Corporate Governance Statement
PAN PACIFIC PETROLEUM NL AND ITS CONTROLLED ENTITIES


The Governance arrangements of Pan Pacific Petroleum NL are set by the Board having regard to the particular circumstances of the Company and the best interests of shareholders.

INTRODUCTION
The Governance arrangements of Pan Pacific Petroleum NL (the ‘Company’) which are based on the Principles of Good Corporate Governance and Best Practice Recommendations published by the ASX Corporate Governance Council (‘Best Practice Recommendations’) are set by the Board having regard to the particular circumstances of the Company and the best interests of shareholders. The Board recognises that some practices are more relevant to larger companies. The Company is committed to best practice in Corporate Governance where these practices are appropriate and add value to the Company.

Shareholders should be aware that in August 2007 the ASX Corporate Governance Council released the second edition of the Corporate Governance Principles and Recommendations (‘Revised Principles’). Listed entities are required to report against these Revised Principles in the first financial year commencing on or after 1 January 2008. Consequently the Company reports against these Revised Principles for the financial year ending 30 June 2009.

This Statement outlines the Company’s approach to Corporate Governance and indicates the level to which the Company has followed the Best Practice Recommendations in accordance with Listing Rule 4.10.3. The Statement is current as at the date of the 2008 Directors’ Report and, unless otherwise indicated, the information was true for the whole of the financial year commencing on 1 July 2007. This statement should be read in conjunction with the Directors’ Report.

Recommendations

1.1	Formalise and disclose the functions reserved for the Board and those delegated to management.

During the financial year the Company had a Board consisting of a minimum of two Non-Executive Directors and one Executive Director who is also the Chairman and Chief Executive. The Board focuses the Company’s objectives on pursuing exploration and production opportunities which have been assessed as having potential for success without exposure to undue risk. The Board has not adopted a formal charter but sees its responsibilities as follows:-

• to set and oversee the implementation of the strategic direction for the Company;
• to monitor the performance of the Company, the Board and management;
• to approve annual work programmes and budgets and the Company’s exploration and production activities and overall corporate objectives;
• to review, assess and monitor key risks to the Company and ensure effectiveness of any risk management and legal control mechanisms adopted by the Board;
• to take responsibility for Corporate Governance;
• to establish policies and practices appropriate for the Company;
• to approve and monitor the progress of major capital expenditures and acquisitions and divestitures;
• to maintain responsibility for the overall financial management of the Company; and
• to monitor and approve financial and other reporting obligations of the Company.

Management of the Company’s day to day operations is undertaken by the Chief Executive and the other members of senior management, under the Board’s oversight. The Company is in the process of preparing a formal delegation of authority from the Board to the Chief Executive and relevant members of senior management. The Board recognises that roles and functions have to be flexible to meet specific requirements in the Company’s circumstances.

The Board has not prepared formal letters of appointment for existing directors of the Board. Directors are, however, informally made aware of the Best Practice Recommendations suggestions for such letters and are provided with a copy of the Company’s constitution. Directors’ and officers’ insurance for directors is arranged by the Company at the Company’s expense.

2.1	A majority of the Board should be independent directors

There are currently no independent directors on the Board, primarily due to the substantial shareholdings of each director. The definition used by the Board in assessing the independence of the directors is the definition of an independent director as outlined in the Best Practice Recommendations. The Board makes an assessment of the independence of each director upon appointment and will review the position if a non-executive director ceases to be a substantial shareholder. Directors are also required on an ongoing basis to disclose to the Board relevant personal interests and any conflicts of interest, as required by the Company’s constitution and the Corporations Act. Although the strict requirements of independence are not met by the Company, the Board is satisfied that each director is able to effectively discharge his duty and exercise independent judgement in decision making processes and that the mix of skills and experience is appropriate for the Company. To assist with the discharge of their duties, each director has the right to seek independent professional advice in relation to matters arising in the conduct of his duties, at the Company’s expense. Prior approval of the Chairman is required but is not unreasonably withheld.

2.2	The chairperson should be an independent director

2.3	The role of chairperson and chief executive officer should not be exercised by the same individual

The Company has not complied with either of these recommendations as the position of Chief Executive and Chairman are both held by Mr Radford, the founding executive director of the Company. The Board, however, considers that Mr Radford’s responsibilities as Chief Executive are fully compatible with his leadership of the Board as Chairman and facilitation of the effective contributions of all directors and that the Company benefits from Mr Radford’s experience in these roles. The Board also considers that given its size, no efficiencies or other benefits are gained by separating these roles at present.

2.4	The Board should establish a nomination committee

The Board (due to its size), and given the size of the Company, has not established a nomination committee. The Board as a whole undertakes the responsibility for the appointment of new directors and believes that the Company as a whole benefits from the contributions of all directors in discussing the need for and identifying any new candidates for the Board. The Board determines the criteria for selection based on the skills deemed necessary or any perceived ‘gaps’ in the skill set of the Board when a casual vacancy exists.

Retirement and rotation of directors is governed by the Corporations Act and the constitution of the Company. Each year one-third of the Directors (excluding the Chief Executive and rounded up, if necessary, to the nearest whole number) must retire and offer themselves for re-election. Any casual vacancy filled between general meetings will be subject to a shareholder vote at the next Annual General Meeting of the Company.

The permitted number of directors is specified in the Company’s constitution as a minimum of three and a maximum of seven.

2.5	Provide the information indicated in the Guide to Reporting on Principle 2

Included in the Directors’ Report is information on:

•  the skills, experience and expertise of each director relevant to the position of director;
•  the term of office held by each director; and
•  the number of meetings attended by each director.

3.1	Establish a code of conduct to guide the directors, the chief executive officer, the chief financial officer and any other key executives as to:
	3.1.1	the practices necessary to maintain confidence in the company’s integrity
	3.1.2	the responsibility and accountability of individuals for reporting and investigating reports of unethical practices

The Company has not, due to its size, activities, and the number of employees, adopted a formal code of conduct but is committed to the following objectives:

	(a)	ensuring that all of its business affairs are conducted legally, ethically and with integrity;
	(b)	adopting and ensuring that joint venturers who act as Operators of permits in which the Company has an interest adopt high standards of occupational health and safety, environmental management and ethics; and
	(c)	fostering and maintaining a culture of ownership, care, professional excellence, confidentiality and integrity from the Company’s employees. These items are addressed in each employee’s contract of employment.

The Board has ultimate responsibility for resolving all matters concerning ethical and responsible decision-making.

3.2	Disclose the policy concerning trading in company securities by directors, officers and employees

The Company’s policy is that directors, officers, employees and relevant consultants are prohibited from dealing in the Company’s shares when they possess material price-sensitive information and are prohibited from undertaking any transactions that would result in a breach of the insider trading provisions of the Corporations Act. It is to be noted that the Company is often reliant on information from joint venture partners and permit Operators. In addition, the Company Secretary and the Board are to be notified when trading of shares in the Company by any director of the Company occurs. Each director has also signed an agreement with the Company in accordance with the Listing Rules requiring notification of any trades to the Company Secretary within two business days.

4.1

Require the chief executive officer and the chief financial officer to state in writing to the Board that the company’s financial reports present a true and fair view, in all material respects, of the company’s financial condition and operational results and are in accordance with relevant accounting standards.

The Chief Executive and the Chief Financial Officer (equivalent) give an annual written declaration to the Board that in their opinion the financial records of the Consolidated Entity for the financial year have been properly maintained in accordance with s286 of the Corporations Act, the Consolidated Entity’s financial statements and the notes to those statements, for the financial year, comply with accounting standards and give a true and fair view of the Consolidated Entity’s financial position and performance.

4.2	The board should establish an audit committee

The Company’s directors do not consider that the Company’s affairs are of a size and complexity to merit the establishment of a separate audit committee, so the Board as a whole undertakes the responsibility for reviewing the financial statements and the other responsibilities which would be undertaken by an audit committee. The names and qualifications of directors are set out in the Directors’ Report.

The Board takes on the responsibility of reviewing the performance of the external auditor, the continuation of that appointment and where necessary the rotation of external audit engagement partners (i.e. the lead or review auditor). The Company has no formal policy but reviews these matters in accordance with current market practices. The Board considers that the extensive rules in Part 2M.4 of the Corporations Act (concerning auditor independence and auditor rotation) brought in by the CLERP 9 Act in 2004 assure the integrity of the financial statements and the independence of the external auditor.

5.1	Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance.

The Company, its Directors and key employees are fully aware of the continuous disclosure requirements stipulated by the ASX Listing Rules and the Corporations Act and operate in an environment where strong emphasis is placed on full and timely disclosure. The Company does not have formal written policies regarding disclosure due to the size of the Company and the number of employees. It is to be noted that the Company is often reliant on information from joint venture partners and permit operators. Generally the Chief Executive and/or the Company Secretary are responsible for making announcements to the ASX and NZSE.

6.1	Design and disclose a communication strategy to promote effective communication with shareholders and encourage effective participation at general meetings.

The Company does not have a formal communications strategy as the Company believes this would be excessively onerous for a company of its size to administer and support. The Company operates an email subscribe facility and a website to inform shareholders of recent events. Shareholders may also request a copy of the Company’s recent ASX releases.

6.2	Request the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.

The external auditor attends the Annual General Meeting and is available for shareholders to ask questions about the conduct of the audit and the preparation and conduct of the auditor’s report.

7.1	The board or appropriate board committee should establish policies on risk oversight and management.

The risks involved in oil & gas exploration and development and other key risks to the Company both of a financial and operational nature such as adequate levels of insurance, appropriate hedging mechanisms, contract documentation and resourcing are reviewed on a regular basis by the Board as and when applicable. The potential exposures involved with running the Company have been managed by the appointment of directors and senior staff and consultants who have significant broad ranging industry experience. For these reasons and the size of the Company, the Company does not consider it practicable or in the best interest of shareholders to adopt formal policies on risk management and oversight or to formalise a risk profile or to establish a separate committee to focus on these issues. The Company will however look to implement a formal policy within the next financial year.

The Board requires the Company and its employees to conduct all business activities in a manner that complies with both the law and any formal or informal delegations of authority. The Company has a policies and procedures manual which is reflective of the Company’s internal control and compliance systems and the Board is responsible for assessing the adequacy of these systems and to ensure that its financial affairs comply with applicable laws, regulations and professional and market practices. Any breaches of the internal compliance and control systems are reported to the Board to enable the Board to effectively assess these systems.

7.2	The chief executive officer and the chief financial officer (or equivalent) should state to the Board in writing that:
	7.2.1	the statement given in accordance with best practice recommendation 4.1 (the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board.
	7.2.2	the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

Whilst the Board is not provided with a written statement in the form of Recommendation 7.2 of the Best Practice Recommendations, the Board does receive a Management Representation letter from the Chief Executive and Chief Financial Officer (equivalent). The Management Representation letter provides, amongst other things confirmation to the Board that the Consolidated Entity’s financial statements have been prepared in accordance with relevant accounting standards, audit procedures and other relevant processes and procedures and there have been no known actual or possible non-compliance with the Company’s internal policies and procedures or with laws or regulations which could have a material effect on the financial statements. This is to encourage management accountability and to ensure the integrity of the Company’s financial reporting. The Board is of the opinion that whilst the Company at this point in time does not have sufficient formal risk management and internal compliance and control systems to warrant a written statement to the effect of Recommendation 7.2 (or to post on its website), the Company’s current processes and systems do provide sufficient integrity in the Consolidated Entity’s financial reporting process. The Board will however review this process in the coming year in line with its review of Recommendation 7.1.

8.1	Disclose the process for performance evaluation of the board, its committees and individual directors, and key executives

The Company does not have a formal process for the performance evaluation of the Board or individual directors at this time due to the size and composition of the Board. Accordingly, no formal performance evaluation for the Board or its members took place in the reporting period.

Directors are encouraged to attend director training and professional development courses, as required, at the Company’s expense. New directors also receive an information pack and have access to all employees to gain further background on the Company’s operations. The Company’s management provides detailed papers for each Board meeting and attends meetings to answer any questions that directors might have. Directors are free to request any further information they may require. All directors have access to the Company Secretary.

The Board handles the performance evaluation of key executives and the Chief Executive handles the performance evaluation of other employees.

9.1	Provide disclosure in relation to the company’s remuneration policies to enable investors to understand (i) the costs and benefits of those policies and the (ii) link between remuneration paid to directors and key executives and corporate performance.

An outline of the Company’s remuneration policy and the Remuneration report required under section 300A of the Corporations Act is on pages 12 to 13 of the Directors’ Report. A resolution to adopt the Remuneration report will be put to the AGM.

9.2	The Board should establish a remuneration committee

The Company does not have a separate remuneration committee due to the size of the Board, the Company and the limited number of employees. The full Board constitutes and carries out the functions of a remuneration committee, with appropriate informal delegations to the Chief Executive. The Board periodically reviews executive remuneration and incentive policies, as well as superannuation arrangements and recruitment, retention and termination policies for senior management.

9.3	Clearly distinguish the structure of non-executive directors’ remuneration from that of executives

The remuneration policy and Remuneration report within the Directors’ Report sets out a clear distinction between non-executive director and executive remuneration. Non-executive directors are paid a fee and are not entitled to any performance related remuneration or termination payments. Director remuneration is governed by the Company’s constitution, and is also subject to regulation under the Corporations Act and the Listing Rules.

9.4	Ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders.

No equity-based remuneration has been paid to executives for the reporting period but the Board will continue to review the suitability of equity-based executive remuneration as the Company continues to grow and develop. Where necessary or appropriate, any plans will be put to shareholders for approval.

10.1	Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders.

The Company as referenced in relation to Recommendation 3.1 does not have a specific code of conduct. This is due to the size of the Company and the number of employees. The Company does however foster and maintain a culture of ownership, care, professional excellence, confidentiality and integrity from its employees and requires all employees or directors to disclose any conflicts of interest. The Board will continue to review this situation in line with Company growth and will establish a code where appropriate and where the Board perceives it will add value to the Company.

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