line with the ownership philosophy, the CEO and key executives are required to hold a certain percentage, ranging from 30% to 50% of the total PSP and RSP awards vested during their tenure with the Company, based on seniority. The number of new shares to be issued under the Share Plans and the Scheme is subject to the existing maximum limit of 15% of the Company s total issued share capital, as approved by shareholders. 50 Singapore Petroleum Company Limited Report to Shareholders 2008

50 Table 5: Remuneration Band & Name of Key Executives Remuneration Band & Name of Key Executive Base/Fixed Salary (%) Variable or Performance Related Income/ Bonuses (%) Restricted/ Performance Share Plan* (%) $3,000,000 to $3,250,000 Koh Ban Heng $1,000,000 to $1,249,999 Lee Chiang Huat Woo Siew Cheng Helen Chong nee Chia Foong Lan $750,000 to $999,999 Foo Jang See $500,000 to $749,000 Gan Tiong Aik $250,000 to $499,999 Tay Lee Kiang, Vincent In 2008, no share options were issued and vested pursuant to the Scheme. * 2005 RSP awards 1st tranche released in 2006, 2nd tranche vested in 2007 and 3rd tranche vested in Share valued at $5.75 on contingent award date RSP awards 1st tranche released in 2007, 2nd tranche vested in 2008 and 3rd tranche vests in Share valued at $5.00 on contingent award date RSP awards 1st tranche released and vested in 2008, 2nd tranche vests 2009 and 3rd tranche vests in Share valued at $5.75 on contingent award date RSP awards 1st tranche vests in 2009, 2nd tranche vests in 2010 and 3rd tranche vests in Share valued at $7.28 on contingent award date PSP awards Vesting of the performance shares subject to achievement of pre-determined performance targets for the three-year cycle ( ). Vested in Share valued at $4.98 on contingent award date PSP awards Vesting of the performance shares subject to achievement of pre-determined performance targets for the three-year cycle ( ). Share vests in Share valued at $5.00 on contingent award date PSP awards Vesting of the performance shares subject to achievement of pre-determined performance targets for the three-year cycle ( ). Share vests in Share valued at $5.75 on contingent award date PSP awards Vesting of the performance shares subject to achievement of pre-determined performance targets for the three-year cycle ( ). Share vests in Share valued at $7.28 on contingent award date. The Share Plans were approved by shareholders on 27 April 2004 and will be in force for a period of up to 10 years unless extended for further periods with the approval of shareholders at a general meeting and subject to any other relevant approvals that may be required. In 2008, 1,229,100 shares were vested in tranches to employees pursuant to the Company s RSP awards in consideration of performance for 2005 to There were also 239,800 shares vested pursuant to the Company s PSP awards in consideration for the performance period of 2005 to The number of shares vested pursuant to the RSP and PSP included the vesting of 140,000 shares to a former senior executive following his retirement from SPC in September The Company applied treasury shares from its 2008 share buyback exercise to satisfy the RSP and PSP share awards vested in Details of the share awards vested are disclosed in Table 7. In 2008, the Company acquired 2,100,000 SPC shares from the market under its share buyback mandate for purposes of Share Plan awards in A total of 87,100 share awards lapsed in 2008 due to attrition. Details of awards under the Share Plans for the fi nancial year ended 31 December 2008 are described in Note 30(c) of the Notes to the Financial Statements. Share Options Scheme The grants of share options under the Scheme to employees were based on the individual s BSC and competency ratings. The Scheme was approved by shareholders of the Company on 16 May 2000 and will be in force for a period up to 10 years unless extended for further periods with the approval of shareholders at a general meeting and subject to any other relevant approvals that may be required. An option granted under the Scheme may, except in certain special circumstances, be exercised at any time after a vesting period of two years but no later than the expiry date. Options granted under the Scheme were made to all eligible employees of the SPC Group. No share options were granted to employees in 2008, as grants were suspended in 2004, in favour of RSP and PSP Share awards. At the end of 2008, there were 294,000 options outstanding, details of which are shown in Note 30(b) of the Financial Statements. None of the employees and non-executive directors received 5% or more of the total number of share options available under the Scheme. Sustainable Enterprise Corporate Governance 51

51 Sustainable Enterprise Corporate Governance Table 6: Summary of SPC Annual Performance Bonus, RSP and PSP Annual Performance Bonus Restricted Share Plan (RSP) Performance Share Plan (PSP) Purpose To motivate employees to deliver high levels of performance on Company and individual performance goals. To encourage a culture of ownership and engagement among employees. To motivate and drive the CEO and key executives to grow and strengthen the Company s fi nancial performance over a long-term period. About the incentive scheme About the corporate performance targets About the individual performance targets Determination of final award to individuals Award is based on: (i) corporate performance relative to corporate targets approved by the NRC; and (ii) individual performance relative to individual performance targets. Based on the BSC matrix of fi nancial and non-fi nancial targets. Corporate and individual performance achievements relative to performance targets set. Eligible participants are awarded contingent restricted shares. Release of awards is based on: (i) corporate performance relative to corporate targets approved by the NRC; and (ii) individual performance relative to individual performance targets. (i) PATMI (ii) ROCE Overall achievement of performance goals and competencies. Corporate and individual performance achievements relative to performance targets set. Eligible participants are awarded contingent performance shares. Contingent performance shares are linked to pre-determined corporate targets, covering a three-year performance period, approved by the NRC. Release of awards is based on corporate performance relative to the targets set for the relevant performance period. Average over three-year performance period of: (i) EVA spread (ii) EPS (iii) Absolute TSR as a multiple of Cost of Equity Corporate performance achievements relative to performance targets set. Managed and moderated by the CEO and senior management. Managed and moderated by the CEO and senior management. Release of award Annual cash payment. Award is vested over a three-year period. Release of awards is based on a computation formula, to be reviewed and approved by the NRC. Award is vested in the year following the end of the performance period. Table 7: RSP and PSP awards for employees vested in the year ended 31 December 2008 Type of RSP/PSP awards for employees For performance in year No. of shares vested in 2008* No. of shares to be vested To vest in 2005 RSP , RSP # , , RSP # , , & ,229,100 1,164,300 PSP # ,800 * Approximate representation of the Company s issued share capital as at 31 December 2008 (based on 514,200,257 shares after deducting 2,163,100 treasury shares, i.e. 516,363,357 2,163,100 = 514,200,257) 2005 RSP = % 2006 RSP = % 2007 RSP = % PSP = % # This includes the vesting in September 2008 following the retirement of a former senior executive. 52 Singapore Petroleum Company Limited Report to Shareholders 2008

52 SPC Online Share Option and Share Plan System The Company continues to leverage its SPC Online Share Option and Share Plan System in administering its share awards. The Company s ongoing efforts to improve on the system s capabilities, together with the system s external developers, have signifi cantly enhanced participants access and execution as well as tracking and reporting of Share Plans data. Accountability and Audit Accountability Principle 10 The Board is committed to present a balanced and understandable assessment of the Company s performance, position and prospects in order to inform and engage its stakeholders. The Board s review of the Company s quarterly, half-yearly and full year fi nancial results and its presentation is an integral part of its Board meetings and undergoes full review and discussion before fi nal approval and release. The Company issues timely and balanced fi nancial information and announcements of important transactions to its shareholders via SGX-ST s SGXNet to facilitate transparency and the building of trust and confi dence in the Company. The Company continued to report quarterly fi nancial results in the year These results are available on the Company s corporate website. Information on new initiatives of the SPC Group is disseminated via SGXNet and news releases. Audit Committee Principle 11 The AC assists the Board through Audit Committee The AC comprises four independent directors, Mr Goon Kok-Loon (Chairman), Dr Chin Wei-Li, Audrey Marie, Messrs Bertie Cheng Shao Shiong and Geoffrey John King. Mr Goon Kok-Loon, an existing Audit Committee member was appointed Chairman on 30 January 2008 in place of Dr Chin who assumed the Chair of the Risk Committee. Dr Chin remains a member of the committee. The AC s principal functions are summarised as follows: (1) Reviews and ensures compliance with the requirements of the Listing Manual pertaining to the AC s functions; (2) Follows the guidelines set out in the Code when performing its duties and responsibilities, wherever possible; (3) Reviews Interested Person Transactions; (4) Reviews reports received pursuant to the provisions of the SPC Whistleblower Policy, and undertakes the proceedings as prescribed; (5) Reviews with the internal and external auditors their respective audit plans, scope, reports, fi ndings and actions taken by management; (6) Serves as an independent party to review the fi nancial statements presented by management to shareholders, regulators and the general public; (7) Reviews the independence of the external auditors annually and recommends the appointment and remuneration of the external auditors; (8) Maintains, by holding regular meetings, open lines of communication with the Board, the internal and external auditors to exchange views and information as well as to affi rm their respective roles and responsibilities; (9) Investigates any matter within its terms of reference, with full access to and cooperation by management and full discretion to invite any director or executive offi cer to attend its meetings, and reasonable resources to enable it to discharge its functions properly. reviewing and recommending the release of the quarterly SPC fi nancial statements. It is vested with the authority to investigate matters with or without management s knowledge including matters of impropriety in fi nancial reporting or other company related issues. The AC reviews and ensures compliance with the requirements of the Listing Manual which pertains to the AC s functions and follows the guidelines set out in the Code when performing its duties and responsibilities. The AC meets four times annually and holds additional meetings when required, in order to assist the Board to fulfi ll its fi duciary and statutory responsibilities relating to fi nancial management and corporate accountability to the shareholders of SPC. The AC communicates through electronic methods in addition to their meetings. The Board has found the AC to possess the appropriate skills and qualifi cations to discharge its responsibilities. The members of the AC have fi nancial, accounting, business and legal backgrounds to fulfi ll their function and responsibilities. The AC met four times in The Company had in 2005, established a Whistleblower Policy for the SPC Group which provides whistleblowers with clearly defi ned channels and processes to report suspected reportable conduct including a direct channel to the Manager, Internal Audit and/or the AC Chairman. This policy is intended to facilitate the reporting in good faith by employees and relevant external parties of suspected reportable conduct while maintaining confi dentiality of the information and the identities of the persons involved in resultant reviews. It also aims to protect, to the extent reasonably practicable, the whistleblower and persons involved in reviews initiated under this policy, against reprisals. This policy forms part of the SPC Code of Conduct. Sustainable Enterprise Corporate Governance 53

53 Sustainable Enterprise Corporate Governance The AC maintains open lines of communication among the Board members, management, the Company s internal and external auditors, to exchange views and information as well as to affi rm their respective roles and responsibilities. The AC is supported in its functions by the internal and external auditors. During the year, the AC reviewed the SPC Group s Interested Person Transactions (IPT) and quarterly, halfyearly and full year fi nancial statements. Pursuant to the requirements of the Code, the AC reviewed the non-audit services provided by the external auditors, Messrs Deloitte & Touche during 2008, and had received confi rmation of their independence. The AC was satisfi ed with the independence and the objectivity of the external auditors and had recommended to the Board their re-appointment as external auditors for the year 2009, at a fee to be determined at a later date. The AC reviewed the external auditor s 2008 statutory audit plan, scope, fi ndings and management s responses to the fi ndings. It also reviewed the internal audit plans and the quarterly internal audit summary reports and ensured the adequacy of the internal audit function. At year end, the AC met with the external and internal auditors without the presence of management, to discuss amongst other issues, the SPC Group s internal controls. These include the Company s system of fi nancial, operational and compliance controls established by the management. The external and internal auditors reported that the Group s overall system of internal controls and procedures were functioning effectively. Save as disclosed in the Notes to the Financial Statements on IPT, there were no material contracts involving the interests of the CEO, each director or the controlling shareholders and their subsidiaries. Management reported that the methods and procedures for determining IPT had not changed since the date of the last AGM, at which time the shareholders mandate for IPT was last renewed. Management accordingly recommended that the Company not appoint an independent fi nancial advisor to review the IPT methods and procedures. Pursuant to the provisions under SGX-ST Listing Rule 920(1). The AC concurred with management s recommendations. Internal Controls Principle 12 The Company believes that the SPC Group s framework of internal fi nancial controls, operational compliance controls and enterprise risk management policies are reasonable and well placed within a steadfast control environment to meet the needs of its operational requirements. The SPC Group has a clearly delineated operating structure based upon its delegations of authority and reporting structures, codes of conduct and other documented procedures in place that cover management accounting, fi nancial reporting, information technology systems security and project appraisal. Enterprise risk management now falls under the purview of the RC assisted by the Risk Group. The details regarding the functions and activity of this committee can be found on page 57. The control systems in place are intended to provide reasonable assurance with regard to the safeguarding of assets, maintenance of proper accounting records, reliability of fi nancial information, compliance with applicable legislation, regulations and sound management of business risks. The Company s internal and external auditors conducted their 2008 review in accordance with their respective audit plans on the effectiveness of the Company s system of internal controls including fi nancial, operational and compliance controls. Audit fi ndings, recommendations and actions taken by management on the recommendations were reported to the AC. Based on the reviews performed by the internal and external auditors during the fi nancial year, the AC is of the opinion that there are adequate internal controls in the SPC Group. Internal Audit Principle 13 The Company has an Internal Audit Department (IAD) headed by the Manager, Internal Audit, Mr Tan Ho Kheong who took over leadership of the department in April 2008 from Mr Gan Tiong Aik, who was promoted to Vice-President of the Risk Group. The Manager, Internal Audit, reports directly to the Chairman of the AC on audit matters and to the CEO on administrative matters. During the year, the IAD conducted its audit reviews based on the approved internal audit plans. Upon completion of each audit assignment, the IAD reported its fi ndings and recommendations to management who would respond on the actions to be taken. The IAD submitted quarterly internal audit summary reports to the AC on the status of the audit plan and on audit fi ndings and actions taken by management on the fi ndings. The IAD reported that the Group s overall system of internal controls and procedures functioned effectively during the year under review. The IAD is a member of the Singapore branch of the Institute of Internal Auditors Inc (IIA), which has its headquarters in the United States. The IAD is guided by the Standards for Professional Practice of Internal Auditing developed by the IIA. The AC annually reviews the adequacy of the internal audit function and is of the view that it is adequately resourced. The AC is also of the view that the 54 Singapore Petroleum Company Limited Report to Shareholders 2008

54 internal audit function is of appropriate standing within the Company and continues to maintain its independence during the year under review. Communication with Shareholders Regular, Effective and Fair Communication with Shareholders Principle 14 The SPC Group is committed to providing regular, effective and fair communication with its shareholders and the investing public. To this end, the SPC investor relations and communications unit actively plans, manages and handles communications with all stakeholders. Disclosure of information by the SPC Group is made through communication channels such as corporate announcements via the SGX-ST s SGXNet broadcast network, the publication of Annual Reports and circulars to shareholders as well as the holding of shareholders meetings including the AGM. In addition, SPC publishes the Group s corporate announcements and publications on its corporate website to ensure that the latest corporate information is available to all interested persons. All fi nancial results, corporate announcements and shareholder reports are issued promptly and within the prescribed periods. In addition to the issue of the Notice of AGM together with the Annual Report, the Notice is also advertised in a major local newspaper and posted on the Company s website. In the spirit of corporate transparency, SPC voluntarily issues SGXNet announcements of signifi cant transactions, notwithstanding that some of these transactions may not require disclosure. These voluntary efforts are in line with the Company s commitment to engage in open and fair communication with its stakeholders. Apart from open and fair communication, SPC provides investors, both institutional and retail, with clear, balanced and useful information to aid them in their investment decisions. Specifi c to corporate development updates and direction, the Company furnishes project details, essential background information including future activities and plans. SPC s fi nancial statements are accompanied by analyses of business performances, discussions of prevailing operating conditions as well as performance outlook. SPC has a proactive investor relations programme to foster rapport with analysts, fund managers and the investing community. The CEO, Chief Financial Offi cer (CFO) and the investor relations team conduct regular meetings and conference calls with analysts and investors, local and overseas, and participate in conferences organised by brokerage fi rms. In 2008, SPC received the Most Progress in Investor Relations award at the IR Magazine South East Asia Awards Actively engaging its retail investors as well, 2008 saw SPC partnering with SIAS in its Shareholder Communication Services Programme. This programme is aimed at equipping retail investors with essential investment insights and skills to better manage their investment portfolio, through corporate updates and information dissemination forums including the SIAS Corporate Profi le Seminar. The SIAS programme successfully enabled SPC to elevate its corporate profi le among retail investors during the year. To engage international investors globally, SPC convenes quarterly analyst earnings conference calls, which is made available through webcasts on the Company s corporate website. Since its implementation in January 2007, the share registry analysis has been benefi cial in providing insight to the shareholding spread, shareholders investing styles and the basis of their support for SPC shares. The analysis may also highlight the investment portfolio, holding strength, value growth priorities and other investment concerns of the existing shareholders. With an appreciation of its shareholders, the Company is thus in a better position to meaningfully engage them in various forums. Apart from the issuance of corporate updates and meetings held as part of its proactive communications platform with shareholders, SPC s investor relations team is contactable by electronic mail or telephone to provide clarifi cations on corporate information in the public domain with due consideration to SGX-ST s rules on fair disclosure and ensuring a level playing fi eld for investors. In 2008, SPC refreshed its corporate website and improved its dedicated Investor Centre section to cater to the information needs of the investing public. Designed to ensure that investors and the interested public have good and regular access to information, the Investor Centre serves as a one-stop web-based communication centre, complete with earnings and presentation webcasts, corporate announcements, annual reports, fi nancial calendar, corporate directory and corporate governance guidelines. SPC s share price information is also provided on its website, with share price information and related security information displayed via a live data-feed from SGX-ST. Sustainable Enterprise Corporate Governance 55

55 Sustainable Enterprise Corporate Governance Greater Shareholder Participation Principle 15 The Company is guided by the provisions of the Code with regard to communication with shareholders. Shareholders are given timely notice of the Company s AGM and accordingly, the opportunity to attend or be represented at the Meeting. The Company s Articles of Association allows a member of the Company to vote in absentia by appointing a proxy to attend and vote on his behalf while the Singapore Companies Act provides a corporate shareholder with the option to appoint a corporate representative to attend and vote on its behalf. Each year, the Chairman presides over the AGM and is accompanied by fellow Board members, the CEO, the CFO, the Company Secretary, and other key executives. The external auditors, Messrs Deloitte & Touche are also present to address queries from the shareholders. The Chairpersons of the AC and the NRC have consistently been present at the AGMs. At the Meeting, the Chairman discusses the progress and performance of the SPC Group and encourages meaningful and effective shareholder participation. Directors and management also endeavour to address all issues raised in a transparent and open manner. The Company adopts separate resolutions on each distinct issue presented to shareholders and voting is taken systematically with proper recording of the votes cast and the resolutions adopted. The Company s practice is consistent with the Code s recommendation that companies avoid bundling resolutions unless the resolutions are interdependent and linked so as to form one signifi cant proposal. Minutes of general meetings of the Company are available to shareholders upon their requests as provided under the Companies Act. Over the past years, SPC has witnessed an increase in attendance at its AGMs. In 2008, a total of 299 voting shareholders and proxies attended the meeting. The Company has not implemented the suggestion in the Code that the Company allows absentia voting methods and proxies for shareholders who use nominee companies. The Company has to be confi dent that the integrity of any system catering for their use is assured, before actual implementation. Other Corporate Governance Matters Dealing in Securities In keeping with high standards of corporate governance, the Group has adopted the SGX-ST s best practices guide with regard to dealings in the securities of the Company. Directors and employees are advised not to deal in SPC s securities during the period commencing two weeks before the SPC Group s quarterly and half-yearly results and one month before the announcement of the SPC Group s full year results and ending on the date of the announcement. Furthermore, when the Company is involved in major corporate activities such as investment or divestment that could be pricesensitive in relation to the Company s securities, offi cers involved are advised not to deal in the Company s securities. Code of Conduct and Practices SPC recognises the importance of fairness, integrity and professionalism in the conduct of its business activities. It has entrenched these values in the SPC Code of Conduct. Employees are expected to embrace and practise these values in their everyday conduct especially with customers, suppliers and the public. Employees are to act in the best interest of the Group and avoid situations that may present a potential confl ict of their interests. The policy also addresses the issues of dealings in securities, insider trading and compliance with the relevant legislations. Directors and employees are regularly reminded to observe best conduct practices, particularly in securities trading. As part of the Company s ongoing efforts to foster good corporate governance, regular in-house corporate governance related forums were held in 2008, led by company offi cers, external advisers or consultants. There were structured learning sessions on the Company s corporate governance practices, policies, internal structures and processes. Specialists were also invited to share legal, regulatory and other market related developments to help keep the focus on corporate governance developments and compliance. SPC s internal corporate governance principles and framework were cascaded to SPC nominated directors in its subsidiaries and associate companies via specifi c sessions for such purposes. All directors and employees were also encouraged to attend external courses on the subject. Corporate Social Responsibility Towards building a sustainable enterprise, SPC is committed to integrating CSR with its business operations. In 2008, a cross-functional CSR committee was set up to spearhead the management framework for promoting CSR. With quarterly updates to the Board, the committee is tasked to establish a structured CSR programme for the Group. The SPC Group appointed an external consultant to conduct a comprehensive benchmarking and gap analysis study of SPC s current CSR programme. The study which involved an assessment of the Group s CSR initiatives was completed in December SPC plans to grow a structured CSR programme in the years ahead. The completion of this programme will facilitate the formalisation of the Group s CSR strategy development. 56 Singapore Petroleum Company Limited Report to Shareholders 2008

56 Sustainable Enterprise Enterprise Risk Management Towards building a sustainable enterprise, the SPC Group has over the years established a robust corporate governance and risk management framework. The Group is positioned to overcome the diffi culties ahead. In 2008, SPC strengthened its enterprise risk management (ERM) framework to ensure a more robust approach to managing the Group s business risks. Risk Committee SPC s Enterprise Risk Management Committee (ERMC) was established in 2002 and its principal functions were to identify and measure the enterprisewide risk profi le of the SPC Group; monitor the administration of risk mitigation efforts and costs; and report the residual risks to the Executive Committee (ExCo). The ERMC also recommended and/or advised the ExCo on the appropriate risk parameters which the SPC Group should operate within as well as monitored the implementation of the Board and ExCo decisions on the mitigation efforts and risk parameters. Since its formation, the ERMC has established a comprehensive ERM framework and identifi ed signifi cant enterprise risks which are regularly measured, mitigated, monitored and reported to the ExCo. In January 2008, the Board established a Risk Committee (RC) comprising members of the Board to enhance the ERM framework and processes as well as provide oversight of SPC s risk policies, profi le, mitigation strategies and treatment. In April 2008, SPC established a separate Risk Group headed by the CRO. The CRO assists the RC in the review, evaluation and oversight of SPC s risk policies, profi le and mitigation strategies to manage both identifi ed and unanticipated risks. The Risk Group is tasked with the development of an integrated risk management framework to ensure that organisational best practices in risk controls and mitigation initiatives are implemented. The RC endorsed the review of the Operational Risk Management (ORM) by the Risk Group across SPC s business, operational and fi nancial activities. The ORM review will generate a register identifying the risks, mitigation plans, monitoring and reporting of risk management performance. High impact risks will be escalated to the RC. Risk Committee The RC comprises Dr Audrey Chin (Chairperson), Mr Geoffrey John King and Mr Cheng Hong Kok. The responsibilities of the RC include the following: Review and guide the SPC Group in formulating its enterprise risk policies; Review the SPC Group s risk profi le and mitigation strategies including risk limits; Review the effectiveness of the SPC Group s risk management system to ensure that a robust risk management system is maintained for both identifi ed and unanticipated risks; Review and guide the SPC Group in establishing processes to effectively identify, evaluate and manage signifi cant enterprise risks; Review reports and recommendations of the ERMC and the Chief Risk Offi cer (CRO); Provide a forum for discussion on key risk issues; Report to the Board on the work of the RC during the year; Obtain the advice or assistance of experts, advisers or consultants qualifi ed in ERM and related fi elds; Delegate any of its powers within its terms of reference as listed above from time to time as the RC may deem fi t; Perform such other functions as the Board may determine. Sustainable Enterprise Enterprise Risk Management 57

57 Sustainable Enterprise Enterprise Risk Management Enterprise Risk Management Committee With the formation of the Risk Group, the CRO was appointed Chairman of the ERMC. Members of the ERMC include the CEO and the group heads of the various business and service units. The updated terms of reference of the ERMC were approved in April The ERMC meets at least once a quarter to review risk issues. The objectives of the ERMC include: Formulate SPC s risk policies for endorsement by the RC; Report SPC s risk profi le, exposure and mitigating strategies to the RC; Analyse SPC s risk categories, occurrences and mitigating actions; Cascade the risk management process and actions to all departments; Recommend best methods of risk management; Prepare regular reports for the SPC management and the RC; Recommend internal sanctions for non-compliance with risk mitigation steps; Obtain the services of ERM experts, advisers or consultants, where required. Four ERMC meetings were held in Pertinent issues relating to the SPC Group s enterprise risks were discussed. These included the fi nancial crisis, oil price volatility, hedging activities as well as the increased exploration and production activities. The risk profi les and mitigation actions were reviewed and revised accordingly. Top risks were identifi ed in terms of probability of occurrence and fi nancial impact, both before and after mitigation efforts. Environment, Health, Safety and Security Committee The Environment, Health, Safety and Security (EHSS) Committee provides quarterly reports to the ERMC. The goals of the EHSS Committee are: Promote EHSS awareness at the workplace; Investigate potential hazards and dangerous occurrences at the workplace; Participate in examining the cause of workplace incidents; Report any unsafe act, unhealthy condition or practice at the workplace; Raise any EHSS concerns at the workplace during the committee meetings; Communicate with employees on EHSS matters; Participate in EHSS related training; Share relevant EHSS information within SPC. The EHSS Committee conducts its quarterly meetings with representatives from all business and service units. At these meetings, the members review and share EHSS issues including EHSS awareness and exercises. (For a full EHSS write-up, please see page 60) Market Risk Steering Committee Since 2001, the SPC Group had in place a Mark to Market Committee (MTMC) which monitors the risks pertaining to crude oil and petroleum product inventory exposures and hedging activities covering both downstream and upstream. In 2007, the ERMC formed the Market Risk Steering Committee (MRSC) which provided oversight of the MTMC to ensure the activities are in compliance with SPC s risk appetite, policies and procedures. The activities of the MRSC are reported regularly to the ERMC and to the AC. The objectives of the MRSC are: Review SPC s market price risk exposure of sales, purchases, trading and inventory activities. This includes reviews of mark to market reports, market outlook, price volatility, volumetric exposure, and portfolio stress testing and remedial actions; Oversee the implementation of controls and the reporting of risk exposure activities. This includes the appraisal of policies, procedures and processes, evaluation of methodologies and valuation models, and the implementation of actions; Ascertain compliance to established policies, procedures and processes; Promote an open dialogue culture for the identifi cation of risk exposure activities; Review any other matters that will impact the market valuation of SPC s business. Business Risks The SPC Group faces various business risks which may impact its operations and earnings. Some major risks are briefl y described here. 1. Competition Risks SPC faces signifi cant competition in its diverse business operations. These risks include competition for access to purchase crude oil supply for its refi nery, chartering of shipping tankers for the transportation of crude oil and petroleum products, competition for markets for the sale of its crude oil, natural gas and petroleum products as well as competition for access to oil and gas reserves. 2. Crude Supply Disruption Risk SPC s refi ning operations are dependent on the supply of crude oil. Any supply disruption may have an impact on SPC. 58 Singapore Petroleum Company Limited Report to Shareholders 2008

58 3. Drilling and Development Risks The ability to explore and discover commercial oil and gas reserves as well as to develop the reserves into production is vital to SPC s upstream growth and sustainability. 4. EHSS and Liability Risks SPC engages in the extracting, refi ning, transporting, handling and marketing of oil and gas. It is therefore exposed to a spectrum of EHSS risks in its daily operations. These include procedural noncompliances, pollution, incidents, natural disasters and pandemic diseases. Depending on the cause and severity of the incidents, the occurrence of any such event may have an impact on SPC. 5. Financial Risks Financial risks faced by SPC in its business include credit risks, counterparty risks, foreign exchange risks and interest rates risks. 9. Political Instability and Regulatory Risks SPC s operations such as the E&P activities may be affected by political instability and changes in regulatory and tax regimes in the countries where SPC operates. 10. Reserve Estimation Risks The estimation of potential oil and gas resources and reserves involves qualitative professional judgment based on the available geological, reservoir, technical and economic information. Such estimates may vary as more geological and reservoir information becomes available, when economic condition changes or when new technology for improved recovery becomes commercially viable. The actual performance of the reservoir may also deviate from the model used for reserves estimation. 6. Oil Price and Refining Margin Risks SPC s earnings are subject to risks from changes in the prices of crude oil, natural gas and petroleum products, as well as refi ning margins risks. 7. Operational Resource Risk The availability of skilled employees, new technologies and information technology infrastructure is essential to the successful implementation of SPC s corporate strategies. 8. Partners Risk Some of SPC s business and projects are conducted with external joint venture partners. The competencies and actions of these partners may impact SPC s performance. Sustainable Enterprise Enterprise Risk Management 59

59 Sustainable Enterprise Environment, Health, Safety and Security With a fi rm conviction that personal and process safety excellence are vital for continued business success and sustainability, SPC adopts the best industry practices and cultivates EHSS awareness continuously. SPC continuously reviews and improves its Environment, Health, Safety and Security (EHSS) system to manage risks inherent in its operations and processes. SPC incorporates industry best practices and standards in its day-today operations as well as cultivates EHSS awareness and proactiveness among its employees and contractors. Environment In 2008, the Company implemented the SPC Green Initiative to strengthen its environmental conservation and protection efforts with the following objectives: Embrace technology to improve environmental friendliness; Integrate green initiatives with business processes and policies; Create a green mindset among employees; Participate in community environment conservation projects. As part of the Green Initiative, SPC organised talks and seminars conducted by external consultants, implemented waste recycling programmes, and distributed educational circulars. Following a series of activities, key environmental performance indicators were identifi ed, measured and monitored for continuous improvement. Health and Safety In 2008, there were no loss time injury, oil spill and facility incidents. This attests to SPC s commitment towards EHSS. Regular EHSS reviews of the Group s operations were carried out to ensure compliance to EHSS policies and procedures. Crisis Management SPC reviewed, improved and tested its emergency response and crisis management plan in In addition, the crisis management plan was validated by a crisis management consultant. Two major exercises were carried out in April and November. The fi rst exercise was based on a scenario of a LPG explosion at one of SPC s terminals while the second was based on a marine oil pollution scenario. Frequent drill practices of emergency responses is fundamental to crisis management preparedness. Such exercises offer the opportunity to test the responsiveness of the Company and soundness of procedures including activation processes, notifi cation protocols, public and media communication, as well as next of kin and incident management. These exercises serve to strengthen the cooperation of all personnel required to react swiftly in a real incident. Active participation and collaboration with regulatory authorities is one way to promote industry environment, health, safety and security. It is with this in mind that SPC conducted a joint exercise with the Singapore Civil Defence Force at its Jurong Bulk Plant in June SPC will continue to give its unwavering support to EHSS programmes by proactively managing all EHSS issues and concerns while keeping up to date with changing industry regulations. 60 Singapore Petroleum Company Limited Report to Shareholders 2008

60 Singapore Refining Company SPC s 50% jointly-owned refinery, the Singapore Refining Company (SRC) upholds an EHSS policy based on internationally recognised best practices. It was the first refinery in Singapore to be accredited with an integrated Quality ISO 9001 and Environmental management system ISO14001 in SRC pursues EHSS excellence by adopting best practices and leveraging proven technologies in its operations, and reviewing them regularly. In 2008, SRC maintained its solid track record with no major incidents and zero noncompliance incidents. Environment SRC complies with local regulations pertaining to pollution, emission, effl uent and waste disposal standards. SRC consistently monitors its direct and indirect emissions, and proactively addresses the environmental impact of its existing and planned projects. The refi nery adopts best-in-class practices for project development and execution, and for turnaround planning and management. Both processes include environment impact assessments and mitigation plans prior to implementation. To reduce particulates and smoke emissions, SRC is presently conducting burner modifi cations to some of its steam generation facilities. At the refi nery, solid waste is disposed through contracted third-party specialists. In addition, SRC has a wastewater treatment facility that ensures full compliance with regulations before wastewater disposal. SRC has also since 2007, switched to using reclaimed water, or NEWater for most of its refi nery s operational needs. Energy Efficiency Conserving energy is a high priority in SRC. SRC s energy performance is measured by the Solomon Benchmark Energy Intensity Index (EII), which refers to the percentage of actual energy consumed over the energy required to operate the entire refi nery; the lower the EII, the better the energy performance. SRC lowered its EII in 2008 by 1.1% from the previous year as a result of electricity optimisation and cultivating an eco-friendly culture in the workplace. In addition, SRC carried out in-house initiatives such as work-fuel conservation, chemical injection to decrease fouling and coking, fl are loss reduction and heater effi ciency improvements. To reinforce an energy-conscious mindset across all operational levels of the refi nery, SRC conducted the Energy Blitz 2008 campaign in October to encourage its employees to identify electricity and energysaving opportunities. Initiatives that were implemented after the campaign led to a net savings of 1% of power consumption in that month. To further enhance energy efficiency, SRC is exploring technologies such as Cogeneration (Cogen), a combined heat and power application. Cogen can potentially achieve energy efficiency of up to 80% compared to 50 55% at conventional plants. Apart from improved efficiency, which translates to savings in operating expenses, it helps in reduction of air pollution as well. SRC publishes a monthly newsletter that features energy initiatives implemented at the refi nery. The newsletter reinforces employee awareness of industry best practices. Health and Safety Start Safe, Stay Safe for Our Loved Ones! SRC is committed to look after the health and safety of its staff and contractors. With a fi rm conviction that personal and process safety excellence are vital for continued business success and sustainability, the refi nery enforces stringent safety standards and commits resources to conduct periodical assessment of its facilities. SRC places an emphasis on Injury and Incident Free (IIF) operations, and actively promotes a safety-first culture through behaviour-based safety programmes. SRC duly recognises and appreciates employees and contractors displaying exemplary safety practices. Manager Safety Tours at the refi nery were also organised to facilitate dialogue between ground level staff and senior management so that they can collectively address safety issues. Regular visits by management to the refi nery also helped to promote communication between the ground and management level, bringing about swifter resolution of safety issues. SRC regularly conducts safety talks and provides training sessions for both staff and contractors. From time to time, SRC conducts scenario-based tabletop exercises to enhance safety and emergency preparedness. In April and May 2008, more than 1,350 contractors were involved in round-the-clock maintenance works of various critical refining units. The maintenance was completed on schedule without any major incident. In 2008, SRC achieved 8 million man-hours without any loss time injury. This safety milestone affi rms the refi nery s rigorous safety systems and procedures. SRC s 8 million man-hours without any loss time injury milestone affirms its safety-first culture. Sustainable Enterprise Environment, Health, Safety and Security 61

61 Sustainable Enterprise Community Engagement SPC believes that employee volunteerism builds team cohesion and is an integral part of the Company s culture and mindset. CSR is about caring for tomorrow, today. This is a SPC priority and responsibility. Friendship comes first for SPC volunteers and members of the Down Syndrome Association. SPC fi rmly believes in enriching and caring for the community. The Company demonstrates its belief in caring for the community through its diverse outreach programme which includes environmental, philanthropic and cultural causes. For many years, SPC has been true to its corporate social responsibility adage Caring for tomorrow, today. Environmental Protection SPC believes fi rmly in caring for the environment. In February 2008, SPC stepped up its green efforts by introducing environmentally-friendly initiatives to the workplace. Recycling bins in SPC offi ces signifi cantly increased the recycling of waste. In 2008, about 1,120 kilograms of waste paper were collected for recycling. This translated to saving about 19 trees. During the year, training sessions were organised to increase employees knowledge of climate change and energy effi ciency. SPC also started using environmentally-friendly paper for its annual reports and quarterly newsletter, ROAR. 62 Singapore Petroleum Company Limited Report to Shareholders 2008

62 In June, SPC supported a local media network, MediaCorp s Saving Gaia campaign for the second consecutive year. The campaign was aimed at raising awareness of environmental issues such as climate change and global warming. SPC aimed to engage the public in this campaign by distributing biodegradable reusable shopping bags to participants. SPC also collaborated with one of MediaCorp s radio stations in the Save-the-Earth recycling drive. Members of the public were encouraged to drop off recyclable items at designated SPC service stations. Proceeds from the recyclables collected were donated to the Feiyue Family Service Centre. Each year, SPC organises a Green Day for its employees and their families to do their part towards the preservation of nature. Since planting 35 trees in commemoration of SPC s 35 th anniversary in 2004, caring for the environment has become a deeprooted SPC culture. In November, the Company organised the SPC GreenSteps Staff members and their families embarked on the 9-km walk along the Southern Ridges. Accompanied by National Parks Board guides, participants combed through the 56-hectare park which was home to an abundance of fl ora and fauna. The walk ended at HortPark where the group learned about ecosystems and how to build their micro-ecosystem in a terrarium. Such interactive activities were part of SPC s efforts to instill respect for nature among its employees. SPC s care for the environment extends to the conservation of wildlife. Keeping in line with its leaping lion logo, SPC has adopted the lion exhibit in the Singapore Zoological Gardens since From its early days, SPC has been a staunch Corporate Friend of the zoo. Meaningful Giving SPC s community efforts extended beyond monetary donations and sponsorships. Its community enrichment programme also provided support to the elderly and underprivileged. Through the years, SPC has inculcated a strong culture of employee volunteerism among its staff. In 2008, SPC s efforts aimed at fostering community relations included the Lunar New Year lunch for senior citizens (co-organised with the Singapore Women s Association), Down Syndrome Association (Singapore) Charity Bowl, SPC Annual Charity Car Wash, and One Raffl es Quay vertical marathon Counters were set up at SPC Bukit Merah for the Save-the-Earth recycling drive. Green fingers at work. Staff members creating self-sustaining micro-ecosystems. Sustainable Enterprise Community Engagement 63

63 Sustainable Enterprise Community Engagement with members of the Association for Persons with Special Needs. SPC believes that employee volunteerism builds team cohesion and is an integral part of the Company s culture and mindset. In May, SPC participated in relief efforts for the victims of the Sichuan earthquake. The SPC Group made donations of more than RMB 1 million to help the victims and their families rebuild their lives after the calamity A Bold Demonstration: In July, SPC Customer Service Executive, Jimi Lim shaved his head for Hair for Hope 2008, an awareness campaign by the Children s Cancer Foundation. The campaign was held to raise funds and motivate children to battle their illness. As an acknowledgment of his enduring charitable and volunteerism efforts over the years, Jimi was awarded the SPC Recognition Award for Voluntary Work/Charity. Cultivating the Arts For close to 40 years, SPC has been an avid supporter of the arts. The Company is a long-time sponsor of the Singapore Symphony Orchestra. SPC s efforts have also been consistently recognised in the honour rolls of the Patron of the Arts Awards which were conferred yearly by the National Arts Council. In July 2008, SPC was also the anniversary sponsor of the Singapore Dance Theatre s Ballet under the Stars held at Fort Canning Park. SPC also supported other cultural activities organised by the National Heritage Board and the Malay Youth Literary Association. 1 Sharing the festive joy. 2 Caring for senior citizens. 3 A shaven head, a heart of gold. 4 Cultivating the local arts scene, SPC is recognised in the honour rolls of the Patron of the Arts Awards. 64 Singapore Petroleum Company Limited Report to Shareholders 2008

64 Sustainable Enterprise People Recognising that people are vital to business sustainability, SPC remains committed to building a motivated and engaged workforce, and will continue to roll out initiatives and programmes to adequately prepare and equip its employees with essential skills and mindsets Powering People, Sustaining Growth. Powering People, Sustaining Growth SPC believes that a committed workforce is necessary for an organisation to sustain and grow in challenging times. At SPC, the human capital strategies are focused on the continuous strengthening, motivating and refreshing of the talent pool to sharpen SPC s competitive edge. In 2008, SPC reviewed its human capital strategies and identifi ed key action steps which were presented to the Board of Directors at a strategic planning workshop. The Company implemented initiatives to strengthen the cohesion and alignment of the workforce performance to the Company s strategic directions and objectives. SPC invested in programmes focused on building core competencies, developing strategic mindset and leadership skills, and striking a positive work-life balance. Cohesion and Alignment During the year, SPC continued with its orientation programme for new staff members and facilitated CEO dialogue sessions for employees. These activities encouraged open communication across all levels and offered employees the opportunity to interact with senior leaders of the Company. At these sessions, employees gained better appreciation and understanding of SPC s overarching corporate strategies, insights into key operations, as well as knowledge of the skill sets required. In 2008, the Company concluded the developmental phase of an interactive online employee performance management system. Scheduled to be launched in 2009, this new system will equip employees and managers with online tools to effectively plan, communicate and evaluate employee learning needs, track performance and enable competencies mapping. During the year, SPC also enhanced its human capital management systems and practices at its overseas offi ces in China and Indonesia. All systems and practices implemented were developed to comply with the various regulations and legislations of the respective host countries. Having a roaring good time at the SPC Dinner and Dance. Sustainable Enterprise People 65

65 Sustainable Enterprise People Talent Building and Development SPC s in-house technical education series remained a key feature of the Company s learning and development initiatives in SPC continued its bi-monthly education talks to promote knowledge sharing among employees. These sessions provided both technical and non-technical employees with the necessary insights into SPC s operations. The lecture series started in 2007 with the sharing of expertise by SPC s E&P and refi ning technical specialists. In 2008, the series expanded to include various aspects of SPC s Marketing operations. In 2008, SPC welcomed its fi rst batch of homegrown petroleum engineers. In 2006, the Company initiated a scholars exchange programme to the US, specialising in petroleum engineering. Slated to join SPC s E&P Group upon completion of their studies, these young graduates are part of the Company s partnership with local tertiary institutions to nurture a pool of homegrown petroleum and reservoir engineering talents. Leadership Development and Succession Planning The Company partnered the Nanyang Technological University of Singapore to develop a two-year development programme customised for senior executives, middle and senior managers. This initiative focused on developing and enhancing leadership and business capabilities. SPC also provided development opportunities to grow within the Company through its job rotation programme. Several employees, including department managers were rotated across various business functions within the Company. During the year, SPC also reviewed the Group s succession and high potential development plans with the Nominating and Remuneration Committee. Workforce Motivation and Retention In 2008, SPC and the United Workers of Petroleum Industry (UWPI) successfully concluded the SPC Employees Agreement for another three-year term. The strong partnership built over the years was a key factor in the amicable conclusion of the agreement. The Company was proactive in supporting the Singapore government s pro-family drive. Following the announcement of the Parenthood Package by the Singapore government, SPC proceeded to implement changes to its policies and practices on maternity, childcare and adoption leave. The Company also introduced infant care leave. These new changes were highlighted to employees through a communication session. Employee Wellness In 2008, the Company continued to promote work-life balance to foster positive staff morale and engagement. The Company organised family activities such as movie screenings, holiday trips to resorts in Indonesia and Malaysia, as well as the annual family day. Other recreational activities included bowling tournaments and paintball games. SPC also held the annual staff Dinner and Dance and Long Service Award luncheon in its ongoing effort to promote employee wellness. As part of its community outreach programme, SPC organised an outing for a group of underprivileged kids from Street 11 to the Singapore Flyer. SPC employees were encouraged to donate funds and gifts to the welfare organisation. During the year, the Company also participated in the Keppel Group s blood donation drive in partnership with the Singapore Red Cross. Recognising that people are vital to business sustainability, SPC remains committed to building a motivated and engaged workforce, and will continue to roll out initiatives and programmes to adequately prepare and equip its employees with essential skills and mindsets Powering People, Sustaining Growth. Through recreational activities, SPC promotes employee and family wellness. SPC has a strong cohort of long-serving employees. 66 Singapore Petroleum Company Limited Report to Shareholders 2008