Corporate governance

Bullet

Norwegian Energy Company ASA (hereinafter “Noreco” or the “Company”) is committed to maintain a high standard of corporate governance and believe that effective corporate governance is essential to its success.

Implementation and reporting on corporate governance
The board of directors (hereinafter the “Board”) is focused on maintaining an appropriate standard on corporate governance and to fulfil the recommendations in the Norwegian Code of Practice for Corporate Governance.

Noreco’s Board and management shall endeavor to exercise a corporate governance policy built on Norwegian corporate law, and the Norwegian Code of Practice for Corporate Governance of 30 October 2014 (hereinafter the ”Code”). However, currently Noreco is not in full compliance with the Code.

Noreco is deviating from the Code on the following matters:

• Mandate to the Board to increase the Company’s share capital is granted for three defined purposes collectively, and not considered by the general meeting on an individual basis for each purpose. In addition, the mandate is granted for two years instead of one year as the Code implies.
• Mandate to the Board for the Company to purchase its own shares is granted for three defined purposes collectively, and not considered by the general meeting on an individual basis for each purpose. In addition, the mandate is granted for two years instead of one year as the Code implies.
• Not all members of the Board, all members of the nomination committee or the auditor will normally attend the general meeting in order to carry out the general meetings in an efficient manner. It is Noreco’s aim that at least one of the Board members are present at the general meetings, that one of the members of the nomination committee is present in the event that an election is on the agenda, and that the auditor is present when the general meetings discusses the annual accounts, or other matters in which the auditor’s presence may be useful.
• Certain Board members have been engaged through a consultancy agreement, approved by the general meeting, to perform special tasks for the company that fall outside of ordinary board duties and may receive remuneration based on results.
• Currently, the Board has not appointed a remuneration committee among its directors.

The Board has the overall responsibility for corporate governance in Noreco and ensures that the company implements sound corporate governance.

The board has defined Noreco’s basic corporate values, and its ethical guidelines and guidelines for corporate social responsibility are in accordance with these values. Further information on and an English translation of the Code are available on www.ncgb.no.

The Public Limited Liability Companies Act (hereinafter the “PLCA”) and the Securities Trading Act are available in unofficial English translations on http://www.oslobors.no/ob_eng/Oslo-Boers/Regulations/Acts

Noreco’s business and main strategy
Noreco is a Norwegian company listed on the Oslo Stock Exchange. The company is currently working to grow its production of hydrocarbon resources within the two strategic areas of the UK and the Danish continental shelves.

With a completed financial restructuring in place, Noreco is no longer in distress. The company is in a strong position to maximise the value of its portfolio of producing fields.

Noreco believes that its integrity and standards are critical to Noreco’s sustainability and value as a company.

Noreco’s business decisions and actions are made in accordance with the following values:

• Professional
• Hands on
• Truthful
• Caring

Noreco’s ethical guidelines and the guidelines on corporate social responsibility (CSR) are based on the values mentioned above. The CSR statement as approved by the board 30 April 2015 is to be found on Noreco’s website, http://www.noreco.com/en/About-us/CSR/

Noreco is aware of the effect our business have on society. The basic principles for corporate social responsibility that the company follows are outlined in our policy for corporate social responsibility.

Equity and dividends
After the refinancing of the company completed in March 2015, Noreco’s equity is considered to be adequate to Noreco’s objectives, strategies and risk profile. Noreco has not previously paid any dividends, and it does not expect to pay ordinary dividends to its shareholders in the near future. However, the company aims to over time give shareholders a competitive return on capital relative to the underlying risk. Any future dividend payment will be subject to determination based on Noreco’s results and other factors the board finds relevant.

Any proposal by the board concerning dividends must be approved by Noreco’s shareholders at the general meeting.  Thus, Noreco’s policy concerning dividends is predictable and corresponding with its objectives, strategies and risk profile.

Presently, the general meeting has granted the Board the authority to increase the share capital of Noreco with up to NOK 35,473,650 by issuance of new shares, to be utilised in connection with the incentive scheme for the group's Board and senior employees, to strengthen the company’s equity or for funding of business opportunities. The proxy is valid until March 2019.

The mandate to the Board to increase the Company’s share capital is granted for three defined purposes collectively, and not considered by the general meeting on an individual basis for each purpose. In addition, the mandate is granted for two years instead of one year as the Code implies.

Equal treatment of shareholders
Noreco has only one class of shares and each share carries one vote at the general meetings of the company.

In case of deviations from existing shareholders preferential rights at share capital increases, the reasons would be publicised in a stock exchange report linked to the capital increase. 

Transactions regarding the company's own shares
Noreco is authorised by the general meeting to acquire own shares up to an aggregate nominal value of NOK 7,094,730. 

Mandate to the Board for the Company to purchase its own shares is granted for three defined purposes collectively, and not considered by the general meeting on an individual basis for each purpose. In addition, the mandate is granted for two years instead of one year as the Code implies.

Transactions with close associates
Noreco is renting offices from Ousdal AS, a company wholly owned by Noreco’s chair of the Board. The agreement is assumed to be at arm’s length.

If Noreco should enter into a not immaterial transaction with any of its associated parties within the company or with companies in which a director or leading employee of Noreco or close associates of these have a direct or indirect vested interest, those concerned shall immediately notify the Board. Any such transaction must be approved by the Managing Director and the Board, and where required also as soon as possible publicly disclosed to the market.

If a transaction, which is not immaterial, is entered into between Noreco and shareholders, a shareholder’s parent company, member of the Board, member of the executive management or close associates of such parties, or related companies with minority shareholders, the Board will, where deemed necessary, seek to arrange an independent valuation to be obtained from an independent third party, unless the general meeting shall consider the matter pursuant to the provisions of the PLCA.

Freely negotiable shares
The Noreco shares are freely negotiable and the Articles of Association do not impose any restriction on the transfer of shares. The company is listed on the Oslo Stock Exchange.

General Meetings
The general meeting is Noreco’s supreme corporate body. The board strives to ensure that the general meeting is an effective forum for communication between the board and the shareholders. Therefore, Noreco encourages all shareholders to exercise their right to participate in the general meetings.

The annual general meeting will normally be held in April or May each year.

The calling notice will be distributed to all shareholders no later than 21 days before a general meeting, cf. Noreco’s Articles of Association section 10, however, the company has the possibility to call a general meeting with a 14 days' notice period on certain conditions.

Noreco endeavors in general to make the detailed support information, the resolutions to be considered at the general meeting and the nomination committee’s recommendations and report, available on the company’s website no later than on the date of the distribution of the notice of the general meeting. The resolutions and the supporting information distributed are sufficiently detailed and comprehensive to allow shareholders to form a view on all matters to be considered at the meeting.

The calling notice includes a reference to Noreco’s website where the notice calling the meeting and other supporting documents are made available. As the supporting documents are made accessible for the shareholders on Noreco’s web-pages, the documents will normally not be enclosed in the calling notice sent to the shareholders, cf. Noreco’s Articles of Association section 12. Further, the right for shareholders to propose resolutions in respect of matters to be dealt with by the general meeting will be described on the website.

As the right for shareholders to propose resolutions is described on Noreco’s website, it is not specifically included in the calling notice. According to Noreco’s Articles of Association section 9, shareholders must give written notice to Noreco of their intention to attend the general meeting by the date stated in the calling notice, which date cannot be earlier than two working days before the general meeting. Shareholders who are unable to be present are encouraged to participate by proxy. Such proxy which allows separate voting instructions to be given for each matter to be considered by the meeting and for each of the candidates nominated for election is enclosed in the calling notice. To the extent necessary, members of the Board, the nomination committee and the auditor will strive to be present at the general meeting.

Noreco will where appropriate endeavor to arrange elections in such manners that the general meeting may vote separately for each candidate nominated for election to the company’s corporate bodies. The Board decides the agenda for the general meeting. However, the main agenda items are determined by the requirements of the PLCA and requirements in Noreco’s Articles of Association. The chair of the Board or a person appointed by the Board or chair shall open the general meeting and the general meeting elects a person to chair the meeting.

The board may decide to allow electronic participation in general meetings, and will consider this before each general meeting.


Nomination Committee
The nomination committee consists of three members elected by the general meeting. An extraordinary general meeting was held on 27 March 2015, where Richard Sjøqvist (chair) and Kristian Utkilen were elected as members of the nomination committee. Richard Sjøqvist is independent of the board and management. The service shall be two years unless the general meeting determines that the service period shall be shorter, cf. Noreco’s Articles of Association section 7.

The Articles of Association states that: “the nomination committee shall prepare a motion for the annual general meeting relating to:

• Election of members of the board and the chair of the board.
• Election of the members of the nomination committee and the chair of the committee.
• The remuneration of the directors and the members of the nomination committee.
• Any amendments of the nomination committee’s mandate and charter”.

The tasks of the nomination committee are further described in Noreco’s nomination committee guidelines. Board candidates are selected considering the competence, experience, capacity and diversity, and based on discussions with and input from relevant stakeholders. Its recommendations will normally be explained. The nomination committee also proposes the remuneration of the directors to the general meeting, reflecting the responsibility, competence, time and complexity of the work involved.

The remuneration shall be a fixed amount, which does not depend on results or involve options. The general meeting makes the final decision as to the remuneration.

Corporate assembly
Noreco does not have a corporate assembly as it is not required to.

The board: Composition and Independence
The Board is organised in accordance with the PLCA and the Articles of Association, and the Board currently exists of five members, of which two are female.

The current chair of the board was elected by the general meeting.

The directors are elected for a two-year period, cf. PLCA section 6-6, unless the general meeting decides otherwise. This period of service is not deviated in Noreco’s Articles of Association.

All the directors elected by the shareholders have a wide experience and represent both industry specific and professional expertise from national and international companies. Further information on each director is available on www.noreco.com/about_us/board.

The work of the Board
In 2016 the Board held 12 board meetings. During 2016, an average of 3 directors participated in the board meetings.

The board has the overall and ultimate responsibility for the management of Noreco and for supervising its day-to-day management and activities in general.

Their main duties are to develop Noreco’s strategy and monitor its implementation. The Board also exercises supervision responsibilities to ensure that the company manages its business and assets in a prudent and satisfactory manner, and that an appropriate level of internal control and risk management systems is upheld.

In accordance with the provisions of the PLCA, the terms of reference for the Board are set out in a formal mandate that includes specific rules on the work of the Board and decision-making. The chair of the Board is responsible for ensuring that the work of the Board is carried out in an effective and proper manner in accordance with the relevant legislation.

The Board annually prepares a work plan for the upcoming year, especially emphasizing their objectives, strategies and implementation.

The Board issues a mandate for the work of the Managing Director. The Managing Director is responsible for the operational management of the Group and reports to the Board on a regular basis.

The Board is informed of Noreco’s financial position and ensures adequate control of the company’s activities, accounts and asset management. The Board receives regularly reports on the company’s commercial and financial status. Noreco also follows the timetable laid down by the Oslo Stock Exchange concerning publication of interim and annual reports.

The Board has established an audit committee consisting of two members elected by and among the board. Tone Kristin Omsted and Marianne Lie are currently the members of the committee. In addition, Noreco’s group finance manager attends the audit committee meetings. The Board has resolved a charter stating the purpose and responsibilities of the committee.

According to the audit committee charter, the audit committee shall, inter alia, act as preparatory body in connection with the supervisory role of the Board with respect to financial control and review and external audit of Noreco’s financial statements and propose to the Board, who then propose to the general meeting, the election of the independent auditor of Noreco.

The remuneration committee charter states, inter alia, that the remuneration committee shall act as preparatory body in connection with the supervisory role of the Board with respect to remuneration and other benefits of Noreco’s Managing Directo0r and other senior executives and make proposals for long-term incentive schemes applicable to Noreco’s Managing Director and other senior executives.

The Board carries out an annual evaluation of its own work, competence and performance. A similar evaluation of the Managing Director is also carried out annually. Further, the Board carries out an annual risk- and internal control review evaluating inter alia Noreco’s reporting routines, monitoring, internal audit functions and the company’s ability to cope with a variety of potential changes.

In order to ensure a more independent consideration of matters of a material character in which the chair of the Board is, or has been, personally involved, the Board’s consideration of such matters should be chaired by some other member of the Board.

Risk management and internal control
The Noreco management system covers all areas of operation of the company.

The Board carries out an annual review of Noreco’s main areas of business and its internal control system. Noreco’s management conduct day-to-day follow-up of financial management and reporting.

The Board’s audit committee assesses the integrity of Noreco’s accounts, and prepares for the Board items related to financial review and control and external audit of accounts.

Non-conformances are systematically followed up and corrective measures initiated. The internal control systems encompass Noreco’s corporate values, ethical guidelines and guidelines for CSR.

It is the Boards opinion that the Managing Director has ensured that the principal accounting processes for the company, hereunder reporting to official authorities, are in accordance with laws and regulations, and that the administration of assets are taken care of in a reassuring manner.

Remuneration of the Board
The nomination committee proposes the remuneration of the directors. The general meeting approves the remuneration to the directors and reflects the responsibility, qualifications, time commitment and the complexity of their tasks and Noreco in general. Certain Board members have been engaged through a consultancy agreement, approved by the general meeting, to perform special tasks for the company that fall outside of ordinary board duties. In addition, these Board members receive remuneration based on results and have been granted share options. The remuneration to the directors is included in the notes to the annual accounts.

Remuneration of the executive personnel
The Board reviews and advises on proposals made by the Managing Director with regard to the remuneration payable to executive personnel. Currently, the Board has not appointed a remuneration committee among its directors. The remuneration payable to executive personnel is determined on the basis of competence, experience and achieved results. The performance-related remuneration to the executive personnel is subject to an absolute limit. The Board prepares guidelines concerning remuneration and presents these in a separate document for the general meeting in accordance with the PLCA and the Code. The guidelines state which of the guidelines are only guiding and which are binding (e.g. performance-related remuneration) and the general meeting shall vote separately on the two sets of guidelines.

On 21 January 2016 an extraordinary general meeting in Norwegian Energy Company ASA approved an option scheme, authorising the Board to grant options to buy or subscribe up to a total of 200,000 shares in the Company at a strike price of NOK 42 per share, to key members of the Board and Executive management. Furthermore, these were allocated 100,000 to the chair of the Board, Riulf Rustad, and 100,000 to Silje Augustson, Group CEO at that time, and executive Board member.

On 8 March 2017 an extraordinary general meeting in Norwegian Energy Company ASA extended maturity of the current option scheme until 8 March 2019. In addition, the extraordinary general meeting approved an expanded option scheme, authorising the Board to grant additional options to buy or subscribe up to 150,000 shares in the Company. The options must be exercised within 8 March 2019 and shall be divided into (i) options to buy or subscribe for 80,000 shares at a strike price of at least NOK 260 per share and (ii) options to buy or subscribe for 70,000 shares at a strike price based on the VWAP-price of the 30 trading days preceding the grant of the options plus a 20% premium, the option rights must be issued no later than 8 March 2019. On 11 April 2017 Lars Purlund and Riulf Frederik Rustad was allocated 70,000 and 10,000 options respectively.

Information and communications
Noreco will on a regular basis keep shareholders and investors informed about commercial and financial development and performance. Such information will also be made available on the company’s website simultaneously with the informing of shareholders. Noreco is committed to ensuring that the participants in the stock market receive the same information at the same time.

Hence, key value drivers and risks will be disclosed through Thompson Reuters on www.newsweb.no as soon as it becomes known to the board and the executive management.

The annual financial report is distributed to the shareholders before the general meeting. Quarterly earnings releases are published within two months following the end of the quarter. Presentations of the quarterly earnings are communicated directly via the internet or through earnings calls. Noreco publishes an annual financial calendar which is available on the Oslo Stock Exchange web site, through news agencies and on the company`s website.

The Board performs the financial and other reporting and their contact with shareholders outside the general meeting with basis in the requirement for openness and equal treatment for all participants in the market, and in line with its internal guidelines for Noreco’s contact with shareholders other than through general meetings.

Noreco strives to ensure that the information provided in announcements to the market, reports, presentations and meetings at all times will give the correct picture of the company’s current position in all relevant matters.

Take-Overs
Noreco’s Articles of Association do not contain any restrictions, limitations or defence mechanisms on acquiring Noreco’s shares.
In accordance with the Securities Trading Act and the Code, the Board has prepared internal guidelines for the event of a take-over bid.

In the event of a take-over bid, the board will, in accordance with its overall responsibility for corporate governance, act for the benefit of all shareholders. The board will not seek to hinder, obstruct or complicate takeover bids for Noreco’s activities or shares unless there are particular reasons for this. The board is responsible to make sure that the requirement on equal treatment in regards of the shareholders is upheld and that they have received sufficient information to decide upon any possible offer.

In case of offering for the shares in the company, the board shall not use granted authorities or other initiatives with the purpose of complicating the carrying out of the offer unless such action was approved by the general meeting. 

If an offer is made for the shares of Noreco, the board will make a recommendation on whether the shareholders should or should not accept the offer.

The board will consider arranging a valuation from an independent expert which includes an explanation.

The company shall only enter into agreements containing limitations on acquiring other offerings on the shares when this is clearly based on the interests of the company and the shareholders. The same principles shall apply on agreements regarding break fee to the offering party should the offer not finally be accepted. Any break fee shall normally be limited to the costs incurred on the offering party deriving from making the offer.

Agreements of significance for the markets assessment of the offer between the company and the offering party shall be made public at the same time the offer is being made public.

Transactions which in reality mean a transfer of all of the company's business to a third party must be resolved by the general meeting.    

Auditor
Year-end accounts are audited. The audit committee receives a report from the auditor after year-end audits for the year concerned, and the auditor presents to the audit committee a review of Noreco’s internal control procedures.

Annually, the auditor presents to the board a review of Noreco’s internal control procedures. The auditor participates in the meetings of the board that deal with annual accounts. The board regularly reviews the relationship to ensure that the auditor is fulfilling an independent and satisfactory control function. The board reports the remuneration of the auditor at the general meeting for the approval of the shareholders.

The board strives to meet with the auditor at least once a year at with neither the Managing Director nor any other member of the executive management present.

The board has established guidelines in respect of the use of the auditor by Noreco’s executive management for services other than the audit.