STRUCTURE

C orporate go v er n a n ce
2013
H eritage O il P L C Corporate Governance  2013

Heritage Oil Plc is an independent oil and gas exploration and production company
with a Premium Listing on the London Stock Exchange (“LSE”) (symbol HOIL).
The Company is a member of the FTSE 250 Index and has Exchangeable Shares
listed on the Toronto Stock Exchange (“TSX”) (symbol HOC) and the LSE
(symbol HOX).

Heritage is a versatile organisation, dedicated to creating and increasing shareholder

value with a portfolio of quality assets managed by a highly experienced team with
excellent technical, commercial and financial skills. The Company has producing
assets in Nigeria and Russia and exploration assets in Tanzania, Papua New
Guinea, Malta, Libya and Pakistan.

C o n te n ts T he H eritage O il P lc A n n ual R eport a n d A ccou n ts 2 0 1 3

co n sists of four d ocume n ts .

Highlights 2013 01
s t r at e g i c r e p o r t C o r p o r at e S o c i a l
Outlook 2014 01
E X PA N D The Strategic Report provides PROTEC T Responsibility
Annual General Meeting 01 S T R AT E G I C R E P O R T
2013
an overview of Heritage, its C O R P O R aT E s O C i a l R E s P O n s i b i l i T y
2013
The CSR Report provides
Chairman’s Statement 02
processes and a Business Review. detailed information concerning
Summary of Changes to the Code 04
Heritage’s CSR strategy, policies,
Statement of Compliance 05 systems and performance.
Board of Directors 06
In memory – General Sir Michael Wilkes  08
Report of the Directors 10
Report of the Remuneration Committee 22 C o r p o r at e Financial
Policy Report 24 STRUCTURE Governance e v o lv e S tat e m e n t s
Annual Report on Remuneration 30
C o R p o R aT E g o v E R n a n C E
2013
The Corporate Governance f i n a n c i a l s tat e m e n t s
2013
The Financial Statements Report
Report of the Audit Committee 36 Report provides detailed provides detailed information on
Other Committee Reports 41 information on all aspects of Heritage’s financial position.
Appendix: UK Corporate Governance Code  47 Heritage’s corporate governance.
Corporate governance glossary  63
Advisers and financial calendar  IBC
 Corporate Governance  2013 H e r i ta g e O i l P L C

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Highlights –– Heritage’s operations have been transformed by the acquisition of an interest in

OML 30, Nigeria, in 2012
2 0 13 –– The Board and Remuneration Committee have reviewed changes in UK executive
remuneration reporting
–– Amendments to the UK Corporate Governance Code, which came into effect for
financial years beginning on or after 1 October 2012, have been actioned
–– Consideration has been given to changes in UK narrative reporting requirements
to ensure the Company complies with best practice

O u t l oo k –– Continue to embed good governance practices and procedures into the Nigerian
and other new operations
2 0 14 –– Review of the outcome of the Financial Conduct Authority’s (“FCA”) consultation
on Listing Rule changes concerning protection for minority shareholders and
implementation of appropriate actions
–– The Audit Committee to keep under review its expanding remit and strengthened
reporting requirements
–– Continued focus on risk management

annual The 2014 Annual General Meeting (“AGM”) will be held at 22 Grenville Street, St Helier,
JE4 8PX, Jersey, Channel Islands on 30 June 2014. Formal notice of the AGM, including
gener al details of any special business, will be set out in the Notice of AGM to be dispatched to
meeting shareholders at least 20 working days before the meeting. The notice of AGM will also
be available on the Company’s website at www.heritageoilplc.com.

All dollars are US dollars unless otherwise stated.

H e r i ta g e O i l P L C Corporate Governance  2013
02
C h a i r m a n ’ s s tat e m e n t
Dear Shareholder,
Following the acquisition of a significant
interest in the OML 30 licence through
Shoreline Natural Resources Limited
(“Shoreline”), one of our Nigerian joint
venture companies, we have focused on
ensuring that our values, policies, internal
controls and best practices are integrated
into this new operation and other new
areas of activity.
A responsible
business
Michael J. HibbErd
CHairman
I am pleased to report that our operations in Nigeria are proceeding
well and over the next year we are looking to expand our footprint
through our joint venture company Petrobay Energy Limited
(“Petrobay”). In addition we have started to build our exploration
portfolio in Papua New Guinea over the course of the year with
interests in four licences. Over the coming year we will be looking to
enhance our portfolio whilst building on our achievements in respect
of all our existing operations.
THE BOARD
It was with great sadness that we announced the death of Sir Michael
Wilkes in October 2013. Sir Michael had a distinguished military and
corporate career and was appointed to the Board of Heritage in 2008.
As well as being the Senior Independent Director, Sir Michael was a
member of the Audit, Remuneration, Nomination and Anti-Bribery
and Corruption Committees. Our condolences are extended to his
family and friends.
The Nomination Committee is seeking to appoint a new Non-
Executive Director and is considering the appropriate candidate
to fulfil the role of Senior Independent Director.
The Board was strengthened during 2012 with the appointment
of two new independent Non-Executive Directors. There is now a
balance between the longer serving Directors and fresh perspective
of the new Directors and the Board is working well together.
BOARD E V ALUATION
This year we carried out an externally facilitated evaluation of our
Board and Committees. I am pleased to report that overall the Board
has had a positive assessment of its performance, capability and
operational effectiveness although some actions have been identified
for improvement. More information is given on the results of the
evaluation on page 17.
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NARRATI V E REPORTIN G
In the UK, the last year has seen significant changes in the reporting
regime with new regulations on remuneration reporting and the
introduction of the new Strategic Report which replaces the Business
Review. Heritage continues to apply best practice principles in its
reporting and has implemented changes to its reporting as a result.
This includes new information provided in the Strategic Report on
the breakdown of gender information of employees, information
about the Group’s Human Rights Policy and information in both
the Strategic Report and CSR Report on emissions.

We will continue to review our

narrative reporting to ensure it meets
new developments and best practice.
listing rules
The FCA is consulting on a number of measures designed to enhance
protection for minority shareholders (FCA: Enhancing the
effectiveness of the Listing Regime). As a Company with a controlling
shareholder (a shareholder who owns 30% or more of the voting
shares in a company), Heritage will be paying close attention to the
new requirements. One of the most important changes will be the
requirement for companies with a controlling shareholder to have in
place a relationship agreement to regulate interactions between the
company and the controlling shareholder to ensure that the company
is able to operate independently. Heritage had a relationship
agreement in place when it first listed in 2008 (which has now
expired) and is therefore used to this form of arrangement.
In addition there will be new voting powers for independent
shareholders when electing independent directors of companies with
a controlling shareholder. Independent directors will need to be
elected separately by both i) all shareholders and ii) the minority
shareholders. The new rules are expected to come into force
mid-2014, although there will be transitional provisions to allow
companies time to comply. We will monitor this closely and put in
place actions at the appropriate time.

OUR F O C US F OR 2 0 1 4
With the acquisition of our new Nigerian operations and continued
search for development opportunities in line with our strategy, it is
important that we have robust risk management review processes in
place. This will remain a focus for the forthcoming year. We will also
implement actions identified from the Board evaluation exercise and
those that may be necessary arising from changes to the Listing Rules
concerning controlling shareholders as discussed above.

We continue to support open and constructive dialogue with all of

our shareholders on governance, strategy and executive remuneration
and welcome any feedback.

MI C HAEL J . HIBBERD
C HAIRMAN
2 9 APRIL 2 0 1 4
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SUMM ARY OF CHANGES TO THE CODE WHICH C AME INTO

EFFECT FOR FINANCIAL YEARS BEGINNING ON OR AF TER
1 O C TO B E R 2 0 12

DIVERSIT Y AND GENDER The Nomination Committee should include a description of the Board’s policy on diversity,
including gender, any measurable objectives that it has set for implementing the policy and
progress on achieving the objectives.

Carmen Rodriguez was appointed as the first woman Director on the Board in 2012. The
Nomination Committee will continue to develop a broad approach to the recruitment of
Directors to ensure a wide variety of sectors, talents and backgrounds are represented.

ANNUAL REPORT AND The directors should state that they consider the Annual Report and Accounts, taken as a
ACCOUNTS whole, is fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company’s performance, business model and strategy.

The Board does, and will continue to, involve the Audit Committee, and where appropriate
other committees, to confirm this statement for the Annual Reports and Accounts.

AUDITORS FTSE 350 companies should put the external audit contract out to tender at least
every ten years.

The Company’s current auditors, KPMG, have been in position since the Company first
listed in March 2008. In addition KPMG were the auditors of Heritage Oil Corporation
(“HOC”). Information on the assessment of the external auditor is provided in the Report
of the Audit Committee on pages 36 to 40. Having assessed the current auditors to be
effective in their role, there is no current intention to put the contract out to tender.
The audit partner rotates every five years and in 2013 a new partner took over the role.

AUDIT COMMIT TEE There are additional requirements for information that should be included in the Report of
REPORTING the Audit Committee. These include reporting on significant issues that the Audit
Committee considered in relation to the financial statements, how these were addressed,
and an explanation of how the Committee assessed the effectiveness of the external audit
process and the approach taken to the appointment or reappointment of the external
auditor. Information on the length of tenure of the current audit firm and when a tender
was last conducted is also required.

This information is included in the Report of the Audit Committee on pages 36 to 40.

D E V E L O P M E N T S I N R E M U N E R AT I O N A N D N A R R AT I V E
REPORTING

D I R E C T O R S ’ R E M U N E R AT I O N
R E P O R T A N D T H E S T R AT E G I C
REPORT
New regulations were introduced for UK registered and quoted companies relating to
reporting on directors’ remuneration and the production of a Strategic Report which
became effective for reporting years ending after 30 September 2013. As a Jersey registered
company these requirements do not strictly apply to Heritage. However, the Company has
always sought to comply with best practice and we have, therefore, reflected these changes
in our reporting as appropriate.
 Corporate Governance  2013 H e r i ta g e O i l P L C

05

S TAT E M E N T O F C O M P L I A N C E

COMPLIANCE WITH THE CODE The following sections of this report describe how the Company has
As a company with a Premium Listing on the LSE, the Company is applied the Main Principles of the Code:
subject to the Financial Conduct Authority’s Listing Rules and the
requirement to explain how it has applied the Main Principles of –– Leadership
the Code. A copy of the Code is available from the FCA’s website, –– Effectiveness
www.fca.org.uk. The Listing Rules also require a company to –– Accountability
confirm that it has complied with all the provisions of the Code –– Remuneration
or explain areas of non-compliance. The Board considers that the –– Relations with Shareholders
Company has complied with all the provisions of the Code, save
in respect of the following item: The Appendix, at the back of this document, sets out additional
disclosure requirements and detailed compliance with provisions
–– Code Provision C.3.1: The Chairman of the Company is a of the Code.
member of, and chairs, the Audit Committee. The Board
believes the current Chairman is the most appropriate person The following statements may be found on page 7 of the Financial
to be a member of, and chair, the Audit Committee given his Statements Report:
extensive financial experience. The current Chairman is also
considered by the Board to have maintained his independent i) Statement of the Directors’ Responsibilities for preparing the
status. The Board and Nomination Committee have reviewed Annual Report and Accounts 2013;
the continued chairing of the Audit Committee by the ii) Responsibility Statement of the Directors that the financial
Chairman. Given the size of the Company and of the Board, statements and management report (which is incorporated in
the decision was reached that this is still the most appropriate the Strategic Report and in the Corporate Social Responsibility
Audit Committee leadership role to maintain. (“CSR”) Report) give a fair review of the Company’s business;
iii) Statement that the Board consider the Annual Report and
The sad and untimely death of Sir Michael Wilkes in October 2013 Accounts, taken as a whole, is fair, balanced and understandable;
means that the Company also currently does not comply with iv) Going Concern Statement; and
following provisions of the Code: v) Statement concerning audit information.

–– Code Provisions A.4.1: The Company does not currently have For and on behalf of the Board
a Senior Independent Director.
–– Code Provisions A.4.2 and B.6.3: The Senior Independent MICHAEL J. HIBBERD
Director to meet with the Non-Executive Directors and lead CHAIRMAN
the performance evaluation of the Chairman. 2 9 A PR I L 2 014
–– Code Provision B.2.1: The majority of members on the
Nomination Committee are now not independent Non-
Executive Directors.
–– Code Provision D.2.1: The Remuneration Committee consists
of two, rather than three, independent Non-Executive Directors.

The Nomination Committee is addressing the appointment of a new

Senior Independent Director and is reviewing the requirements of the
Board and its Committees as part of this process. It is the view of the
Nomination Committee and Board as a whole that it is vital to make
the right appointment given the additional responsibilities of the
Senior Independent Director.
H e r i ta g e O i l P L C Corporate Governance  2013

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BOARD OF DIREC TORS

M ic h ae l Hibberd A n t h o n y B u c k i n g h am P a u l A t h erto n
Chairman and Chief Executive Officer Chief Financial Officer
Non-Executive Director

Joined Heritage March 2006 Founder of Heritage Joined Heritage March 2000
Appointed to the Board March 2008 Appointed to the Board February 2008 Appointed to the Board February 2008

S k i l l s a n d e x perie n ce
Mr. Hibberd has extensive
international energy project planning
and capital markets experience.
Mr. Hibberd has been president
and CEO of MJH Services Inc., a
corporate finance advisory company,
since 1995, prior to which he spent
12 years with ScotiaMcLeod in
corporate finance and held the
position of director and senior
vice-president, corporate finance.
Mr. Buckingham commenced
involvement in the oil industry as a
North Sea diver and subsequently
became a concession negotiator
acting for several companies
including Ranger and Premier Oil
plc. He was previously a security
adviser to various governments.
Mr. Atherton is a qualified
accountant, qualifying with
Deloitte & Touche, and holds a
degree in geology from Imperial
College London. He has a corporate
finance background with specific
experience in the international
mining and resource sectors.

E x ter n a l appoi n tme n ts –– President and CEO of MJH None None

Services Inc
–– Chairman of Canacol Energy Ltd
–– Chairman of Greenfields
Petroleum Corporation
–– Co-chairman of Sunshine
Oilsands Ltd
–– Director of Montana Exploration
Corp
–– Director of Pan Orient Energy
Corp
–– Director of PetroFrontier Corp

C ommittee members h ip –– Audit Committee –– Nomination Committee –– Reserves Committee

–– Nomination Committee –– Corporate Social Responsibility –– Corporate Social Responsibility
–– Reserves Committee Committee Committee
–– Corporate Social Responsibility –– Anti-Bribery and Corruption
Committee Committee
–– Anti-Bribery and Corruption
Committee

GREGORY TURNBULL, QC JOHN MCLEOD
Non-Executive Director Non-Executive Director
Joined Heritage 1997
Appointed to the Board March 2008
Mr. Turnbull is a Senior Partner of
the Calgary office of the law firm of
McCarthy Tétrault LLP. Mr. Turnbull
has extensive knowledge of corporate
governance issues and has acted
for many boards of directors and
special committees in that regard.
Mr. Turnbull started his career
with the law firm of MacKimmie
Matthews in 1979. From 1987 to
2001, he was a partner with Gowlings
LLP (formerly Code Hunter LLP).
In 2001 and 2002, he was a partner
with the law firm of Donahue LLP.
Mr. Turnbull has been a partner
with the law firm of McCarthy
Tétrault LLP since July 2002 and was
appointed Queen’s Counsel in 2010.
–– Non-executive director of
Crescent Point Energy Corp
–– Non-executive director of
Hyperion Exploration Corp
–– Non-executive director of
Marquee Energy Ltd
–– Non-executive director of Storm
Resources Ltd
–– Non-executive director of
Sunshine Oilsands Ltd
None
Appointed to the Board March 2008
Mr. McLeod is a Professional
Engineer with over 40 years of varied
resource extraction experience.
He has held positions and has
served on various boards including
Constellation Oil & Gas Ltd., Ranger
Energy Ltd. and CanArgo Energy
Inc., as president and CEO of Arakis
Energy Company, as vp, operations
of Pengrowth Gas Company, CEO
and director of Rally Energy Corp.
and Canoro Resources. He is a
member and past president of the
Association of Professional Engineers
and Geoscientists of Alberta.
–– Director of United Hydrocarbon
International Corp
–– Director of Paris Energy Inc
–– Director of Tuscany Energy Ltd
–– Director of Diaz Resources Ltd
–– Director of Kallisto Energy Corp
–– Director of Emperor Oil Ltd
–– Audit Committee
–– Remuneration Committee
–– Reserves Committee
Corporate Governance  2013
CARMEN RODRIGUEZ
Non-Executive Director
Appointed to the Board March 2012
Ms. Rodriguez has most recently
held the position of Chairperson and
CEO (from 2007 to 2012) of Sociedad
Estatal Española P4R, S.A., a Spanish
government owned consultancy
firm specialising in foreign trade,
investment and co-operation. She was
also, until recently, a trustee of the
Spain-China Council Foundation,
the Spain-India Council Foundation
and Casa Arabe. She has previously
held many other senior executive
positions including at commodities
trading companies. Ms. Rodriguez
was awarded the prestigious Órden
de Isabel la Católica by King
Juan Carlos of Spain in 1990, in
recognition of her services to the
Spanish people and work with
the international community.
–– Spanish Committee of the United
Nations Relief and Works Agency
–– Plan International/Spain
Foundation
–– Audit Committee
–– Remuneration Committee
H E R I TA G E O I L P L C
07
MARK ERWIN
Non-Executive Director
Appointed to the Board May 2012
Mr. Erwin served in the United States
Army for over 25 years, culminating
his career as the Chief of Staff of
the United States Army Special
Operations Command. He became a
specialist in building teams of joint,
interagency partners working closely
with other nations’ leadership, both
military and civilian. In 2011, Mr
Erwin started Long Walk Enterprise,
LLC, a service-disabled veteran-
owned small business providing
consulting and operational support
services. Mr. Erwin served on the
board of A&K Global Health, a
medical travel services company
operating globally, as CEO.
–– Long Walk Enterprise, LLC
–– Corporate Social Responsibility
Committee
–– Anti-Bribery and Corruption
Committee
H e r i ta g e O i l P L C Corporate Governance  2013
08
i n memor y
We were very saddened at the sudden death
of General Sir Michael Wilkes, who was
a great friend and colleague. Sir Michael
was an honourable man with a highly
distinguished military career and approached
all aspects of life with great enthusiasm and
integrity. He will be remembered as an
exceptional individual who inspired those
around him and made a tremendous
contribution to everything he did.
g e n era l sir
mic h ae l w i l k es
19 4 0 – 2 0 13
General Sir Michael Wilkes, KCB, CBE, KStJ served in the British
Army for 35 years, retiring in 1995 as Adjutant General and Middle
East Adviser to the British government on defence matters. As
Adjutant General, Sir Michael was the most senior administrative
officer within the Army. During his distinguished career, he saw
active service across the world while also commanding at every level
from Platoon to Field Army, including commanding the 22nd Special
Air Service Regiment and serving as the Director of Special Forces.
In addition, he held a number of senior staff appointments in the
Ministry of Defence, including membership of the Army Board.
The son of an Artillery officer, Michael John Wilkes was born at
Steep, Hampshire, on June 11, 1940 and educated at King’s School,
Rochester, where he played rugby for the 1st XV. After attending
RMA Sandhurst, he was commissioned into the Royal Artillery in
1960 and joined 7 Parachute Regiment Royal Horse Artillery (RHA)
the following year.
In 1977, he took command of 22 SAS at the age of 36. One of the key
roles for the unit at that time was to develop new techniques for, and
deal with, increasingly common hostage situations, negotiating with
those making demands and delivering precision assaults when it was
judged that talks had broken down. Under his leadership, the
regiment became adept at responding rapidly to the different tactics
employed by terrorists. He also set up a robust liaison system linking
the SAS commander to the police, the security services and the
Cabinet Office Briefing Rooms (Cobra).
 Corporate Governance  2013 H e r i ta g e O i l P L C

09

In 1980, he became military assistant to the Chief of the General

Staff, the head of the Army. In 1986, after appointments as Chief
of Staff 3 Armoured Division and then command of 22 Armoured
Brigade, he was appointed Director of Special Forces where he
remained until 1988.

He was appointed OBE in 1980 and advanced to CBE in 1988. In

1990, he was promoted to Lieutenant General and knighted KCB,
becoming Commander UK Field Army and Inspector-General of
the Territorial Army.

In 1992, he was appointed Middle East Adviser, reporting to the

Chief of Defence Staff. His advice on the reorganisation of Jordan’s
armed forces earned him the country’s Order of Merit, 1st Class.
He became a full General in 1993. As Adjutant General, among his
responsibilities as a member of the Army Board, were the Army’s
terms and conditions of service, individual training, recruitment
levels, discipline, education and reports on the state of morale of
the Army.

He was Colonel Commandant of the Honourable Artillery Company

1992-98, vice-president of the SAS Association from 2002 to 2011,
president Army Cadet Forces Association from 1993 and president
of the Special Forces Club, the Travellers’ Club and the Royal
Channel Islands Yacht Club.

In 1995, he retired from the Army and for the next five years
was Lieutenant-Governor and Commander-in-Chief of Jersey.

Throughout his career he gained extensive commercial and

corporate governance experience which led to his appointment as
non-executive director for many private and public companies. At
the time of his death he had external appointments as non-executive
director on AIM listed companies Stanley Gibbons Group and
Blue Star Capital plc as well as non-executive positions on a number
of private companies including Britam Defence.

As well as being Senior Independent Director for Heritage,

Sir Michael was a member of the Audit Committee, Remuneration
Committee, Nomination Committee and Anti-Bribery and
Corruption Committee. The Board considered him to be a
highly valuable member of the team.

General Sir Michael Wilkes, KCB, CBE, KStJ was born on June 11,
1940. He died on October 27, 2013 aged 73.
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10

Report of the direc tors

leadership
Directors of the Company who served in 2013 and up to the date of SKILLS AND E XPERIENCE OF THE BOARD
the signing of this report, unless indicated otherwise, are:
Appointment dates

Michael Hibberd 1
Finance
Chairman and Non-Executive Director 18 March 2008 Legal
Anthony Buckingham2 Mining/exploration/engineering
Chief Executive Officer 25 February 2008 Security/defence
Pa u l At h e r to n 2

Chief Financial Officer 6 February 2008

M a r k Er w i n
Non-Executive Director 1 May 2012
John McLeod1
LENGTH OF TENURE OF THE NON - E XECUTIVE DIREC TORS
Non-Executive Director 18 March 2008
C a rm e n R o d r i g u e z
Non-Executive Director 22 March 2012
Gr e g o r y T u r n b u l l 1 1-4 years 33%
Non-Executive Director 18 March 2008 4-5 years 67%
Sir Mich a el W il k e s1 18 March 2008
Non-Executive Director and Senior Died: October 2013
Independent Director

1 The Director was appointed on 18 March 2008 and this became effective on the Company’s
listing on the LSE on 28 March 2008.
2 The Director was appointed as indicated and this became effective on the Company’s listing
on the LSE on 28 March 2008.

Biographical details of all current Directors can be found on pages BAL ANCE OF NON - E XECUTIV E AND E XECUTIV E DIREC TORS
6 to 7 of this report. With the exception of Carmen Rodriguez and
Mark Erwin, all the Directors were previously, and continue to be,
Directors of HOC.
Non-Executive Chairman
CO M POSITION OF THE BOA R D Executive Directors
There are currently seven Directors, five of whom are Non-Executive Independent Non-Executive
Directors. The Chairman and three of the Non-Executive Directors Directors
are deemed to be independent under the terms of the Code. Non-Independent
Non-Executive Director
The current composition is assessed by the Board to be highly
effective. There is a balanced mix of skills and experience, a variance
in length of tenure of Non-Executive Directors which ensures
continuity and new perspectives, and a good balance between
Executive and independent Non-Executive Directors. The variety of
experience of the Directors, brings a balanced diversity of thought to
Board deliberations.

APPOINT M ENTS TO THE BOA R D

It is crucial that the appropriate skills and balance of talents are
represented on the Board. This is an area of ongoing focus for the
Board which has delegated the tasks of reviewing Board composition,
searching for appropriate candidates and making recommendations
to the Board on appointment of Directors to the Nomination
Committee. The Board composition was refreshed in 2012 with
the appointment of Carmen Rodriguez and Mark Erwin. The
appointments process and role of the Nomination Committee
is described more fully in the Report of the Nomination Committee
on pages 41 to 42.

R E - ELECTION
With regard to retirement and re-election of Directors, the Company
is governed by its Articles, the Code and the Jersey Companies Law.
Under the Articles, Directors have the power to appoint a Director to
the Board during the year but any person so appointed must stand for
election at the next AGM. All Directors retire and stand for re-
election annually in compliance with the Code. Directors re-elected
at the AGM are appointed for a one year term.
INDEPENDENCE
The Board’s assessment of the independence and effectiveness of
the Non-Executive Directors is made regularly. In addition to the
requirements of the Code, this assessment includes the Directors’
total number of commitments, relationships with major suppliers
or with charities or other entities receiving material support from
the Company.
The Board considers that Michael Hibberd, John McLeod, Carmen
Rodriguez and Mark Erwin and are independent in character and
judgement and free from relationships or circumstances which may
affect their judgement. On appointment, the Chairman was
considered to be independent and continues to be so.
The Board acknowledges that John McLeod does not meet the strict
independence criteria set out in the Code as he has served as a
Director of HOC, the prior holding company of the Group, for more
than nine years and was previously granted options. However, the
Board has satisfied itself that neither of these factors impact John
McLeod’s independence in character and judgement. His length of
service on the Board enhances his ability to perform his duties
effectively and helps maintain an appropriate balance between
experienced Non-Executive Directors and those more recently
appointed to the Board. John McLeod, like all Directors, stood for
re-election at the last Annual General Meeting and received
overwhelming support from shareholders and was re-elected.
Gregory Turnbull does not meet the independence criteria set out by
the Code as he is a partner of McCarthy Tétrault LLP, the Canadian
legal advisers to the Company.
CONFLICTS OF INTE R EST AND R ELATED PA R TY
T R ANSACTIONS
Under the Articles, a Director may be a party to, or otherwise
interested in, any transaction or arrangement with the Company
as long as they have disclosed to the Directors the nature and extent
of any interests at the first meeting of the Directors at which a
transaction is considered or as soon as practical after that meeting
by notice in writing to the Secretary. Where disclosure is made to the
Secretary, the Secretary must inform the other Directors that it has
been made and table the notice at the next meeting of the Directors.
Any such disclosure at a meeting of the Directors must be recorded
in the minutes of the meeting. Any potential or actual conflicts of
interest are regularly reviewed by the Board.
The Company’s Code of Business Conduct and Ethics also requires
Directors (and employees) to avoid conflicts of interest which may
interfere or appear to interfere with the obligation to act in the best
interests of the Company.
Corporate Governance  2013 H e r i ta g e O i l P L C
11
Related party transactions with Directors are disclosed in note 23 of
the notes to the consolidated financial statements in the Financial
Statements Report. The current related party transactions relate to
provision and personal use of transportation services.
R e l at i o n s h i p a g r e e m e n t
The Company had in place a Relationship Agreement between Albion
Energy Limited, the Company’s largest shareholder and Anthony
Buckingham in March 2008 as part of the process to list on the Main
Market. This agreement has now expired but it is likely that a new
relationship agreement will be required in the near future under
FCA proposed changes to the Listing Rules. The purpose of the
relationship agreement will be to ensure that transactions with any
controlling shareholder can be conducted at arm’s length and on
normal commercial terms and that the controlling shareholder
cannot take any action which would have the effect of preventing
the Company from complying with its obligations under the
Listing Rules.
R OLE OF THE BOA R D
The Board’s principal roles are direction, supervision and
stewardship. How the Board fulfilled these responsibilities during the
year, for example by directing strategy and objectives and upholding
the values and culture of the Group, are shown in the table on page
15 which summarises the Board’s activities for the year. The detailed
responsibilities of the Board are set out in a schedule of matters
reserved for its attention which is reviewed on a regular basis.
The most recent review was carried out in 2013.
R ESPONSIBILITIES OF THE BOA R D
The schedule of matters reserved for the Board sets out its
responsibilities. These include:
–– approval of strategy and long-term objectives;
–– establishing and communicating the Company’s values and
standards;
–– determining the nature and extent of risks that the Board is
willing to take to achieve its objectives;
–– approval of annual budgets, business plans, annual and half
year reports and dividends;
–– review of press releases and all financial information to be
released to the market;
–– reviewing performance in light of strategy, objectives and
business plans and ensuring corrective action is put in place
if necessary;
–– approving changes to Board composition;
–– approval of material acquisitions, disposals and contracts;
–– considering items of major litigation;
–– ensuring the effectiveness of the Company’s system of internal
controls including managing risks; and
–– approval of Group policies including the Code of Ethics,
Anti-Bribery and Corruption, Code of Conduct, health, safety
and environmental policies.
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DI V ISION OF R ESPONSIBILITIES
There is a clear division of responsibility between the roles of the Chairman, Michael Hibberd, and the Chief Executive Officer (“CEO”),
Anthony Buckingham, to ensure an appropriate balance of responsibility and accountability. The Senior Independent Director (“SID”) was
Sir Michael Wilkes and a replacement is being sought. The responsibilities of the Chairman, CEO and SID, which have been formalised in
writing, were reviewed by the Board during the year. The key responsibilities are summarised below.

CHAI R M AN ’ S R OLE Chief executive officer’s SENIO R INDEPENDENT

  R OLE DI R ECTO R ’ S R OLE

B u s i n e s s s t r at e g y a n d
Governance management General

Upholding the highest standards of Development and implementation of Board To act as a sounding board for the
integrity, probity and corporate governance approved objectives and strategy. Oversight Chairman and serve as an intermediary for
throughout the Group, particularly at and management of all operations, business the other Directors when necessary.
Board level. activities and performance.

Running of the Board Investment and financing Shareholders

Leading the Board and setting its agenda,
ensuring adequate time is given to matters
under consideration and ensuring Directors
receive accurate, timely and clear
information in order to carry out their
responsibilities. Managing the Board to
allow enough time for discussion of
complex or contentious items and, in
particular, strategic issues.
Recommending annual budgets and
business plans to the Board and identifying
new business opportunities in line with
strategic plans.
To be available to shareholders if they
have concerns which contact through the
normal channels of Chairman, CEO or
Chief Financial Officer (“CFO”) has failed
to resolve.
To attend sufficient meetings with major
shareholders and analysts to obtain a
balanced understanding of the issues and
concerns of such shareholders.

Directors’ induction,
development and Risk management and
e va l u at i o n controls C h a i rm a n

Facilitating constructive relationships Ensuring appropriate risk management and To meet with the other Non-Executive
between Directors and induction, training internal control systems are in place. Directors at least once a year to appraise the
and development needs of Directors. Chairman’s performance and on such other
Ensuring that the performance of the occasions as deemed appropriate.
Board, its committees and individual
Directors is evaluated annually and acting
on the results of such evaluation.

R e l at i o n s w i t h Executive team and

shareholders management

Ensuring communication and dialogue is Leading the management team, ensuring

entered into with shareholders and the Group policies and procedures are followed
effective use of the AGM and Extraordinary and the development of a succession plan
General Meetings. for senior management.
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GO V E R NANCE ST R UCTU R E

BOA R D
The Board is supported by the work of its committees and delegates day-to-day
management of the Group to senior management

SUPERVISION S TE WA R DSHIP
Review of performance against strategy Approval of strategy
Review of financial information Values and standards
Review of effectiveness of internal controls and risk management Approval of Group policies

BOA R D CO M M ITTEES

AUDIT R E M U N E R AT I O N N O M I N AT I O N RESERVES ANTI- CSR COMMIT TEE

COMMIT TEE COMMIT TEE COMMIT TEE COMMIT TEE BRIBERY AND
CORRUPTION
COMMIT TEE

Monitors integrity of
financial statements
Reviews accounting
policies
Manages relationship
with and oversees
external auditor
Considers auditor
independence
Sets remuneration policy
Reviews and approves
remuneration of
Executive Directors
Reviews and approves
LTIP schemes
Makes Oversight Oversees anti-bribery Sets CSR Policy
recommendations on responsibilities with programme and ethical Framework
Board composition respect to the policies and practices
Company’s oil and gas Reviews internal
Reviews succession reserves evaluation CSR programme
planning process
Reviews Board Considers independence
performance of the technical
evaluator

SENIO R M ANAGE M ENT / LEADE R SHIP TEA M

The Board delegates management of business and day-to-day CO M M ITTEES

operational decisions to executives and is responsible for monitoring The Board has delegated certain responsibilities to its Committees in
performance. The Executive Directors have close involvement line with recommendations of the Code, to facilitate progressing the
with the operations of the business through their operational roles business of the Board. These are the Audit, Remuneration,
and the Board is supported by a strong and experienced senior Nomination, Reserves, Anti-Bribery and Corruption and CSR
management team. Committees. The duties of these Committees are set out in formal
Terms of Reference approved by the Board which are available on
NON - EXECUTI V E DI R ECTO R S the Company’s website www.heritageoilplc.com. Attendance of
The importance of the role of a Non-Executive Director is recognised non-Committee member Directors is encouraged at all Committee
by the Board. The responsibilities of the Non-Executive Directors to meetings except where matters associated with their own interests
constructively challenge and help develop strategy are set out in the are being discussed.
individual letters of appointment of each Non-Executive Director.
Non-Executive Directors are also specifically tasked with
responsibilities in the areas of strategy, performance, risk and people
to ensure the effective operation of the Board. Non-Executive
Directors are aware of their responsibilities and feel able to raise any
concerns at Board meetings, which are minuted accurately in the
Board meeting minutes.
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Effectiveness
HOW THE BOA R D OPE R ATES
THE BOA R D CHA R TE R
Our Board Charter details the basic operation and processes governing the running of the Board. It sets out the Directors’ responsibilities and
conduct of Directors. It also covers Board meeting procedures concerning agenda, papers, minutes, conflict of interest procedures and other
governance matters, such as the procedure for Directors to take independent advice if required.

BOA R D M EETINGS
Board and Committee meeting attendance in 2013.
Audit Remuneration Nomination Reserves Anti-Bribery CSR
Board Committee Committee Committee Committee Committee Committee
(8 meetings) (4 meetings) (5 meetings) (2 meetings) (2 meetings) (2 meetings) (2 meetings)

Michael Hibberd 8 4 – 2 2 2 2
Anthony Buckingham 8 – – 2 – – 2
Paul Atherton 8 – – – 2 2 2
Mark Erwin 8 – – – – 2 2
John McLeod 8 4 5 – 2 – –
Carmen Rodriguez 6 4 5 – – – –
Gregory Turnbull 8 – – – – – –
Sir Michael Wilkes1 6 3 4 2 – 2 –

1 Sir Michael Wilkes died in October 2013.

A report on the Committee activities can be found later in this report on pages 22 to 46.

The Board met in formal meetings 8 times during the year and is scheduled to meet at least four times a year. It also engaged informally in
numerous ad hoc information calls which were not convened as formal meetings. The Board believes that one of its strengths is in having open
communication channels that enable its Directors to engage informally on a variety of topics.

The attendance record of each Director at formal Board meetings is shown in the table above. As well as formal meetings, the Chairman,
CEO and CFO maintained frequent contact with other Directors to discuss any issues they may have had relating to the Group or as regards
their areas of responsibility and to keep them fully briefed on the Group’s operations and initiatives. Additionally, the Chairman and
Non-Executive Directors met and spoke regularly during the year, and on an ad hoc basis, without the Executive Directors being present.
 Corporate Governance  2013 H e r i ta g e O i l P L C

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WHAT THE BOA R D DID DU R ING THE YEA R

How the Board fulfilled its responsibilities of direction, supervision and stewardship is highlighted in the summary of the key items reviewed
and discussed at Board meetings during the year.

S t r at e g y –– consideration of business opportunities;

–– discussions re PetroFrontier Corp. (“PetroFrontier”);
–– review of development opportunities and market activity; and
–– presentation from technical team and corporate presentation.

P e r f o rm a n c e / r i s k –– operational updates;
–– review of operational issues in Nigeria; and
–– update reports on Ugandan tax issue.

Governance/csr –– AGM arrangements and Notice;

–– review of Schedule of Matters;
–– discussion on community building campaign in Nigeria and review of political and
social issues;
–– reports from Board Committees and Senior Independent Director reports;
–– review of related party transactions and conflicts of interest;
–– review of UK Code compliance;
–– approval of amended Disclosure Policy;
–– review of Whistle-blowing Policy;
–– approval of announcements to the market; and
–– review of need for further independent Non-Executive Directors.

Finance –– approval of Group’s budget;

–– consideration of need for internal audit function;
–– Nigeria re-financing;
–– financing arrangements to be entered into by Shoreline;
–– consideration of Letter of Credit;
–– consideration of share buyback proposals; and
–– approval of Annual Report and Accounts and financial statements.
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CO M M IT M ENT , DE V ELOP M ENT , INFO R M ATION AND SUPPO R T

It is in the whole Board’s interest to ensure that all Directors have sufficient time to commit to their duties and that they receive the training
and information they require in order to perform effectively. Further information on how the Company applies the provisions of the UK
Corporate Governance Code may be found in the Appendix on pages 47 to 62.

The Non-Executive Directors’ letters of appointment set out the duties of the Director and commitment expected. A summary of the typical
terms of appointment for a Non-Executive Director is set out below.

SU M M A R Y OF NON - EXECUTI V E DI R ECTO R S ’ LETTE R OF APPOINT M ENT

Area Comment

TE R M Appointed for initial three year term with typical tenure expected of
two three year terms, subject to annual re-election by shareholders.
TI M E CO M M IT M ENT At least 20 days per annum.
EXPECTED DUTIES Attendance at Board meetings, AGM, meetings of the Non-Executive
Directors, meetings with shareholders, training if needed, meetings as
part of the Board evaluation process.
R ESPONSIBILITIES OF ALL DI R ECTO R S The Board provides entrepreneurial leadership within a framework of
effective controls, sets the Company’s strategic aims, ensures necessary
financial and human resources are in place, reviews management
performance, sets the Company’s values and standards and ensures
obligations to its shareholders and others are understood and met.
R OLE OF THE NON - EXECUTI V E DI R ECTO R Key elements of the Non-Executive Director’s role are:
–– strategy – Constructively challenge and develop proposals;
–– performance – Scrutinise the performance of management in
meeting agreed goals and objectives and monitor reporting of
performance;
–– risk – Satisfy themselves on the integrity of financial information
and that financial controls and systems of risk management are
robust; and
–– people – Determine appropriate levels of remuneration of
Executive Directors and take a lead role in appointing Executive
Directors and succession planning.
OUTSIDE INTE R ESTS / CONFLICTS Disclose significant commitments to the Board and notify any
OF INTE R EST changes to these in advance. Disclose any potential or actual conflicts
of interest.
P R ICE SENSITI V E INFO R M ATION Compliance with Model Code, Company’s Share Dealing Code and
AND SHA R E DEALING Disclosure and Transparency Rules on insider dealing required.
E V ALUATION / T R AINING Individual Directors, the Board and its Committees are subject to
annual review. Arrangements for training on an ongoing basis are
made available if required.
CONFIDENTIALITY Duties set out in respect of confidential information of the Company.

INDUCTION
An induction plan is in place for new Directors joining the Board. No Directors joined the Board in 2013 but a typical induction process
covers the following areas:
Area Facilitated by

BOA R D P R OCEDU R ES , DUTIES OF A DI R ECTO R , Chairman

CO R PO R ATE GO V E R NANCE
ST R ATEGY AND BUSINESS DE V ELOP M ENTS Chief Executive Officer
FINANCIAL PE R FO R M ANCE , FINANCIAL Chief Financial Officer
R EPO R TING , BUDGETS , R ISK
IN V ESTO R R ELATIONS Head of Investor Relations
CO M PANY AND INDUST R Y SPECIFIC Visits to Head Office in Jersey and meetings with the Company’s
technical team to provide overview of operations
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E V ALUATION
The Board undertakes regular evaluations of its own performance as well as that of the various Board Committees. Evaluations carried
out with the assistance of an external facilitator, Hay Group, were carried out in 2009 and 2010. Internal reviews were conducted by the
Chairman in 2011 and 2012. As required by the Code, an externally facilitated evaluation was again conducted in 2013 and is reported
on below.

C h o i c e o f Ev a l u a t o r
The choice of external evaluator was a key consideration for Heritage. The brief was to find a company used to dealing with board members
who would provide a bespoke service to address the specific requirements of the evaluation. Hay Group was chosen to conduct the process
due to their experience, knowledge, flexibility in approach and ability to engage meaningfully with the Directors. Hay Group also provide
remuneration advice to the Remuneration Committee. Hay Group’s knowledge of the background and development of Heritage was also
an important factor enabling them to carry out an effective and targeted process.

Ev a l u a t i o n Pr o c e s s
The evaluation was carried out using a detailed questionnaire that covered the following areas:

–– role of the Board;

–– Board information and Board meetings;
–– Board composition;
–– Board dynamics and leadership;
–– effectiveness of Board Committees; and
–– self assessment.

The findings from the evaluation exercise were discussed with the Chairman and reviewed by the whole Board before a set of actions
were agreed.

M a i n R e c o mm e n d a t i o n s
Summary
Overall, the Board is satisfied with its performance, capability and operational effectiveness. All Board members have a positive view
of the elements assessed in the survey. However, some areas received fewer positive responses and certain areas have been identified for
improvement which are detailed below.

The Board’s strengths

A number of strengths emerged from the evaluation exercise which were:

–– Board meeting agendas and presentations are effective and relevant;

–– Board members feel that their fellow Directors are knowledgeable about the industry and market;
–– good Board relations and strong support for the Chairman;
–– the three principal Board committees are considered to be effective; and
–– Board members are confident in their understanding of the business and ability to carry out their roles.
Theme Actions to be taken

T h e C o m pa n y c o u l d b e n e f i t f r o m h av i n g a Nomination Committee to review the existing CEO succession

m o r e d e t a i l e d s u c c e s s i o n p l a n f o r t h e CEO
E n s u r e C o m pa n y i s f u l ly p r e pa r e d f o r
e m e r g e n c y o r c r i s i s s i t u at i o n s
T i m i n g o f r e c e i p t o f B o a r d m at e r i a l s
Fr e q u e n c y o f m e e t i n g s
The Board coul d benefit from hav ing an
additional member with strong financial
background who coul d al so ac t a s a ne w
c h a i rm a n f o r t h e A u d i t C o mm i t t e e
Benefit of hav ing tr aining sessions
o n UK b o a r d m a t t e r s
plan to ensure it is current, appropriately detailed and all Directors
are aware of it.
Review the crisis disaster plan to ensure it is robust.
Implement a timetable for the circulation of preparatory material
prior to Board meetings.
Establish a “minimum contact” threshold and agree a schedule which
dictates that, where Board meetings are in excess of this threshold,
progress updates or teleconference meetings are organised.
Nomination Committee to begin formal proceedings for the hire
of a Board member with an appropriate financial background.
Provide external training for Board members on UK corporate
governance, board effectiveness and UK executive remuneration.

Pr o p o s a l s f o r n e x t y e a r ’ s e v a l u a t i o n
Evaluation in 2014 will follow up the action points highlighted from 2013’s evaluation to ensure they have been addressed.
H e r i ta g e O i l P L C Corporate Governance  2013
18
Report of the direc tors continued
A c c o u n ta b i l i t y
Under the Code the Directors must state that they consider the
Annual Report and Accounts, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company’s performance, business model
and strategy. The Board requested the Audit Committee lead this
assessment. Factors considered were the carrying value of intangible
assets and property, plant and equipment, the appropriate
consolidation percentage of Shoreline and the completeness and
accuracy of the accounting for the non-operated interest in OML 30
given its materiality for the Group. The statement in compliance with
this provision of the Code appears in the Financial Review on page 7.
It is also the responsibility of the Board to ensure that there is in place
a system of checks and balances to manage risk across the Group. It
has well established internal control procedures which are described
below. The Audit Committee is responsible for reviewing and
reporting on the effectiveness of the Group’s control systems.
FINANCIAL AND BUSINESS R EPO R TING
It is essential that shareholders are provided with a clear assessment
of the Group’s position and prospects. The Annual Report and
Accounts, half yearly report and other periodic financial or trading
statements provide this information to shareholders and the market.
Financial reporting is controlled principally through the policies set
out in the Financial Reporting Procedures Memorandum (the “Board
Memorandum”). This was first established as part of the process to
become listed on the Main Market of the LSE and is reviewed and
updated on an annual basis. The Board Memorandum was
specifically updated in 2012 to ensure that established procedures
allow the Directors to continue to make proper and informed
judgements on the financial position and prospects of the Group
following the acquisition of an interest in the OML 30 licence in
Nigeria. The Directors recognise the need to maintain financial
reporting procedures, to review them on an ongoing basis and to
adapt them to changing circumstances and will use the Board
Memorandum as a basis for further developing control processes.
In fulfilling its responsibility to monitor the integrity of financial
reports to shareholders, the Audit Committee reviews accounting
principles, policies and practices adopted in the preparation of public
financial information and examines documentation in relation to
the Annual Report and Accounts and annual financial report
announcements. The ultimate responsibility for reviewing and
approving the half year and annual financial statements remains
with the Board.
The Company’s internal controls and reporting procedures and
systems are being implemented by Shoreline, the joint venture
company incorporated in Nigeria that owns an interest in OML 30.
Good progress has been made with the implementation of financial
controls that are used by Heritage Oil Plc and the same consultants
are being used for advisory work.
R ISK M ANAGE M ENT AND INTE R NAL CONT R OL
It is the Board’s responsibility to determine the nature and extent of
the significant risks it is willing to take in achieving its strategic
objectives. It also has overall responsibility for the Group’s system of
internal control and risk management and has established processes
for identifying, evaluating and managing the significant risks that the
Group faces. This includes significant risks that may arise from
environmental, social and governance matters. The Group’s system of
internal control is designed to manage, rather than eliminate, the risk
of failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material misstatement
or loss. The risk assessment and internal control procedures were
in place from the start of 2013 to the date of approval of this report
and have been reviewed by the Board in accordance with the
Financial Reporting Council’s guidance on internal control
(the “Turnbull Guidance”).
The Audit Committee reviews regularly, on behalf of the Board, the
effectiveness of the Group’s system of internal control. The review
covers all controls, including financial, operational and risk
management processes. Appropriate actions are put into place to
remedy any weaknesses identified by the review. One weakness
identified in its financial procedures reporting concerns accounting
for complex financial transactions and so the Company ensures that
it seeks third party advice to mitigate this weakness.
INTE R NAL CONT R OL F R A M EWO R K
The Board Memorandum sets out the internal control systems of the
Group including governance, high level financial controls, budgeting
and forecasting procedures, controls of resources, accounting and
information systems and treasury management. The Board
Memorandum also specifically includes OML 30 acquisition risks
and controls and integration plans. In addition to high level controls,
controls are in place at an operational level. These systems are based
on established management structures with defined lines of
responsibility and clear delegation of authority.
High level controls include:
–– review of management accounts with comparison of actual
performance against prior periods and budget;
–– approval of orders, authorisation of invoices and two signatories
required to make a transfer from the principal bank accounts;
–– quarterly reconciliation of all control accounts;
–– prior approval by the Board for major investments; and
–– segregation of duties between relevant functions and
departments.
Entity-level controls set the tone and establish the expectations of the
Group’s control environment and are used to monitor the extent to
which that tone and expectations are being fulfilled. These include
controls within each of the following elements:
–– control environment;
–– risk assessment;
–– information and communication; and
–– monitoring.

R ISK ASSESS M ENT
Formal risk assessments are conducted periodically during the year
which cover all material controls, including financial and operational,
and risk management systems. A risk matrix has been developed
which aids identification of the primary risks the Group faces and
likelihood of their occurrence. The primary risks are collated from
this assessment with recommended controls to mitigate these risks
and presented to the Audit Committee for review. The Board receives
reports of the Audit Committee’s review of the internal control
system, risk assessment process and any reports made under its
whistle-blowing policy.
Details of principal risks and uncertainties, which are those reviewed
by the Audit Committee during the year, are discussed on pages 32
to 34 of the Strategic Report.
WHISTLE - BLOWING POLICY
An important part of the Company’s control processes is having a
reporting system that can be used by employees to report possible
fraud or wrongdoing. The whistle-blowing policy and procedures in
place were reviewed during the year. Information is available to all
employees advising them that they can raise concerns in confidence
about possible wrongdoing by contacting the Chairman of the Audit
Committee. In addition, the Board and Audit Committee receive
reports of any information reported under the whistle-blowing
procedures and appropriate action is taken as a result.
Corporate Governance  2013 H e r i ta g e O i l P L C
19
R e l at i o n s w i t h
shareholders
The Chairman, with input from the SID and Executive Directors, is
responsible for ensuring effective communication of shareholders’
views to the Board as a whole and will update the rest of the Board
accordingly. Board members are expected to use their best
endeavours to attend meetings with a broad range of shareholders
or otherwise keep in touch with shareholder opinion and discuss
strategy and governance issues with them as time progresses. In
addition, the Company employs an investor relations specialist and
an investor relations programme is in place for the Company to meet
major shareholders and analysts.
Once the appointment of a new Senior Independent Director has
been finalised it will be within his/her remit to maintain sufficient
contact with major shareholders to help develop a balanced
understanding of their issues and concerns. They will also be
expected to be available to shareholders who have concerns that
have not been, or cannot be, resolved through discussion with the
Chairman, CEO or CFO or where such contact is inappropriate.
Throughout 2013, Executive Directors and senior management met
with institutional investors in London and across the UK as well as
other European and North American cities. These roadshows,
combined with the attendance of various Directors and/or senior
management at several conferences, provided for comprehensive
and engaging dialogue with shareholders. In addition, the Company
and its advisers entered into discussions with major shareholders in
respect of the resolutions put to its 2013 AGM, particularly in respect
of the resolution concerning the Rule 9 waiver. This enabled
shareholders to fully understand the reasons for this resolution.
The Company engages with and considers the views of investor
voting advisory services such as that provided by the Institutional
Voting Information Service and RREV Proxy Advisory Services.
The Board is aware of its reporting responsibilities and, where
necessary, takes advice to ensure that material information is released
on a timely basis. A Disclosure Policy is in place to ensure Directors
and management remain aware of their responsibilities in relation to
the release of price sensitive information. It is the Company’s policy
not to comment on market rumours or press speculation.
The Group issues its results and other news releases
promptly and publishes them on the Company’s website at
www.heritageoilplc.com. Other corporate information, including the
Annual Report, any prospectus and circulars issued during the year
and other financial presentations are also available on the website.
Shareholders and other interested parties can subscribe to receive
news updates by email by registering online on the website.
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A R TICLES OF ASSOCIATION SHA R EHOLDE R ANALYSIS

The Articles govern, amongst other things, the rights and obligations Analysis of the Company’s shareholder base, shown on the following
relating to the Company’s shares, powers of the Directors, two graphs, indicates that there has been a small change in the profile
proceedings at general meetings, and the appointment and of those holding shares in Heritage in 2013. There has been an
resignation of the Directors. The Articles may only be amended increase in retail shareholders and those classified as value investors
by a special resolution of the Company’s shareholders. and a decline in Hedge Fund holdings. The increase in management
shareholding is due to the exercise of options and LTIPs which were
SHA R E CAPITAL taken up.
The Company has two classes of shares, namely the Ordinary Shares
and the special voting share of HOC (the “Special Voting Share”).
HOC, the Company’s indirect subsidiary, has Exchangeable D E C E M B E R 2 0 12
Shares outstanding that are convertible into Ordinary Shares
of the Company.
Management 34.1%
The Ordinary Shares and the Special Voting Share carry no right to
Retail 12.2%
fixed income. The Ordinary Shares have a right to one vote for every
Other 11.6%
share at general meetings. The holders of Exchangeable Shares have Value 9.7%
rights through the Special Voting Share held by the trustee of the Multiple 9.9%
Voting and Exchange Trust to one vote at general meetings for every Growth 7.5%
Exchangeable Share on the same basis as if they had exchanged them Hedge Fund 9.2%
for Ordinary Shares. For clarity, the Voting and Exchange Trust is a Index 4.0%
Canadian Trust that holds the Special Voting Share for the benefit of Quantitative 1.8%
the registered holders of the Exchangeable Shares pursuant to the
terms of a Voting and Exchange Trust Agreement dated 27 February Source: J.P. Morgan Securities Ltd. Other consists of trading positions,
2008, as amended on 24 April 2008. custody and unclassified.

Subject to applicable statutes, shares in the Company may be issued

with such rights or restrictions as the Company may by Special D E C E M B E R 2 0 13
Resolution determine. Unissued shares are at the disposal of
the Board.
Management 36.4%
The issued share capital of the Company and total voting rights
Retail 13.1%
of the Company as at 29 April 2014 are as follows:
Other 12.6%
Value 12.3%
–– 275,669,060 Ordinary Shares of the Company are issued and Multiple 9.4%
outstanding, which constitutes 99.2% of the total voting rights Growth 5.9%
of the Company; and Hedge Fund 4.7%
–– 2,256,518 Exchangeable Shares of HOC, each carrying one Index 3.8%
voting right in the Company, are issued and outstanding, which Quantitative 1.8%
constitutes 0.8% of the total voting rights of the Company.
Source: J.P. Morgan Securities Ltd. Other consists of trading positions,
PU R CHASE OF OWN SHA R ES custody and unclassified.

At the AGM held on 20 June 2013, a Special Resolution was passed

by shareholders authorising the Company to make market purchases M A J O R SHA R EHOLDE R S
of its own shares up to the date of the next AGM. Any shares which As at 29 April 2014, the Company had been notified in accordance
have been so purchased may be held as treasury shares or cancelled with the Disclosure and Transparency Rules, of the following
immediately upon completion of the purchase. The Company interests in voting rights in its issued share capital:
proposes to buy back shares at low price levels if it is in the best Ordinary
economic interests of the Company to do so. The Directors consider Name Shares held % held1
that it is in the best interests of the Company and its Shareholders Albion 2
94,669,850 34.06
generally to allow the Company to make market purchases of Capital Research and
Ordinary Shares and to allow the Company to hold such Ordinary Management Company 24,547,051 8.83
Shares in treasury. London and Capital Asset
Management Ltd 10,475,045 3.77
As at 31 December 2013, the Company held a total of 34,602,442
Ordinary Shares in treasury equal to 13.4% of the issued share 1 Includes voting rights attaching to the Special Voting Share as well as the Ordinary Shares.
2 Number of Ordinary Shares held by Anthony Buckingham either directly or indirectly
capital as at 1 January 2013. As at 29 April 2014, 34,602,442 through Albion.
Ordinary Shares were held in treasury.

V OTING
Under the Articles, every member and every duly appointed proxy
present at a general meeting has, upon a show of hands, one vote.
If voting at a general meeting is carried out by poll, every member
present in person or by proxy has a vote for each share held.
T R ANSFE R S
Subject to the Articles, any member may transfer certificated shares
by an instrument of transfer in writing in any usual form or in any
other form acceptable to the Directors. Directors may refuse to
register any transfer of certificated shares which are not fully paid
or where the register of transfer is not in the acceptable form.
POWE R S OF THE DI R ECTO R S
Subject to the Articles, relevant statutory law and any direction that
may be given by shareholders in general meetings, the business of the
Company is managed by the Directors who may exercise all powers
of the Company.
change of control agreements
The Company confirms that it is not party to any significant
agreements that would take effect, alter or terminate upon a change
of control following a takeover bid except those disclosed below:
the Executive Directors’ service contracts contain certain provisions
in relation to change of control as disclosed in the Remuneration
Report; and the LTIP rules contain a provision whereby in the event
of a change of control all awards will vest in their entirety subject to
the achievement or otherwise of the performance conditions.
R ESULTS AND DI V IDENDS
The Group’s financial results for the year ended 31 December 2013
are set out in the Financial Statements Report of the Company’s 2013
Annual Report and Accounts.
The Company has not declared or paid any dividends since
incorporation other than a special dividend paid in 2010 to return
part of the sale proceeds from the disposal of Heritage Oil &
Gas Limited’s 50% interest in Blocks 1 and 3A in Uganda
(the “Ugandan Assets”).
It is the intention of the Directors that the Company becomes a
long-term sustainable dividend payer. Future payments of dividends
are expected to depend on the earnings and financial condition of the
Company and such other factors as the Board of Directors of the
Company consider appropriate.
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I M PO R TANT E V ENTS
Likely future developments are discussed in the Strategic Report on
pages 12 to 31.
R EGIST R A R
The Company’s share registrar is Computershare Investor Services
(Jersey) Limited of Queensway House, Hilgrove Street, St Helier,
JE1 1ES, Jersey, Channel Islands.
ANNUAL GENE R AL M EETING
The 2014 AGM will be held at 22 Grenville Street, St Helier, JE4 8PX,
Jersey, Channel Islands on 30 June 2014. Formal notice of the AGM,
including details of special business, is set out in the Notice of AGM
and dispatched to shareholders at least 20 working days before the
meeting. The Notice of AGM will also be available on the Company’s
website at www.heritageoilplc.com.
The AGM gives shareholders an opportunity to hear about business
developments and ask questions of the Directors. Shareholders are
encouraged to send questions, prior to the meeting, to the Company’s
registered office in Jersey. For those shareholders not able to attend
the meeting, any presentation given at the meeting together with
results of voting will be available on the Company’s website. All of
the Directors are expected to attend the AGM and be available to
answer questions. Voting at the AGM will be by poll, which the
Directors believe is the most representative way of conducting voting,
giving shareholders one vote for each share held and enabling those
shareholders not able to attend the meeting in person an opportunity
to vote by lodging a proxy vote. Details of how to vote and deadlines
for exercising voting rights are set out in the Notice of AGM.
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R e p o r t o f t h e r e m u n e r at i o n c o m m i t t e e

Delivering
success

john mcleod
CH a i r m a n o f t h e r e m u n e r a t i o n c o m m i t t e e

Dear Shareholder,
On behalf of the Board and the
Remuneration Committee, I am delighted
to present this year’s Remuneration Report
for Heritage.
Our consideration of remuneration has been reviewed in the context
of developments during the year. Over the past 12 months, Heritage
has increased production through the successful acquisition in
November 2012 of a major interest in the world class OML 30 Field
through our joint venture Shoreline with Shoreline Power Company
Limited (“Shoreline Power”). This has transformed the cash flow
generation of the Company and in due course it is the intention for
Heritage to pay a sustainable dividend. We have made great progress
over the year with production net to Heritage increasing by 256%
and operating cash flows, net to Heritage of $235 million. We have
extended our footprint further in Nigeria by establishing an
indigenous Nigerian oil company Petrobay Energy Limited
(“Petrobay”), a joint venture agreement with two local companies
including Bayelsa Oil Company, owned by the Bayelsa State
government. Through Petrobay and Shoreline, Heritage expects
to be a significant contributor to the future development of the oil
and gas industry in Nigeria. The exploration portfolio continues to
increase and Papua New Guinea has been added as a core area. Over
the course of the year four licences were farmed into and the work
programmes are progressing with three exploration wells planned
to be drilled for 2014. Our work programmes in Tanzania have also
advanced and the drilling programme will now be expanded to
include two wells across the licences in 2014/2015.

At the end of October we were very saddened by the death of General

Sir Michael Wilkes who had been a Non-Executive Director of the
Company since its listing in the UK in 2008. As well as being the
Senior Independent Director, Sir Michael was a member of various
committees, including the Remuneration Committee. The Board is
considering appointing a replacement to the Committee.
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We are committed to providing a clear explanation of the underlying
principles of our reward policy and ensuring our Executive Directors’
remuneration arrangements support the delivery of our business
strategy and reward for exceptional Company performance.
On 1 October 2013, the UK Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2013
came into effect. These new regulations governing the disclosure and
approval of directors’ remuneration require the remuneration report
to be split into three parts: the annual statement, the Policy Report
and the Annual Report on Remuneration. The Policy Report, which is
not required to be audited, contains the particular reference of the
link between our reward policy and the business strategy. The
Annual Report on Remuneration, or Implementation Report, which
contains audited information in accordance with the Regulations,
provides details of the Executive Directors’ emoluments, performance
share awards, options and pension arrangements.
The key challenge faced this year by the Committee was to ensure
that existing remuneration arrangements for the Board were fully
explained in the new Directors’ Remuneration Report format as
stipulated by the new regulations. No changes were made to the
remuneration policy during the year; however, the process of
calculating bonus payouts has been defined in more detail
than previously.
Other Committee activities carried out during the year were an
interim review of the Company’s performance against the awards
made under the 2011, 2012 and 2013 long-term incentive plans
and a remuneration review to determine the competitiveness
of the Executive Directors’ remuneration arrangements against
the market.
Normal stakeholder engagement has been carried out through
the Investor Relations function as in previous years.

Together with the rest of the Board I look forward to hearing your
We have made great progress over the views on these matters as well as any other questions you may have
concerning the Group’s executive remuneration policy.
year with production net to Heritage
increasing by 256% and operating cash JOHN MCLEO D
CHAIRMAN OF THE REMUNERATION
flows, net to Heritage, of $235 million. COMMITTEE
2 9 APRIL 2 0 1 4

In accordance with the new regulations, the remuneration policy, as

outlined in the following Policy Report, will be subject to a binding
vote. The Annual Report on Remuneration will be subject to an
advisory vote. Both resolutions will be put to shareholders at the
AGM on 30 June 2014.

We are mindful that the market for experienced and talented oil
executives remains highly competitive and believe that retaining
the current Executive Directors protects the best interests of the
Company and our shareholders.

Against the background of this year’s Company performance,

the Remuneration Committee considers the remuneration paid
to our management team to be a fair reflection of performance.
In particular, we have performed well against the key measures
of the bonus and, as a result, bonuses were paid out at 50%
of the maximum.
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POLIC Y REPORT
This section of the Directors’ Remuneration Report sets out The Committee considers that the Executive Directors’ remuneration
Heritage’s remuneration policy for the current financial year and policy should be sufficiently flexible to reward outstanding
future financial years and has been prepared in accordance with the performance, in line with the performance-driven culture of
UK Large and Medium-sized Companies and Groups (Accounts the Group.
and Reports) (Amendment) Regulations 2013. When developing
this policy, we have also taken into account the principles of the C o n s i d e r at i o n o f e m p l oy m e n t c o n d i t i o n s
UK Corporate Governance Code 2012 and the views of our e l s e w h e r e i n t h e C o m pa n y
major shareholders. The Company does not actively consult with employees on executive
remuneration as we have a dispersed workforce operating around the
The Directors’ Remuneration Policy will be put to a binding vote at world which makes direct consultation impractical. However, when
the Company’s AGM on 30 June 2014 and, subject to shareholder setting the remuneration policy for Executive Directors, the
approval, will take effect from that date. It will continue in effect Committee takes into account the pay and employment conditions
until a new policy is approved by shareholders, no later than three for other employees in the Company. We aim to ensure that
years after January 2015. The Annual Report on Remuneration any increase to the basic pay of Executive Directors is not out
continues to be subject to an advisory vote by shareholders at of line with that proposed for other employees and aim to use
the AGM. consistent principles in determining the other elements of the
remuneration package.
E X ECUTIVE REMUNERATION POLIC Y
The Committee continues to monitor the Executive Directors’ reward C o n s i d e r at i o n o f s h a r e h o l d e r v i e w s
policy and principles to ensure that they remain appropriate and We take into account the views of our major shareholders when
continue to support the business strategy. These broad principles for setting the Executive Directors’ remuneration policy. If required to
the Executive Directors’ reward policy, which the Committee believes discuss potential issues, we would offer to meet with them, as
remain appropriate in the current climate, are designed to ensure that appropriate, to understand any concerns they may have. At the
the Company: Company’s 2013 AGM, over 84% of the votes in respect of the
Directors’ Remuneration Report were in favour of the resolution.
–– has an executive reward framework to help drive future value
growth;
–– retains and, when necessary, recruits management talent of the
required ability and experience;
–– provides overall levels of reward that are appropriate for the
Company given its Premium Listing in London, international
operations and the global nature of the oil and gas industry;
–– follows UK best practice in so far that such standards support
and enhance the Company’s ability to generate value for
shareholders; and
–– maintains a balance between fixed (base package and benefits)
and variable reward (short and long-term incentives) that is
appropriate and motivates the right behaviours (see chart on
page 28).

It remains the Remuneration Committee’s opinion that, in light of the

geographic areas in which the Company operates, the relatively small
number of executives at the Company and the roles conducted by the
Executive Directors, an upper quartile level of total reward is
appropriate. However, whilst the policy allows for upper quartile
levels of reward, these will only be realised for truly exceptional levels
of performance.

SUMMAR Y OF REMUNERATION COMPONENTS
The table below summarises the main elements of the Executive Directors’ and Non-Executive Directors’ remuneration packages and their
alignment to Heritage’s business strategy.
Component of executive reward Policy for Executive Directors
Ex e c u t i v e D i r e c t o r s
B a s e pa c k a g e1 –– Base packages are typically reviewed
annually, with any increases becoming
effective in the first quarter of the relevant
financial year.
–– Salaries are benchmarked against a peer
group of UK and international oil and gas ––
companies.
–– The maximum salary for existing role
holders is as the current one, plus a
percentage increase in line with our
policy for review, which takes into
account pay in the rest of the
organisation.
Pension –– Executive Directors receive an allowance
of 10% of base package.
–– This is paid into a personal pension
scheme as nominated by the executive.
Other benefits –– Executives are entitled to receive private ––
medical insurance, life insurance and
school fees for dependents. Housing
allowances are also provided.
–– The benefits plan does not include other
benefits in kind such as a company car.
–– The maximum receivable is as the current
arrangements, subject to any additional
costs introduced by our providers.
1 Fixed, guaranteed cash amounts paid for work performed, irrespective of performance and exclusive of benefits-in-kind.
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Alignment to corporate strategy
–– Salaries are set at market competitive pay
levels to enable the Company to recruit
and retain high-calibre individuals in a
highly competitive market where there
is a shortage of experienced executives.
This is crucial for protecting and
generating shareholder value and
ensuring the long-term success of
the Company.
–– Consideration is also made of wider
employee pay increases, views of
institutional shareholders and the desire
to emphasise the importance of the
performance-related elements of
the package.
–– The pension is set below the market lower
quartile and in line with our high-
performance culture.
The benefits package is set at market
competitive levels to allow for the
recruitment and retention of the best
available talent for Heritage.
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SUMMAR Y OF REMUNERATION COMPONENTS c o n t i n u e d

Component of executive reward Policy for Executive Directors Alignment to corporate strategy
Annual bonus –– The annual bonus is based on exceptional –– The bonus is designed to promote
financial, operational and non-financial Heritage’s high-performance culture. The
achievements and is measured in three performance measures chosen represent
categories: key strategic and operational objectives
–– value creation/strategic delivery, for the Company.
–– operational performance and –– This encourages further alignment
safety, and between Executive Directors and
–– personal objectives. shareholders and strengthens the
–– Performance measures are chosen to long-term strategic focus of the Board.
reflect the overall performance of the –– The use of clawback reflects the
Company in the current year. Company’s proactive approach to risk
–– The weightings assigned to each measure management; this, together with our
for the year ahead, as well as details of deferral policy, has been introduced to
performance against targets for the comply with UK best practice.
previous year, are disclosed in the Annual
Report on Remuneration.
–– Any award in excess of 150% of salary
will be deferred for 12 months. Of this
award, 50% will be payable in share
price-indexed cash and the remainder
will be payable in cash.
–– All unvested deferred bonus awards are
subject to clawback (at the Remuneration
Committee’s discretion):
–– in the event of material misstatement
of financial results or dismissal for
serious misconduct; or
–– if there is later found to be an error
in assessing the extent to which
bonus payments were made.
–– The maximum opportunity is 300% of
base package; this is only available in the
event of exceptional performance. The
target performance level is one third of
the maximum i.e. 100% of base package.
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Component of executive reward Policy for Executive Directors Alignment to corporate strategy
LTIP –– The Company makes awards of long-term –– In line with the Company’s high-
equity-based incentives to those performance culture, the plan allows for
employees with the ability to influence upper quartile levels of reward to be
shareholder value. delivered, but only for upper quartile
–– Executives receive annual awards of performance.
performance shares. –– The use of TSR aligns executives’
–– These shares are conditional on the interests with long-term corporate
achievement of relative Total Shareholder performance and shareholder value.
Return (“TSR”) performance targets –– The vesting schedule of awards made
measured against a bespoke group of under the LTIP is in line with typical
companies over three years. market practice.
–– Awards begin to vest for median –– An annual awarding and vesting schedule
performance (at which point 25% vests); avoids a gap in remuneration
there is full vesting for upper quartile arrangements and assists the Committee
performance and straight-line vesting in keeping, retaining and incentivising
between these two points. the very best talent in a highly
–– The comparator group companies are competitive sector.
selected on the basis of their size and
scale of operations, market capitalisation
and geographic spread and are reviewed
annually. Please refer to the Annual
Report on Remuneration for the relevant
year to see the comparator group used.
–– Under the plan, there is a maximum
award of 300% of base package (this may
be exceeded in exceptional
circumstances).
–– However, it is the Committee’s intention
that the Executive Directors will not
annually receive the maximum level of
award under the plan.
–– There is an additional holding period
of one year following the vesting of
any awards.

N o n - Ex e c u t i v e D i r e c t o r s
Fees –– Non-Executive Director fee levels are –– Fee levels are set to ensure that the
determined by the Chairman and the remuneration is sufficient to attract,
Executive members of the Board. retain and motivate high-quality
–– They are reviewed regularly against suitable Directors.
market data. There is a flat fee for each
Director, except for the Chairman who
receives higher fees to reflect the
additional responsibilities of the role.
–– Additional fees are paid for each day
worked in excess of the agreed 20 days
per annum.
–– Non-Executive Directors do not
participate in the Company’s pension
arrangements. Since the Company’s
listing on the London Stock Exchange in
2008, they have been ineligible to
participate in long-term incentive plans.

Notes:
The same principles were used in determining the remuneration policies for the Executive Directors as for employees generally.
In the case of the bonus and the LTIP, performance measures and targets were chosen specifically to ensure that incentives are aligned to short and long-term business performance.
In the case of the bonus and the LTIP, the Committee retains discretion to determine the level of vesting of awards, make any adjustments in the event of certain corporate events, and in respect of
recruitment or termination arrangements (such as the classification of a good or bad leaver to determine incentive plan payouts).
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RECRUITMENT REMUNERATION
The below table sets out the key elements of the Company’s recruitment remuneration policy.
External hire Internal promotion
B a s e pa c k a g e In line with Heritage’s remuneration policy, May be set at a level to allow for growth in the
taking into account the experience of the role, with a series of increases given over the
individual; typically set in accordance with following few years as the individual develops.
market rates in comparable organisations.
Benefits Where necessary, relocation expenses may be paid and other benefits considered.
Pension Only as provided to current Executive Directors.
Annual bonus As for Executive Directors, however, it may be necessary to amend performance measures and
targets depending on where the appointment falls within the financial year. The maximum
awards will be as for current Executive Directors.
Lo n g -t e r m i n c e n t i v e s As provided to current Executive Directors. As provided to current Executive Directors.
The maximum awards will be as for current Any existing awards would be carried over
Executive Directors. and remain subject to their terms as at the
date of grant. The maximum awards will be
as for current Executive Directors.
B u y- o u t awa r d s If the executive is to forfeit awards upon N/A.
leaving their previous employer, an equivalent
of the same value may be provided under
the same timescales of the remuneration
being forfeited.

B ALANCE B ETWEEN FI X E D AN D PERFORMANCE - RELATE D REWAR D

The Remuneration Committee firmly believes in “pay for performance” as demonstrated by the charts below. These illustrate the balance
between fixed (base package and benefits, including pension) and variable (bonus and long-term incentives) elements of reward for each of the
Executive Directors assuming three scenarios: below-threshold performance (minimum remuneration payable), on-target or threshold
performance and exceptional performance (maximum remuneration payable).

COMPONENTS OF CEO’S RE WARD COMPONENTS OF CFO’S RE WARD

Min On-plan Max Min On-plan Max

£6,000 Total £5,591 £5,000
41% Total £4,356
£5,000 40%
£4,000

£4,000
Thousands

Thousands

£3,000
£3,000 41% 40%
Total £2,352 £2,000 Total £1,882
£2,000 25% 23%
Total £977 33% Total £864 31%
£1,000
£1,000
100% 42% 17% 100% 46% 20%
£- £-

Fixed pay Fixed pay

Annual bonus Annual bonus
LTIP LTIP

Notes:
1 Fixed pay consists of the following three elements:
– Base salaries as at 1 January 2014
– Pension allowances of 10% of 2014 base salaries
– Benefits equal to those received in 2013, as taken from the single total figure table on page 33.
2 Target annual bonus is 100% of base salary and maximum annual bonus is 300% of base salary.
3 Target LTIP is based on threshold vesting which is 25% of the total award.
4 Under the LTIP rules, the maximum award is 300% of base salary; however, this is only granted in exceptional circumstances and historically, LTIP grants to executives have been lower.
The charts illustrate the maximum awards.
5 The scenario charts exclude any share price appreciation or dividends.
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SERVICE AGREEMENTS
E X ECUTIVE D IRECTORS
The Executive Directors’ service agreements with the Company are for no fixed term. In normal circumstances, the new agreements may be
terminated by the Company giving no less than 12 months’ notice and the Director giving six months’ notice.
Executive Director Date of contract Unexpired term Notice period by Company Notice period by Director

Anthony Buckingham1,2 28 March 2008 Rolling contract 12 months 6 months

Paul Atherton1,2 28 March 2008 Rolling contract 12 months 6 months

1 The Executive Director was appointed previously as indicated on page 10 and this became effective on the Company’s listing on the LSE on 28 March 2008.
2 The contracts were amended in 2012 to reflect the new notice period by the Company. In line with best practice the notice periods in the contracts for the Executive Directors were reduced to
12 months from 24 months.

LOSS OF OFFICE PA Y MENTS

In the event of a change of control of the Company, if the Executive Directors resign or the Company terminates their appointment within
12 months of such an event, they will each be entitled to an immediate payment in lieu of notice of a sum equivalent to one times their annual
base package. In addition, they will be entitled to a payment of Cdn$75,000 in the event they are asked to resign from the Board of HOC in
any event other than as a result of a change of control. The Company also may terminate the agreements and make payments in lieu of notice.

Currently the Executive Directors’ service contracts do not provide for mitigation in the event of early termination. The Remuneration
Committee has a duty to ensure that contractual terms on termination, and any payments made, are fair to the individual and the Company,
that failure is not rewarded and that the duty to mitigate loss is fully recognised. The Executive Directors do not have service contracts with
any Group subsidiary.

NON - E X ECUTIVE D IRECTORS

The Non-Executive Directors do not have service contracts but their terms are set out in a letter of appointment. Their appointment may be
terminated by each party giving three months’ notice in writing.

Michael Hibberd, Gregory Turnbull and John McLeod, being Directors of HOC, will be entitled to a payment of Cdn$75,000 in the event
they are asked to resign from the Board of HOC in any event other than as a result of a change of control.

Terms of appointment and reappointment for the Non-Executive Directors are set out below:
Non-Executive Directors Date of contract Notice period Last re-election

Michael Hibberd1 28 March 2008 3 months 2013 AGM

Mark Erwin 1 May 2012 3 months 2013 AGM
John McLeod1 28 March 2008 3 months 2013 AGM
Carmen Rodriguez 22 March 2012 3 months 2013 AGM
Gregory Turnbull1 28 March 2008 3 months 2013 AGM

1 The Non-Executive Director was appointed on 18 March 2008 and this became effective on the Company’s listing on the LSE on 28 March 2008.
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30
R e p o r t o f t h e r e m u n e r at i o n c o m m i t t e e c o n t i n u e d
ANNUAL REPORT ON REMUNERATION
This report has been prepared with reference to the UK Large and
Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013 (the “Regulations”) and meets
the relevant requirements of the Financial Conduct Authority’s
Listing Rules.
In preparing this report, consideration has also been given to the
Code and the Association of British Insurers “Principles of
Remuneration” guidelines and it is split into audited and
unaudited information.
UNAU D ITE D INFORMATION
REMUNERATION COMMITTEE
The Committee met 5 times during 2013 and the attendance record
of individual Committee members is shown below.
MEM B ERS OF THE REMUNERATION COMMITTEE
AN D ATTEN D ANCE AT MEETINGS
Attendance at meetings (5 meetings held)
John McLeod, Chairman 5
Carmen Rodriguez 5 that of shareholders, on the design of incentives and making
Sir Michael Wilkes14
1 Sir Michael Wilkes died in October 2013.
The Committee was saddened by the passing of Sir Michael Wilkes in
October 2013. Under the Terms of Reference for the Committee, the
quorum necessary for the transaction of business is two members.
The Board is considering appointing a replacement member to join
the Committee.
All members of the Remuneration Committee, including John
McLeod, the Committee Chairman, are considered by the Board to
be independent, as explained in this Corporate Governance Report
on page 11.
The Chairman of the Board, CEO and CFO provide internal support
to the Remuneration Committee and attend meetings at the
Committee’s invitation except where matters associated with their
own remuneration are being discussed.
A D VICE TO THE REMUNERATION COMMITTEE
The Remuneration Committee has access to external advice as
required. During the year, the Committee continued to receive
independent advice from external executive reward consultants,
Hay Group, on matters under consideration by the Committee.
In addition, Hay Group provided updates on market practice.
Hay Group was appointed by the Remuneration Committee in 2008.
It is a founding member of the Remuneration Consultants’ Group
and a signatory of its code of conduct; as such, the Committee can
be satisfied that the advice received is objective and independent.
Hay Group’s fees for material work conducted during the year
were £50,000.
The Remuneration Committee has clearly defined Terms of
Reference, summarised below, which conform to the requirements
of the Code and are available on the Company’s website
www.heritageoilplc.com.
RESPONSI B ILITIES OF THE
REMUNERATION COMMITTEE
The Terms of Reference set out the responsibilities of the
Remuneration Committee. These include:
–– to set the remuneration policy for the Chairman, Executive
Directors and senior executives;
–– to assess and determine total compensation packages available
to the Executive Directors;
–– to monitor the remuneration of senior management other than
the Executive Directors;
–– to determine policy and scope for pension rights and any
compensation payments;
–– in determining remuneration to give due regard to the Code,
UK Listing Rules and associated guidance; and
–– to make recommendations to the Board for its approval, and
recommendations for the grant of awards to executives under
such plans.
WHAT D I D THE REMUNERATION COMMITTEE D O
D URING THE Y EAR ?
During the year the Remuneration Committee considered the
following items of business:
REMUNERATION
Approval of salary increase for Executive Directors; review of
Non-Executive Director fees.
B ONUSES
Agreed greater definition of annual bonus performance conditions;
review of Hay Group recommendations concerning deferral of a
proportion of annual bonus.
L o n g - t e r m INCENTIVE PLAN ( “ LTIP ” )
Approval of 2012 LTIP awards; review of performance of previous
year LTIP awards; review of 2013 LTIP comparator group; review of
proposed 2013 LTIP awards, and subsequent approval.
REPORTING AN D GOVERNANCE
Consideration of Terms of Reference of the Committee; approval of
Remuneration Committee Report in Annual Report; consideration
of AGM voting on the Remuneration Report and possible
responses; discussion regarding disclosure requirements for
executive remuneration.

E X ECUTIVE D i r e c t o r s ’ REWAR D POLIC Y
In setting the remuneration policy and total compensation package
levels for Executive Directors and other senior executives, the
Remuneration Committee gives consideration to the economic
environment, the financial and operational performance of the Group
and the remuneration policy and levels for the wider employee
population. In particular, the Remuneration Committee considers
how pay levels in the wider employee population compare against the
market and is mindful of the pay differentials between top executives
and roles at different levels in the structure. In line with our Terms of
Reference, no individual is involved in setting their own pay.
B ASE p a c k a g e
Salaries are reviewed annually with any increases becoming effective
in the first quarter of the relevant financial year. To ensure informed
decision-making, the Remuneration Committee is provided with
independent benchmark data which is considered along with other
factors when determining pay levels. As part of the Remuneration
Committee’s review last year, the Company was compared against
two pre-determined peer groups, namely UK and international oil
and gas companies of a similar size and scale to Heritage.
For 2014, the Committee has recommended an increase of 2.5% of
salary for Executive Directors.
The table below details the 2014 and 2013 base packages of the
Executive Directors.
2014 2013
Name base package base package Increase
Anthony Buckingham £785,700 £766,500 2.5%
Paul Atherton £582,000 £567,800 2.5%
B ONUSES PA Y A B LE FOR 2 0 1 3 PERFORMANCE
The Remuneration Committee recommends the level of annual
bonuses paid to the Executive Directors and in doing so considers a
wide range of financial and non-financial performance indicators
over the year. These include, but are not limited to, environmental,
health and safety issues, the time dedicated by Directors in
developing and expanding Heritage’s portfolio as well as the financial
performance of the Company.
The maximum bonus available is 300% of salary and the target
performance level is one third of the maximum i.e. 100% of base
salary. 2013 was a strong year for Heritage in terms of financial and
operational achievements with record production and cash flows. In
view of the milestones reached, the Committee elected to award
bonuses of 50% of the maximum. The maximum award under the
bonus plan is 300% of salary, so the bonuses received by the
Executive Directors were 150% of salary. Our bonus policy dictates
that any awards over 150% of salary be deferred for 12 months and
that these unvested awards be subject to clawback, at the committee’s
discretion. The 2013 awards were not above 150% of salary, therefore
no part was deferred.
Corporate Governance  2013 H e r i ta g e O i l P L C
31
During the year, the annual bonus plan was reviewed and it was
decided to give increased definition to the performance measures
used. Three categories were identified as encompassing the measures
that could be used to determine company performance and,
therefore, affect annual incentive payments: value creation,
operational performance and safety, and personal objectives. The
Company determines the relative weighting of each measure at the
start of the year.
For 2014, the weightings of the performance measures have been
allocated as follows:
–– Value creation/strategic delivery 40%
–– Operational performance and safety 35%
–– Personal objectives 25%
The Remuneration Committee retains discretion to amend any
awards in the event of exceptional circumstances.
LONG - TERM INCENTIVES
In order to align the executives’ interests with those of the long-term
success of the Company and value delivered to shareholders, the
Company makes awards of long-term equity-based incentives to
those employees with the ability to influence shareholder value.
Long-term incentives are made under the 2011 LTIP, except in the
case of Anthony Buckingham, who continues to hold his LTIP award
under the 2008 LTIP on amended performance conditions, revised to
reflect substantially the same terms and conditions as those under the
rules of the 2011 LTIP.
The rules of the 2011 LTIP allow for annual awards of performance
shares of up to 300% of base package to be made to Executive
Directors. To date awards of 275% have been made. Awards vest
subject to three-year TSR performance measured against a bespoke
group of peer companies. There is an additional holding period of
one year following the vesting of any awards. The comparator group
companies are selected on the basis of their size and scale of
operations, market capitalisation and geographic spread. They are
reviewed annually.
During 2013 the Remuneration Committee reviewed the LTIP peer
group and made one amendment to the constituents of this group;
the full list of comparator organisations can be seen below.
Aminex PLC Maurel et Prom
Afren Plc Petroceltic International plc
Bowleven plc Premier Oil plc
Cadogan Petroleum PLC RusPetro plc
DNO International Asa Salamander Energy plc
EnQuest PLC SOCO International plc
Exillon Energy plc Sterling Energy Plc
Hardy Oil & Gas Plc Tullow Oil plc
JKX Oil & Gas Plc Eland Oil & Gas Plc
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R e p o r t o f t h e r e m u n e r at i o n c o m m i t t e e c o n t i n u e d

D IRECTORS ’ INTERESTS IN SHARE OPTIONS HEL D UN D ER THE REPLACEMENT SCHEME

HOC implemented The Heritage Oil Corporation Plan (the “Original Plan”) following approval by its shareholders in 2004 and granted
options under the Original Plan to its Executive and Non-Executive Directors and other employees and consultants at that time. The grant
of options included all the then current Executive and Non-Executive Board members and so did not include Carmen Rodriguez and Mark
Erwin. As a result of the Group reorganisation and subsequent listing on the Main Market of the LSE, all the Board members were entitled
to retain their options under the Original Plan and exchange them for options to acquire ten Ordinary Shares of the Company for every one
Common Share they held under option. The Original Plan was then cancelled and, on 18 March 2008, the Company adopted The Heritage
Oil Limited 2008 Replacement Share Option Scheme (the “Replacement Scheme”) which is substantially in the same form as the Original
Plan. The purpose of the Replacement Scheme is to act as a replacement to the Original Plan and to honour the options granted under it by
granting holders the option to purchase Ordinary Shares. The Replacement Scheme is administered by the Board and no further options
will be granted under it.

The maximum number of Ordinary Shares which may be issued under the Replacement Scheme was 24,545,340, being the equivalent
number of shares required to replace the options granted under the Original Plan that were still in existence prior to their cancellation.

All options under the Replacement Scheme have now vested and were exercised when the Company came out of a close period in
September 2013.

PENSIONS AN D OTHER B ENEFITS

Executive Directors receive pension contributions of an annual amount equal to 10% of their base package into a personal pension scheme
nominated by the executives.

They also receive private medical insurance, life insurance and school fees for dependents. They also receive housing allowances of £100,000
(Anthony Buckingham) and £77,500 (Paul Atherton).

No changes have been made to the current arrangements in respect of pensions and other benefits for 2014.

NON - E X ECUTIVE D IRECTORS

Fee levels for Non-Executive Directors remain at 2013 levels and are set out below. Actual fees paid for the year ended 31 December 2013 are
shown in the Single Total Figure table on page 33.
Non-Executive Directors 2014 2013

Michael Hibberd £126,000 £126,000

Mark Erwin £84,000 £84,000
John McLeod £84,000 £84,000
Carmen Rodriguez £84,000 £84,000
Gregory Turnbull £84,000 £84,000
Sir Michael Wilkes1 N/A £84,000
Additional fee for each day worked in excess of the agreed 20 days per annum £2,000 £2,000

1 Sir Michael Wilkes died in October 2013.

 Corporate Governance  2013 H e r i ta g e O i l P L C

33

AU D ITE D INFORMATION
SINGLE TOTAL FIGURE FOR REMUNERATION
For the year ended 31 December 2013
Base package/fees1 Benefits2 Annual bonus Long-term incentives4 Pensions Total
£’000 £’000 £’000 £’000 £’000 £’000
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

Executive Directors
Anthony Buckingham 766.5 744.2 112.5 117.1 1,149.8 2,232.63 – – 76.7 74.4 2,105.5 3,168.3
Paul Atherton 567.8 551.3 223.7 179.0 851.7 1,653.83 – – 56.8 55.1 1,700.0 2,439.2
Non-Executive Directors
Michael Hibberd 126.0 126.0 – – – – – – – – 126.0 126.0
Mark Erwin 84.0 56.0 – – – – – – – – 84.0 56.0
John McLeod 84.0 84.0 – – – – – – – – 84.0 84.0
Carmen Rodriguez 84.0 67.3 – – – – – – – – 84.0 67.3
Gregory Turnbull 84.0 84.0 – – – – – – – – 84.0 84.0
Sir Michael Wilkes5 84.0 84.0 – – – – – – – – 84.0 84.0
Total 1,880.3 1796.8 336.2 296.1 2,001.5 3,886.4 – – 133.5 129.5 4,351.5 6108.8

1 Base package refers to fixed, guaranteed cash amounts paid for work performed, irrespective of performance and exclusive of benefits-in-kind.
2 Shows the taxable value of benefits, comprising private medical insurance, life insurance, school fees and housing allowances of £100,000 (Anthony Buckingham) and £77,500 (Paul Atherton),
but excludes pension contributions.
3 As bonus awards were not above 150% of salary no part was deferred. Bonuses paid in respect of 2013 were subject to the performance conditions detailed in the Company’s 2012 Annual Report.
Bonuses are based on exceptional financial, operational and non-financial achievements. Heritage achieved record production and cash flows in 2013 and, in view of this, it was agreed to award
bonuses of 150% in respect of the year. From 2014, there will be greater definition of the performance measures and weightings of the annual bonus: value creation and strategic delivery,
operational performance and safety, and personal objectives. Further detail is provided in the Remuneration Policy Report.
4 Long-term incentive values show awards that have vested in 2013. Awards granted in the year are shown in the next section of the report.
5 Sir Michael Wilkes died in October 2013.

SHAREHOL D ING GUI D ELINES

At present the Committee has not established formal Executive Director shareholding guidelines as, in the opinion of the Committee, these
would be superfluous at this time. The Executive Directors hold a substantial number of shares in the Company and have interests in shares
under various share incentive arrangements as shown in the table below as at 29 April 2014:
Anthony Buckingham Paul Atherton

Shares held 94,669,850 4,015,000

Interest in shares under the 2011 LTIP schemes1 3,617,757 2,679,820
Total number of shares 98,287,607 6,694,820
Notional value of shares at year end, £ 2 146,202,817 9,958,545
Total value as a multiple of base package 191 times 17.5 times

1 Subject to performance conditions. Shares will vest subject to three year TSR performance conditions measured against a bespoke group of peer companies (see page 31).
2 Based on a year-end share price of 148.75 pence, assuming full vesting of outstanding LTIP awards.
H e r i ta g e O i l P L C Corporate Governance  2013

34

R e p o r t o f t h e r e m u n e r at i o n c o m m i t t e e c o n t i n u e d

LTIP PERFORMANCE SHARES

Conditional awards of performance shares were granted to Executive Directors on 22 June 2013 as shown below.

E X ECUTIVE D IRECTORS ’ INTERESTS IN PERFORMANCE SHARES

Percentage Number of Number of
Share price Face value of of award shares as at shares as at
at date of Awarded in Vested in awards at grant vesting at Lapsed in 31 December 1 January
Date of award Earliest vesting grant the period 2 the period date 3 threshold4 the period 2013 2013

Anthony
Buckingham1 20 June 2011 20 June 2014 212.8p – – – – – 915,913 915,913
19 June 2012 19 June 2015 129.3p – – – – – 1,582,765 1,582,765
22 June 2013 22 June 2016 133.0p 1,119,079 – 1,488,375 25.0% 1,119,079 –
Paul Atherton1 20 June 2011 20 June 2014 212.8p – – – – – 678,454 678,454
19 June 2012 19 June 2015 129.3p – – – – – 1,172,419 1,172,419
22 June 2013 22 June 2016 133.0p 828,947 – 1,102,500 25.0% – 828,947 –

1 Anthony Buckingham continues to hold his LTIP award under the 2008 LTIP on amended performance conditions, revised to reflect substantially the same terms and conditions as those under
the rules of the 2011 LTIP and as set out on page 31 of this report.
2 Size of the awards are determined by the Remuneration Committee with reference to the Company’s share price performance in the year, using discretion within the rules of the plan.
3 Face value has been calculated using the share price at the date of grant 22 June 2013 which was 133p.
4 Minimum vesting under the plan is 0%. Threshold vesting is the minimum level at which any part of the awards are paid out and occurs when Heritage achieves median TSR relative to the
comparator group listed on page 31. There is straight line vesting from median to upper quartile performance at which point awards vest in full.

D IRECTORS ’ INTERESTS IN SHARE OPTIONS HEL D UN D ER THE REPLACEMENT SCHEME

At At
At date 1 January Options 31 December Exercise
Director of grant 2013 exercised 2013 prices Vesting periods Expiry date

Michael Hibberd 750,000 750,000 750,000 – £1.43 14 Dec 06–14 Dec 08 14 Dec 111
250,000 250,000 250,000 – £2.45 21 Dec 07–21 Dec 09 21 Dec 12
Anthony Buckingham 9,129,510 9,129,510 9,129,510 – £1.43 14 Dec 06–14 Dec 08 14 Dec 111
500,000 500,000 500,000 – £2.45 21 Dec 07–21 Dec 09 21 Dec 12
Paul Atherton 1,125,000 1,125,000 1,125,000 – £1.43 14 Dec 06–14 Dec 08 14 Dec 111
500,000 500,000 500,000 – £2.45 21 Dec 07–21 Dec 09 21 Dec 12
Gregory Turnbull 300,000 300,000 300,000 – £1.43 14 Dec 06–14 Dec 08 14 Dec 111
150,000 150,000 150,000 – £2.45 21 Dec 07–21 Dec 09 21 Dec 12
John McLeod 300,000 125,000 125,000 – £1.43 14 Dec 06–14 Dec 08 14 Dec 111
150,000 150,000 150,000 – £2.45 21 Dec 07–21 Dec 09 21 Dec 12

1 The Company was in a close period between summer 2011 and summer 2013 with the result that the term of options which expired had been extended until shortly after the close period lifted
in September 2013. Please see page 32 for further information.

Notes:
On exercise of each option, the holder was entitled to receive the 100 pence per share dividend paid in August 2010.
The final exercise prices were converted into GB pounds sterling on the Company’s reorganisation and listing on the Main Market of the LSE using the exchange rate in effect on that date.

The table below sets out the direct and indirect interests of the Directors in the share capital of the Company as at 29 April 2014:
Number of Percentage of
Ordinary voting share
Director Shares1 capital

Michael Hibberd 1,375,000 0.49%

Anthony Buckingham 2 94,669,850 34.06%
Paul Atherton 4,015,000 1.44%
Gregory Turnbull 1,000,070 0.36%
John McLeod 80,000 0.03%
Mark Erwin 0 0.00%
Carmen Rodriguez 0 0.00%

1 Includes Exchangeable Shares.

2 Anthony Buckingham’s Ordinary Shares include the Ordinary Shares held by Albion as at the date of this document, a company owned and controlled by Anthony Buckingham.
 Corporate Governance  2013 H e r i ta g e O i l P L C

35

There have been no changes in the interests of Directors in the share PERCENTAGE CHANGE IN r e m u n e r a t i o n FOR
capital of the Company between the end of the financial year and CEO AN D EMPLO Y EES
29 April 2014. The table below shows the percentage change in remuneration for the
CEO and the average employee from 2012 to 2013.
No options were granted or lapsed during the year under the Base package Benefits Annual bonus
Replacement Scheme. percentage percentage percentage
change change change

The closing share price on 31 December 2013 was 148.75 pence. Chief Executive Officer 3.0% (3.9)% (48.5)%
During the year the highest closing share price was 224.70 pence Average employee1 6.0% 8.0% (50.0)%
per share and the lowest closing price was 121.70 pence per share.
1 Data for the average salaried employee for Heritage Oil Plc, thereby excluding contractors.

a dd i t i o n a l i n f o r m a t i o n
Information in this section is not required to be audited. RELATIVE IMPORTANCE OF SPEN D ON PA Y
Distributions
RELATIVE SPEN D ON CHIEF E X ECUTIVE ’ S Remuneration to shareholders
paid to all through
REMUNERATION employees dividends and
Performance graph £million share buyback

The following graph shows the Company’s TSR over the five year 2013 28.6 0
period to 31 December 2013, against the FTSE 250 Index. The 2012 32.2 0
Remuneration Committee has selected the FTSE 250 Index as it
represents a broad equity market index and therefore provides STATEMENT ON VOTING AT 2 0 1 3 AGM
a good indication of the Company’s general performance. At the Company’s 2013 AGM, the percentage of votes cast in respect
of the Directors’ Remuneration Report were as follows:
TSR
–– Votes in favour: 84%
Heritage Oil Plc FTSE 250 –– Votes against: 16%
–– Votes withheld: under 1%
300
(Figures to nearest whole number).

250
We remain committed to shareholder dialogue and take an active
200 interest in voting outcomes. If there are any particular shareholders
opposed to our policy, we would endeavour to meet with them, as
150
appropriate, to understand any issues they may have.
100
This report was approved by the Board on 29 April 2014 and signed
50 on its behalf by:
Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13

JOHN MCLEO D
Notes: CHAIRMAN OF THE REMUNERATION COMMITTEE
Heritage’s TSR assumes reinvestment of the 100 pence per share 2 9 APRIL 2 0 1 4
special dividend paid i n August 2010.

The below table gives details of the Chief Executive Officer’s

remuneration during the past five years. CEO LTIP
payout
CEO Annual (percentage
Bonus (as a of shares
percentage of vesting against
max bonus maximum LTI
Financial Year CEO Total Pay opportunity) opportunity)

2013 £2,105,500 50% 0%

2012 £3,168,300 100% 0%
2011 £1,434,800 25% 0%
2010 £2,632,400 82% 0%
2009 £1,896,300 50% 0%
H e r i ta g e O i l P L C Corporate Governance  2013
36
Report of the audit commit tee
ADD R E S S F R OM THE AUDIT COMMITTEE
CHAI R MA N
The Audit Committee has had another busy year keeping under
review items from the past, such as the ongoing tax dispute in
Uganda, and the future with the consolidation of the OML 30
Licence in Nigeria into the Group’s operations. Following on from the
acquisition of this licence the continued focus of the Committee has
been to ensure that Group policies and procedures are embedded into
the Nigerian operations and that the Nigerian assets are properly
accounted for. Internal controls and procedures have been high on
the items considered during the year. The Audit Committee has
expressed its view on the importance that Company policies, such
as its Anti-Bribery and Corruption Policy, are adhered to and
compliance is an active process which goes beyond a paper exercise.
The Committee has taken on board the requirements to report more
extensively on any significant issues raised by the audit details of
which are provided below.
Expected changes in the regulatory environment such as in respect of
going concern disclosures will be monitored during the year by the
Audit Committee.
The report below sets out details of the Audit Committee’s
responsibilities, how it operated during the year, business reviewed at
meetings and information on the audit process and external auditors.
MICHAE L J . HI B B E R D
CHAI R MA N , AUDIT COMMITTEE
M e m b e rs o f t h e A u d i t C o m m i t t e e a n d
at t e n d a n c e at m e e t i n g s
Attendance at meetings (4 meetings held)
Michael Hibberd, Chairman 4
Carmen Rodriguez 4
John McLeod 4
Sir Michael Wilkes13
1 Sir Michael Wilkes died in October 2013.
All members of the Audit Committee, including the Chairman, are
independent Non-Executive Directors. Other members of the Board
may be invited to attend meetings as and when appropriate. KPMG
Audit Plc regularly attend Audit Committee meetings and the Audit
Committee also meets with KPMG Audit Plc, the external auditors,
without management present from time to time.
The Chairman of the Company, Michael Hibberd, is a member of,
and chairs, the Audit Committee, which is not in line with the
recommendations made in the Code. However, the Board continues
to believe that his recent and relevant financial experience, including
his experience in corporate financial matters, is invaluable in
supporting the Audit Committee in performing its role.
The Terms of Reference of the Audit Committee, as summarised
below, were reviewed and updated during early 2014. The
amendments included updating the Committee’s remit for new
requirements introduced in changes to the Code. The review also
involved consideration of developments in governance matters and
good practice in other listed companies. The Terms of Reference
of the Committee are available on the Company’s website
www.heritageoilplc.com.

R E S PO N S I B I L ITIE S OF THE AUDIT COMMITTEE
The Terms of Reference set out the responsibilities of the Audit
Committee. These include:
–– to monitor the integrity of the financial statements, including
annual and half-yearly reports and any other formal
announcement relating to the Group’s financial performance;
–– to review and challenge, where necessary, the consistency of
and any changes to accounting policies, methods used to
account for significant or unusual transactions, whether the
Company has followed appropriate accounting standards and
clarity of disclosures in the Company’s financial reports;
–– where requested by the Board, to review the content of the
Annual Report and Accounts and advise the Board on whether,
taken as a whole, it is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy;
–– to review and approve the annual audit plan;
–– to review the findings of the audit with the external auditor;
–– to review the Group’s budgets;
–– to consider the establishment of an internal audit function;
–– to review the Group’s internal control procedures and risk
management systems, including review of the Group’s risk
matrix;
–– to oversee the relationship with the external auditors and
review the effectiveness of the external audit process;
–– to make recommendations to the Board on the appointment,
review and removal of external auditors and approve the
external auditors’ remuneration;
–– oversee the selection process for new auditors and ensure the
external audit contract is put out to tender at least once every
ten years;
–– to assess annually the external auditors’ independence taking
into account relevant professional and regulatory requirements
including reviewing the policy on provision of non-audit
services;
–– to review whistle-blowing arrangements and the Company’s
procedures to prevent bribery and corruption;
–– to review a report to shareholders on its activities to be
included in the Company’s Annual Report; and
–– to report to the Board on its proceedings, identifying any
matters in respect of which it considers that action or
improvement is needed and making recommendations as to
improvements needed.
HO W THE AUDIT COMMITTEE OPE R ATE S
The Audit Committee meets formally at least twice a year to
discharge its responsibilities and also engages in numerous ad hoc
discussions. The Audit Committee has a planned annual cycle with
scheduled meetings fixed at appropriate times during the financial
reporting calendar. The agenda is agreed with the Audit Committee
Chairman and includes a number of standard items, such as
consideration of the financial statements and the audit process. Other
items may be added to the agenda by the Chairman, CFO, auditors or
other members of the Committee. An aide memoire checklist is used
to ensure that the Committee fully covers its remit during the year.
The Chairman ensures that there is adequate time for discussions
and members receive full briefing papers before each meeting.
Corporate Governance  2013 H e r i ta g e O i l P L C
37
The performance of the Audit Committee was reviewed during the
year as part of the external Board performance review and it was
concluded that the operation of the Audit Committee continued
to remain effective.
W HAT DID THE AUDIT COMMITTEE DO DU R I N G
THE Y EA R ?
During the year the Audit Committee considered the following
main items of business:
FI N A N CIA L A N D B U S I N E S S R EPO R TI N G
Potential changes to accounting methods in respect of Nigerian
assets following proposed changes to accounting standards;
Consideration of consolidation of Shoreline and impairments in
Mali and Tanzania; Review of related party transactions;
Consideration of financial statements; Approval of the Annual
Report; and Review of operational activities.
FI N A N CE
Review of working capital report, Consideration of reserve based
lending facility, reserve cash positions, the balance sheet, inventory
balances and cash flow; Proposed restructuring of Letter of Credit;
Changes to IFRS.
R I S K A N D I N TE R N A L CO N T R O L
Review of Ugandan tax dispute; Discussions about business risks
and compliance with the UK Code; Review of Whistle-blowing
Policy and any reports; Confirmation of focus on operations
in Nigeria to ensure it is being managed in accordance with
Company policies.
AUDIT A N D E X TE R N A L AUDITO R
Consideration of audit findings, key accounting and audit matters;
Approval of Representation Letter and consideration of engagement
letter; Review of audit fees; Consideration of independence of the
external auditor; Retirement of current audit partner and
introduction of new audit partner; Review of Audit Plan;
Discussions on internal audit function and role.
OTHE R
Review of chairmanship of the Committee; Adoption of Company
policies by Shoreline; Consideration of general, administrative and
Executive Directors’ expenses; Review of Audit Committee Terms
of Reference.
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38

Report of the audit commit tee continued

AUDITO R S
I N TE R N A L AUDIT
At present there is no internal audit function established. The
Committee reviewed the need for an internal audit function in 2012
and again in 2013. The Committee advised the Board that it believed
the Company maintains current control systems that are effective and
that management oversight is sufficient to highlight any areas of
weaknesses in the financial reporting systems. The need for an
internal audit function is reviewed at least annually.
AUDIT P R OCE S S A N D AUDIT I N FO R MATIO N
The auditors prepare an Audit Plan for their review of the full year
and half year financial statements. The Audit Plan sets out the
scope of the audit, areas to be targeted and audit timetable. This
plan is reviewed and agreed in advance by the Audit Committee.
Following their review the auditors presented their findings to the
Audit Committee for discussion. No major areas of concern were
highlighted by the auditors during the year although they drew
attention to the uncertainty surrounding the outcome of the ongoing
tax dispute in Uganda. Significant issues considered in relation to the
financial statements include the Shoreline transaction, the disputes
with the Ugandan government and Tullow Oil plc in relation to
disposal of the Group’s Ugandan Assets and the valuation of
intangible exploration assets and property, plant and equipment.
Actions taken to address these issues were to ensure that they were
accounted for appropriately in accordance with EU IFRS and fully
disclosed in the accounts.

S i g n i f i c a n t A u d i t Iss u e s T a bl e f o r A u d i t C o m m i t t e e R e p o r t

Significant Issue Description Audit Committee Assessment and Conclusion

Ta x L i t i g at i o n
T h e c a rry i n g v a l u e o f
S h o r e l i n e r e l at e d
p r o p e r t y, p l a n t a n d
e q u i p m e n t ( “ PP & E ” )
V a l u a t i o n o f In t a n g i bl e
Ass e t s
Reporting in respect of
t h e r e s u lt s o f S h o r e l i n e
N at u r a l R e s o u r c e s L i m i t e d
(“Sh o rel ine”)
The ongoing tax dispute in Uganda in relation
to disposal of the Group’s Ugandan Assets in
2010 remains a matter that the Group is still
pursuing.
Assessment of the carrying value of the assets
in Nigeria to ensure that there are no
indicators for impairment as a result of
political risk in Nigeria, fluctuations in price
or other factors.
The valuations of intangible exploration assets
and property, plant and equipment are subject
to judgements and assumptions made by
management.
From January 2014, IFRS 11 Joint
Arrangements is effective. The implications
of this for Heritage is that Shoreline will no
longer be proportionally consolidated into
the results of Heritage but it will require to
be equity accounted, as a one line item rather
than being proportionally consolidated on
a line by line basis.
As an award was granted and paid to Tullow
Oil plc in 2013, it was decided by the
Committee and Management that it would be
prudent to recognise a bad debt provision
against the receivable due from the Ugandan
Revenue Authority. Therefore, amounts have
been paid or fully provided for in the 2013
balance sheet.
Valuation of the assets is based upon a third
party report of the reserves acquired in
Nigeria. The reserves estimates which support
the valuation are assessed and updated to
analyse whether there are any indicators for
impairment. The results are discussed and
agreed with the Committee to ensure that
there is agreement on the judgements made.
After assessing the information, the
Committee agrees with the position that there
are no indicators of impairment in 2013.
Management prepares assessments of the
carrying value of the intangible exploration
assets. The Committee reviews and assesses
the judgements made to ensure that the value
in the balance sheet can be supported. For
2013, after assessing and reviewing the
material, the Committee concurred with the
management view that no impairments were
required in 2013.
A number of proposals were discussed. It was
agreed to give more detailed information
about Shoreline and its financial performance
in the notes to the Financial Statements. The
Committee concurred with this approach.

Significant Issue
Ass e t R e t i r e m e n t
Obl i g a t i o n ( “A R O ” )
C o m p l e t e n e ss o f c o s t s
a v a i l a bl e f o r S h o r e l i n e ’ s
i n t e r e s t i n OM L 3 0
C o ns o l i d a t i o n o f
S h o r e l i n e p e r c e n ta g e t o
be applied
A c c o u n t i n g f o r ta x
Corporate Governance  2013
Description
Shoreline and the Nigerian operator of OML
30 are required to restore the land covered by
the licence to its original state at the end of the
licence period. The ARO represents the
Group’s estimated share of the future
restoration costs at net present value.
Shoreline has a 45% interest in OML 30 and
the Group consolidates 90% of Shoreline into
its results. The results of Shoreline are
material for the Group. Shoreline is a
non-operator and therefore reliant on the
information provided by the operator.
Change of accounting for the share in
Shoreline by the long-term economic
interest of 90%.
The Group is subject to tax in certain
territories that it operates. Provisions made
are subject to review and confirmation
by government.
H e r i ta g e O i l P L C
39
Audit Committee Assessment and Conclusion
The Committee assessed the cashflow
estimates and assumptions used by
management to calculate the obligation. It
confirmed that the cash flow assumptions are
based on the most up to date third party
information. It concluded that the estimated
future costs held in the financial statements
at net present value are appropriate.
The Committee clearly outlined its
requirement that the records for Shoreline’s
interest in OML 30 should be accurate and as
complete as possible on the progress of that
requirement. Shoreline has put in extensive
procedures and controls and built good
relationships with the operator.
Fourteen months after the acquisition of the
interest in OML 30, the Committee decided
that 90% more accurately reflects the
long-term interest in Shoreline and
represented a more prudent approach to
accounting for the operations. Therefore, it
concurred with the decision to recognise the
eventual economic rights of 90% now and
accounting for the additional 7.5% initially
due separately. This change in policy has led
to a restatement of 2012 numbers.
Tax provisions are based upon the latest
information available to the Company and
advice from external tax advisers. The
provisions and underlying assumptions are
discussed with the Committee in order that
they can monitor the provisions made to
ensure it does represent the best estimate
available.
H e r i ta g e O i l P L C Corporate Governance  2013

40

Report of the audit commit tee continued

E X TE R N A L AUDITO R S A N D AUDITO R Proposals for the external auditors to carry out all other non-audit
I N DEPE N DE N CE services are pre-approved by the Audit Committee to ensure
The Audit Committee and Board recognise the importance of the independence of the external auditors is not impaired. Other
independence and objectivity of the Group’s external auditors, accounting firms are used for the provision of non-audit services
KPMG Audit Plc, when performing their role in the Group’s reporting wherever possible except where the knowledge and expertise of the
to shareholders. The Audit Committee has in place policies on: external auditors means that it is more efficient and effective for them
to carry out the work. This is on the overriding principle that the
–– the independence and objectivity of the external auditor; external auditors’ independence will remain unaffected. In 2012
–– employment of former employees of the external auditor; and non-audit services included fees for transaction services which largely
–– use of the external auditors for non-audit services. related to the acquisition of an interest in OML 30, Nigeria, and were
reviewed by the Audit Committee.
These policies are reviewed regularly to ensure they remain in line
with ethical standards published by the Accounting Practices Board Fees billed by KPMG Audit Plc, the Company’s auditors and its
and best practice with appropriate amendments made. associates, during 2012 and 2013, are summarised below:
2013 2012
The Audit Committee’s annual review of the independence of the $ $
external auditors includes consideration of information provided by Audit and audit-related services
the external auditors on policies and processes for maintaining Group audit of annual statements and
independence and monitoring compliance with current regulatory review of interim statements 371,779 300,643
requirements, including those regarding the rotation of audit partners Audit of subsidiary financial statements 127,724 49,555
and staff. The external auditors are required to rotate the audit
499,503 350,198
partner responsible for the Group audit every five years and the
current audit partner had served for five years. Consequently a new Non-audit services
audit partner was put in place in 2013. In addition, in its assessment Tax compliance 30,335 15,854
of the auditors’ independence, the levels of non-audit services Advisory services 84,782 41,884
provided by the external auditors were reviewed by the Transaction services1 – 1,244,936
Audit Committee. 115,117 1,302,674

1 The majority of 2012 costs related to the acquisition of an interest in OML 30.
As well as considering independence and objectivity of the external
auditor, their overall performance and effectiveness is reviewed
regularly by the Audit Committee. This review considers the audit The current auditors, KPMG Audit Plc, have been the Company’s
planning process, quality of the audit report, feedback from auditors since 2008, when the Company listed on the LSE, and
management and from KPMG Audit Plc as part of their own previously were auditors to HOC.
control systems.
Having reviewed the independence and effectiveness of the auditors
The policy on provision of non-audit services to the Company by the and being satisfied that the auditors remain independent and effective
external auditor sets down which non-audit services it would be in their role, the Audit Committee has not considered it necessary to
unacceptable for the auditor to provide. These include: carry out a tender process this year. The Audit Committee therefore
has recommended to the Board that the existing auditors, KPMG
–– preparation of accounting records and financial statements that Audit Plc, be reappointed. KPMG Audit Plc have expressed their
will be subject to external audit; willingness to continue as auditors. Ordinary resolutions to
–– actuarial services; reappoint KPMG Audit Plc as auditors of the Company and authorise
–– investment advice; the Directors to set their remuneration will be proposed at the
–– secondments to management or financial reporting positions forthcoming AGM. The Company will comply with the Code
that involve decision making; requirement for the external audit contract to be put out to tender at
–– advice to the Remuneration Committee; and least once every ten years. If felt appropriate by the Audit Committee
–– valuation services. the process will be carried out at more frequent intervals.

R e p o r t o f t h e N o m i n at i o n c o m m i t t e e
MEM B E R S OF THE N OMI N ATIO N COMMITTEE
A N D ATTE N DA N CE AT MEETI N G S
Attendance at meetings (2 meetings held)
Michael Hibberd, Chairman 2
Anthony Buckingham 2 considered and take into account the diversity and gender make-up of
Sir Michael Wilkes12
1 Sir Michael Wilkes died in October 2013.
The majority of the members of the Nomination Committee were
independent Non-Executive Directors until the death of Sir Michael
Wilkes. External advisers may also be invited to attend meetings as
and when appropriate. The Nomination Committee has the power
to request the attendance of any other Director or member of
management, for all or part of any meeting, as may be considered
appropriate by the Chairman of the Committee. The Nomination
Committee meets formally at least once a year and also engages in
numerous ad hoc discussions.
The Terms of Reference of the Nomination Committee, as
summarised below, were reviewed during 2013. Part of that review
involved consideration of developments in governance matters and
good practice in other listed companies. The Terms of Reference
of the Committee are available on the Company’s website
www.heritageoilplc.com.
R E S PO N S I B I L ITIE S OF THE N OMI N ATIO N
COMMITTEE
The Terms of Reference set out the responsibilities of the
Nomination Committee. These include:
–– to review the structure, size and composition (including the
balance of knowledge, skills and experience) of the Board in
order to recommend changes to the Board and to ensure the
orderly succession of Directors;
–– to give full consideration to succession planning for Directors
and other senior executives;
–– to identify, evaluate and recommend candidates for
appointment or reappointment as Directors taking into
account the challenges and opportunities facing the Company
and the need for sector and gender representation;
–– to review outside directorships and time commitments of
Non-Executive Directors;
–– to ensure that on appointment Non-Executive Directors receive
a formal letter of appointment setting out what is expected of
them in terms of time commitment, Committee service and
involvement outside Board meetings;
–– to make recommendations to the Board on suitable candidates
for the Senior Independent Director and membership of the
Audit and Remuneration Committees, in consultation with the
Committee Chairmen; and
–– to make recommendations to the Board annually on the
re-appointment of any Non-Executive Directors, giving due
regard to their performance and ability to continue to
contribute to the Board.
Corporate Governance  2013 H e r i ta g e O i l P L C
41
APPOI N TME N T P R OCEDU R E
The Nomination Committee ensures, amongst other things,
that there is a formal, rigorous and transparent procedure for the
appointment of new Directors. Recommendations are made
objectively taking into account the balance of skills, knowledge and
independence of a candidate. The Nomination Committee will
ensure that candidates from a wide range of backgrounds are
the Board. It is recognised that use of outside advertising or external
search consultants will produce a wider range of candidates and
the Committee may use these to facilitate the recruitment process
as appropriate.
During the year the Nomination Committee discussed and
considered the make-up and skill set of the Board. The Committee
also took into account the need for diversity and gender mix on the
Board and it was important that any candidate could demonstrate
that they had sufficient time to dedicate to their role. Towards the
end of the year the Committee initiated a search for a replacement
for Sir Michael Wilkes.
An external search consultancy will be used for Board appointments
where it is believed this will result in obtaining the best quality and
mix of candidates. However, given the international nature of the
Company’s operations and its very specific requirements it was not
felt appropriate to use an external search consultancy or open
advertising for recruiting the last Board appointments made in 2012.
Instead, recommendations were sought through an extensive network
of contacts. A number of candidates from a wide range of
backgrounds were considered by the Committee and a short list
prepared. Of these, the Nomination Committee recommended
Carmen Rodriguez and Mark Erwin for appointment as Non-
Executive Directors.
DIVE R S IT Y A N D GE N DE R
The Nomination Committee supports the importance of having
diversity of thought and representation on its Board. However, in
terms of gender, the Company operates in an environment with low
representation of women at all levels of the industry. In some
countries of operation cultural differences in particular mean that
women are under-represented in the workforce. In order to address
this, the Company operates equal opportunity policies in all its areas
of activity and seeks to encourage the employment of women. The
aim is that over time, women as a percentage of the workforce will
increase and lead to a larger pool of potential talent from which to
recruit to senior positions. We have developed information systems in
order to collate information on female representation and pay within
Heritage which will help to inform future policy developments. The
first female Board member, Carmen Rodriguez, was appointed in
March 2012. In addition, there are already a number of senior women
in posts throughout the Group with direct lines of communication to
members of the Board. The Board has discussed at some length the
Davies Report and succession planning, as a result of which it will
actively seek to have female candidates to consider when making
Board appointments.
A diversity policy has been approved by the Board which states that
the Company will work towards further female appointments to
senior management positions and the Board. The Company will
continue to encourage increasing diversity across operations and
support equal opportunity policies across the Group.
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42

R e p o r t o f t h e N o m i n at i o n c o m m i t t e e c o n t i n u e d

The Nomination Committee is responsible for the Board Diversity

Policy and monitoring its progress.

W HAT DID THE N OMI N ATIO N COMMITTEE DO

DU R I N G THE Y EA R ?

The following main items of business were considered by the

Nomination Committee during the year:

R E S U L T S OF B OA R D EVA L UATIO N

Review of outcome of external Board Evaluation Report by

Hay Group.

R EPO R TI N G

Review and approval of content of Nomination Committee Report

in the Company’s Annual Report.

S UCCE S S IO N P L A N N I N G

Review of CEO succession plan and that this remained valid;

review of need for further independent Non-Executive Director.

R EVIE W OF COMPO S ITIO N OF THE B OA R D A N D

COMMITTEE S

Review of requirements for additional Non-Executive Director with

financial skills.

other

Review and approval of Diversity Policy; Review of Remuneration

Committee.
 Corporate Governance  2013 H e r i ta g e O i l P L C

43

Report of the reserves commit tee

MEM B E R S OF THE R E S E R VE S COMMITTEE A N D W HAT DID THE R E S E R VE S COMMITTEE DO

ATTE N DA N CE AT MEETI N G S DU R I N G THE Y EA R ?

Attendance at meetings (2 meetings held) During the year the Reserves Committee considered the following
items of business:
John McLeod, Chairman 2
Michael Hibberd 2 I N DEPE N DE N T R E S E R VE S EVA L UATO R S
Paul Atherton 2
Brian Smith, VP Exploration 0 Consideration of timetable for next independent report;
Consideration of independent reserves auditor.

Under its Terms of Reference the Reserves Committee will have at R EPO R TI N G
least three members, at least one of which will have relevant technical
experience. The Chairman will be an independent Non-Executive Review and recommendation to the Board for the approval of
Director. The Reserves Committee engages in numerous ad hoc reserves information in the Company’s Annual Report.
discussions and meets formally at least once a year. External advisers
may also be invited to attend meetings as and when required. OTHE R

The Terms of Reference of the Committee, which are summarised Review of Reserves Committee’s Terms of Reference.
below, are available on the Company’s website
www.heritageoilplc.com.

R E S PO N S I B I L ITIE S OF THE R E S E R VE S
COMMITTEE

The primary function of the Reserves Committee is to assist the

Board in fulfilling its oversight responsibilities generally with
respect to the oil and natural gas reserves evaluation process and
public disclosure of reserves data and related information in
connection with oil and gas activities. In order to do this the
Committee carries out the responsibilities set out in its Terms
of Reference. These include:

–– to review, at least annually, the Company’s procedures relating

to disclosure of information with respect to oil and gas
activities, including its procedures for complying with any
disclosure requirements and restrictions;
–– to review annually the qualifications and independence of the
independent qualified reserves evaluator(s) to be appointed or
reappointed by the Board and, in the case of any proposed
change in the independent qualified reserves evaluator(s), to
determine the reasons for the proposed change and whether
there have been any disputes between the appointed qualified
reserves evaluator(s) and management of the Company;
–– to review the content of a) any statement of reserves data and
other information, and b) any report of the independent
qualified reserves evaluator(s) and make a recommendation to
the Board on approval of such information; and
–– to review any public disclosure or regulatory filings with
respect to any reserves evaluation and oil and gas activities.
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44

R EPO R T OF THE A N TI - B R I B E R Y A N D CO R R UPTIO N

COMMITTEE

MEM B E R S OF THE A N TI - B R I B E R Y A N D R E S PO N S I B I L ITIE S OF THE A N TI - B R I B E R Y A N D

CO R R UPTIO N COMMITTEE A N D ATTE N DA N CE CO R R UPTIO N COMMITTEE
AT   MEETI N G S
The Terms of Reference set out the responsibilities of the
Attendance at meetings (2 meetings held) Anti-Bribery and Corruption Committee. These include:

Sir Michael Wilkes, Chairman12 –– to maintain the Company’s anti-bribery and corruption policy
Michael Hibberd 2 framework in line with best practice and the appropriate
Paul Atherton 2 international standards and guidelines;
Mark Erwin 2 –– to maintain the Company’s Anti-Bribery and Corruption Code
of Conduct;
1 Sir Michael Wilkes died in October 2013. –– to maintain the Company’s anti-bribery and whistle-blowing
procedures;
Under its Terms of Reference the Anti-Bribery and Corruption –– to monitor related information reported through the
Committee will consist of at least three members, consisting of Company’s whistle-blowing systems and other
Directors or other senior management. The Chairman of the Board communications mechanisms and, where necessary, make
will not be the Chair of the Committee. The Anti-Bribery and policy and systems enhancement recommendations to the
Corruption Committee oversees the Group’s anti-bribery programme Board;
and its ethical policies and practices. The Committee meets formally –– to assess and monitor bribery and corruption risks in the
at least once a year. External advisers may also be invited to attend territories in which the Company operates and plans to operate
meetings as and when required. in the future;
–– to assess and monitor bribery and corruption risks relating to
The Terms of Reference of the Anti-Bribery and Corruption new projects and major transactions involving the Company;
Committee, as summarised below, were reviewed during 2013 and –– to foster knowledge sharing about bribery prevention around
are available on the Company’s website www.heritageoilplc.com. the Group, with peer group companies and interested third
parties such as non-governmental organisations;
–– to ensure that employees, contractors, agents and suppliers
are fully aware of the Company’s anti-bribery policies and
prevention systems (particularly whistle-blowing procedures);
and
–– to ensure that the Company’s Annual and CSR Reports and
website contain information that is a fair and coherent
reflection of its anti-bribery approach, policies, systems and
performance.

W HAT DID THE A N TI - B R I B E R Y A N D CO R R UPTIO N
COMMITTEE DO DU R I N G THE Y EA R ?
During the year the Anti-Bribery and Corruption Committee
considered the following main items of business:
R EPO R TI N G
Review and recommendation to the Board for the approval of
Anti-Bribery and Corruption Report in the Company’s Annual
Report.
R EGU L ATIO N
Review of any changes to applicable anti-bribery and corruption
legislation.
EDUCATIO N A L P R OG R AMME S
Review of educational programmes and implementation in Nigeria.
R I S K A S S E S S ME N T
Review of Nigerian acquisition and operations in Libya.
TE R M S OF R EFE R E N CE
Review and approval of Terms of Reference.
Corporate Governance  2013 H e r i ta g e O i l P L C
45
U K B R I B E R Y ACT A N D CODE OF ETHIC S
The Company has a zero tolerance policy to bribery which extends
to employees, agents, partners and contractors.
The Company has carried out a number of actions in response to the
introduction of the UK Bribery Act which became effective in July
2011. During 2013 the Company continued in its anti-bribery
educational programmes and undertook an annual risk assessment.
Furthermore, its anti-bribery procedures have been rolled out in
Nigeria and this is also being done in Papua New Guinea.
As a result of the actions taken, the Company has developed robust
bribery prevention procedures that include:
–– rigorous financial management systems that aim to prevent
instances of bribery;
–– an established whistle-blowing system to assist employees and
contractors in reporting any related concerns they may have;
–– training and human resource systems to ensure employees and
contractors are aware of Company procedures concerning the
Code of Ethics, corporate entertaining and related policies;
–– internal communications systems to disseminate and inform
employees and contractors on Company policies and procedures;
–– review of operations and risk assessment;
–– regular consultation and discussion with peer group companies,
investors, non-governmental organisations and regulatory
authorities in the territories in which it operates; and
–– regular review of the Company’s related policies, processes and
performance by senior management, the CSR Committee, Audit
Committee and Anti-Bribery and Corruption Committee.
The Anti-Bribery and Corruption Committee is aware of the need to
keep the momentum of the initial launch in place. Attention in the
forthcoming year will continue to be to ensure processes are properly
embedded throughout the Group, training of new employees and
refresher training for existing employees as appropriate. The
programmes in new areas will be monitored and reviewed and
adjustments made as appropriate.
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46

R EPO R T OF THE CO R PO R ATE S OCIA L R E S PO N S I B I L IT Y

COMMITTEE

MEM B E R S OF THE C S R COMMITTEE A N D W h at d i d t h e c S R c o m m i t t e e d o d u r i n g

ATTE N DA N CE AT MEETI N G S the year?

Attendance at meetings (4 meetings held) During the year the CSR Committee considered the following main
items of business:
Paul Atherton, Chairman 4
Anthony Buckingham 4 R EPO R TI N G
Michael Hibberd 4
Mark Erwin 4 Review and recommendation to the Board for the approval of
Corporate Social Responsibility Report in the Company’s Annual
Report including GRI G3.1 information.
The CSR Committee meets formally at least once a year and also
engages in numerous ad hoc discussions. External advisers may c sr p r o g r a m m e s
also be invited to attend meetings as and when required.
Review of corporate stewardship programmes; Update on progress
The Terms of Reference of the CSR Committee, as summarised in implementing programmes in Nigeria and Papua New Guinea.
below, were reviewed during 2013 and are available on the
Company’s website www.heritageoilplc.com. TE R M S OF R EFE R E N CE

R E S PO N S I B I L ITIE S OF THE C S R COMMITTEE Review and approval of Terms of Reference.

The Terms of Reference set out the responsibilities of the CSR

Committee. These include:

–– to maintain the Company’s CSR Policy Framework in line with

best practice and appropriate international standards and
guidelines;
–– to receive reports and review activities from executives and
specialist groups managing CSR matters across the Company’s
operation;
–– to develop a framework for submission, assessment and
approval of discretionary and obligatory community, social,
educational and charitable expenditures undertaken by the
Company worldwide;
–– to prepare an annual Group CSR Report and ensure it reflects
the Company’s CSR strategy, policies, systems and
performance, is coherent and published in a timely manner and
in accordance with best practice;
–– to consider and propose an annual budget for CSR activities
as part of the overall Group budget process; and
–– to review the internal CSR programme of the Company and
ensure it has the appropriate standing within the Company.
 Corporate Governance  2013 H e r i ta g e O i l P L C

47

APPENDIX
U K C O R P O R AT E G O V E R N A N C E C O D E

As a Premium Listed company on the LSE, the Company is subject to the UK Corporate Governance Code. The provisions of the Code,
and disclosures in relation to how the Company has applied these provisions, is set out below. It is the intention that, by covering routine
disclosures in this appendix concerning items that change little from year to year, the main body of the Corporate Governance Report
will focus on key items of importance to the Board and Committees during the year.

L O C AT I O N O F
R e f erence REQUIREMENT C O M M E N TA R Y DISCLOSURES

A. LEADERSHIP These responsibilities are set out

A.1 The Role of the Board in the Schedule of Matters
Every company should be headed by an effective board, Reserved for the Board, which
which is collectively responsible for the success of the are summarised on page 11 of
company. this report.

The board’s role is to provide entrepreneurial leadership of

the company within a framework of prudent and effective
controls which enables risk to be assessed and managed.
The board should set the company’s strategic aims, ensure
that the necessary financial and human resources are in
place for the company to meet its objectives and review
management performance. The board should set the
company’s values and standards and ensure that its
obligations to its shareholders and others are understood
and met.

All directors must act in what they consider to be the best Directors are made aware of
interests of the company, consistent with their statutory their statutory duties on joining
duties. the Board.

A.1.1 The board should meet sufficiently regularly to discharge its A revised Schedule of Matters Page 11
duties effectively. There should be a formal schedule of was reviewed and adopted early
matters specifically reserved for its decision. The annual in 2012, and reviewed again
report should include a statement of how the board in 2013.
operates, including a high-level statement of which types of
decisions are to be taken by the board and which are to be Board procedures are well Page 15
delegated to management. established and details of the
Board’s operation are provided
in this report.

A.1.2 The annual report should identify the chairman, the deputy Details of members of the Board Pages 6 to 7
chairman (where there is one), the chief executive, the and their roles are set out in this
senior independent director and the chairmen and members report and the table showing
of the board committees. It should also set out the number number and attendance at Board
of meetings of the board and its committees and individual and Committee meetings is shown
attendance by directors. on page 14.

Attendance at Committee Pages 24 to 44

meetings is shown in the
respective Committee Reports.
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48

APPENDIX
U K C O R P O R A T E G O V E R N A N C E C O D E continued

L O C AT I O N O F
R e f erence REQUIREMENT C O M M E N TA R Y DISCLOSURES

A.1.3 The company should arrange appropriate insurance cover
in respect of legal action against its directors.
The Company recognises the
potential personal liabilities to
which the Directors are subject
and believes that it is appropriate
to protect Directors from innocent
errors or emissions. A Directors’
and Officers’ Liability insurance
policy is maintained to provide
the Directors with an indemnity
under certain circumstances. This
is reviewed annually. Directors
are not covered where they have
acted fraudulently or dishonestly.

Under the Articles, Directors are

indemnified out of the assets of
the Company against any loss
or liability incurred by reasons
of having been a Director of
the Company.

A.2 Division of Responsibilities Michael Hibberd is the Chairman

There should be a clear division of responsibilities at the of the Board and Anthony
head of the company between the running of the board Buckingham is the CEO.
and the executive responsibility for the running of the
company’s business. No one individual should have
unfettered powers of decision.

A.2.1 The roles of chairman and chief executive should not be A summary of the separate duties Page 12
exercised by the same individual. The division of of the Chairman and CEO is
responsibilities between the chairman and chief executive provided in this report.
should be clearly established, set out in writing and agreed
by the board.

A.3 The Chairman These responsibilities are reflected Page 12

The chairman is responsible for leadership of the board in the written responsibilities of
and ensuring its effectiveness on all aspects of its role. the Chairman.

The chairman is responsible for setting the board’s agenda

and ensuring that adequate time is available for discussion
of all agenda items, in particular strategic issues. The
chairman should also promote a culture of openness and
debate by facilitating the effective contribution of non-
executive directors in particular and ensuring constructive
relations between executive and non-executive directors.

The chairman is responsible for ensuring that the directors

receive accurate, timely and clear information. The
chairman should ensure effective communication
with shareholders.

A.3.1 The chairman should, on appointment, meet the The Chairman was considered to
independence criteria set out in B.1.1 below. A chief be independent on appointment.
executive should not go on to be chairman of the same
company. If, exceptionally, a board decides that a chief
executive should become chairman, the board should
consult major shareholders in advance and should set out
its reasons to shareholders at the time of the appointment
and in the next annual report.
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49

L O C AT I O N O F
R e f erence REQUIREMENT C O M M E N TA R Y DISCLOSURES

A.4 Non-executive directors These responsibilities are set out

As part of their role as members of a unitary board, non- in the Non-Executive Directors’
executive directors should constructively challenge and letters of appointment.
help develop proposals on strategy.

Non-executive directors should scrutinise the performance

of management in meeting agreed goals and objectives and
monitor the reporting of performance. They should satisfy
themselves on the integrity of financial information and
that financial controls and systems of risk management are
robust and defensible. They are responsible for determining
appropriate levels of remuneration of executive directors
and have a prime role in appointing and, where necessary,
removing executive directors, and in succession planning.

A.4.1 The board should appoint one of the independent non- After the death of Sir Michael Page 12
executive directors to be the senior independent director. Wilkes, a new Senior
The senior independent director should be available to Independent Director is being
shareholders if they have concerns which contact through sought. Details of the role of the
the normal channels of chairman, chief executive or finance Senior Independent Director are
director has failed to resolve or for which such contact provided in this report.
is inappropriate.

A.4.2 The chairman should hold meetings with the non-executive The Chairman and Non-
directors without the executives present. Led by the senior Executive Directors met and
independent director, the non-executive directors should spoke regularly during the year,
meet without the chairman present at least annually to and on an ad hoc basis, without
appraise the chairman’s performance and on such other the Executive Directors being
occasions as are deemed appropriate. present.

The Non-Executive Directors

appraised the Chairman’s
performance as part of the
annual performance evaluation
undertaken during the year.

A.4.3 Where the directors have concerns which cannot be The Board Charter sets out
resolved about the running of the company or a proposed Directors’ responsibilities relating
action, they should ensure that their concerns are recorded to the operation of the Board and
in the board minutes. On resignation, a non-executive conduct of Directors. It includes
director should provide a written statement to the the right to ensure Directors’
chairman, for circulation to the board, if they have concerns are recorded in Board
such concerns. minutes and that Non-Executive
Directors, on resignation, should
provide a written statement to
the Chairman of any concerns.
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50

APPENDIX
U K C O R P O R A T E G O V E R N A N C E C O D E continued

L O C AT I O N O F
R e f erence REQUIREMENT C O M M E N TA R Y DISCLOSURES

B E FF E C T I V E N E S S Details of the skill sets and Pages 6 to 7

B.1 The Composition of the Board experience of the Directors are
The board and its committees should have the appropriate provided in this report, together
balance of skills, experience and knowledge of the with the split between Executive
company to enable them to discharge their respective Directors, independent and
duties and responsibilities effectively. non-independent Non-Executive
Directors.
The board should be of a sufficient size that the
requirements of the business can be met and that changes
to the board’s composition and that of its committees can
be managed without undue disruption and should not be so
large as to be unwieldy.

The board should include an appropriate combination of

executive and non-executive directors (and, in particular,
independent non-executive directors) such that no
individual or small group of individuals can dominate the
board’s decision taking.

The value of ensuring that committee membership is Committee membership was

refreshed and that undue reliance is not placed on reviewed by the Nomination
particular individuals should be taken into account in Committee and individual
deciding chairmanship and membership of committees. committees during the year.

No one other than the committee chairman and members is This is reflected in the Terms of
entitled to be present at a meeting of the nomination, audit Reference of all the Committees
or remuneration committee, but others may attend at the which may be found on the
invitation of the committee. Company’s website at
www.heritageoilplc.com.

B.1.1 The board should identify in the annual report each The independence of Directors is Page 11
non-executive director it considers to be independent. The discussed in this report.
board should determine whether the director is
independent in character and judgement and whether there
are relationships or circumstances which are likely to affect,
or could appear to affect, the director’s judgement. The
board should state its reasons if it determines that a director
is independent notwithstanding the existence of
relationships or circumstances which may appear relevant
to its determination, including if the director:

–– has been an employee of the company or group within

the last five years;
–– has, or has had within the last three years, a material
business relationship with the company either directly,
or as a partner, shareholder, director or senior
employee of a body that has such a relationship with
the company;
–– has received or receives additional remuneration from
the company apart from a director’s fee, participates in
the company’s share option or a performance-related
pay scheme, or is a member of the company’s pension
scheme;
–– has close family ties with any of the company’s
advisers, directors or senior employees;
–– holds cross-directorships or has significant links with
other directors through involvement in other
companies or bodies;
–– represents a significant shareholder; or
–– has served on the board for more than nine years from
the date of their first election.
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B.1.2 Except for smaller companies, at least half the board, There were eight Directors in Pages 10 to 11
excluding the chairman, should comprise non-executive total, prior to the death of Sir
directors determined by the board to be independent. A Michael Wilkes, for whom a
smaller company should have at least two independent replacement is being sought. The
non-executive directors. Board considers that four of the
Non-Executive Directors and the
Chairman are independent.

B.2 Appointments to the Board These responsibilities are part of Page 41

There should be a formal, rigorous and transparent the Nomination Committee’s
procedure for the appointment of new directors to the board. remit and are included in its
Terms of Reference.
The search for board candidates should be conducted, and Appointments are made on merit
appointments made, on merit against objective criteria with and the Nomination Committee
due regard for the benefits of diversity on the board, considers diversity as part of this
including gender. process. Succession planning is
regularly discussed at
The board should satisfy itself that plans are in place for Nomination Committee meetings.
orderly succession for appointments to the board and to
senior management, so as to maintain an appropriate
balance of skills and experience within the company and on
the board and to ensure progressive refreshing of the board.

B.2.1 There should be a nomination committee which should lead The Report of the Nomination Pages 41 to 42
the process for board appointments and make Committee is detailed in
recommendations to the board. A majority of members of this report.
the nomination committee should be independent
non-executive directors. The chairman or an independent
non-executive director should chair the committee, but the
chairman should not chair the nomination committee when
it is dealing with the appointment of a successor to the
chairmanship. The nomination committee should make
available its terms of reference, explaining its role and the
authority delegated to it by the board.

B.2.2 The nomination committee should evaluate the balance of
skills, experience, independence and knowledge on the
board and, in the light of this evaluation, prepare a
description of the role and capabilities required for a
particular appointment.
The Nomination Committee will
undertake a review of the skills,
experience, independence and
knowledge on a regular basis and
prepare a description of the role
and capabilities for any identified
appointments.

B.2.3 Non-executive directors should be appointed for specified Non-Executive Directors are Page 10
terms subject to re-election and to statutory provisions appointed for specified terms
relating to the removal of a director. Any term beyond six subject to annual re-election by
years for a non-executive director should be subject to shareholders. The length of
particularly rigorous review, and should take into account tenure of the Non-Executive
the need for progressive refreshing of the board. Directors is set out in this report.

B.2.4 A separate section of the annual report should describe the The Report of the Nomination Pages 41 to 42
work of the nomination committee, including the process it Committee is detailed in
has used in relation to board appointments. This should this report.
include a description of the board’s policy on diversity,
including gender, any measurable objectives that it has set
for implementing the policy and progress on achieving the
objectives. An explanation should be given if neither an
external search consultancy nor open advertising has been
used in the appointment of a chairman or a non-executive
director.
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B.3 Commitment
All directors should be able to allocate sufficient time to
the company to discharge their responsibilities effectively.

B.3.1 For the appointment of a chairman, the nomination The Nomination Committee will
committee should prepare a job specification, including an prepare a job specification in the
assessment of the time commitment expected, recognising event of the appointment of a new
the need for availability in the event of crises. A chairman’s Chairman.
other significant commitments should be disclosed to the
board before appointment and included in the annual The Chairman’s other significant Pages 6 to 7
report. Changes to such commitments should be reported commitments are disclosed to the
to the board as they arise, and their impact explained in the Board and may be found in the
next annual report. Directors’ biographies in this
report. During the year the
Chairman was appointed a
director of PetroFrontier Corp as
the Company’s representative.

B.3.2 The terms and conditions of appointment of non-executive The terms and conditions of
directors should be made available for inspection. The letter appointment of the Non-Executive
of appointment should set out the expected time Directors are available on request.
commitment. Non-executive directors should undertake
that they will have sufficient time to meet what is expected The letters of appointment of the Page 16
of them. Their other significant commitments should be Non-Executive Directors set out
disclosed to the board before appointment, with a broad the terms of appointment,
indication of the time involved and the board should be including the agreed expected time
informed of subsequent changes. commitment. This is then assessed
as part of performance evaluation
to ensure they continue to be able
to devote sufficient time to their
duties. The key terms of a
Non-Executive Director’s letter
of appointment may be found in
this report.

Prior to appointment, all Directors

are expected to disclose their other
time commitments in order to
demonstrate that they have
sufficient time to fulfil their role
as a Director.

B.3.3 The board should not agree to a full time executive director The policy on Executive Directors
taking on more than one non-executive directorship taking on external roles is set out
in a FTSE 100 company nor the chairmanship of such in the Board Charter. It is the
a company. Company’s policy that Executive
Directors are permitted to accept
directorships of other quoted
companies provided that they
have prior permission of the
Chairman. However, an
Executive Director will not be
permitted to take on more than
one non-executive directorship of
a FTSE 100 company nor the
chairmanship of such a company.
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B.4 Development A typical induction programme Pages 12 and 16

All directors should receive induction on joining the used by the Company is described
board and should regularly update and refresh their skills in this report.
and knowledge.
All Directors are actively
The chairman should ensure that the directors continually encouraged to question, examine
update their skills and the knowledge and familiarity with and review the Group’s
the company required to fulfil their role both on the board operations and to undertake
and on board committees. The company should provide the training applicable to their roles.
necessary resources for developing and updating its Non-Executive Directors develop
directors’ knowledge and capabilities. an understanding of the views of
major shareholders through
To function effectively, all directors need appropriate various channels, including
knowledge of the company and access to its operations briefings by the Executive
and staff. Directors and the Senior
Independent Director and by
information provided at Board
meetings on investor relations
strategy.

All Directors have the

opportunity to update their skills
and knowledge on a regular basis
through briefings at Board
meetings on issues including
changes in law and regulation,
corporate governance, financial
reporting and operational
matters.

Directors are in regular

communication with senior
executives through both formal
and informal ad hoc meetings, to
ensure an exchange of knowledge
and experience between
management and Directors.
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B.4.1 The chairman should ensure that new directors receive a It is part of the Chairman’s Page 12
full, formal and tailored induction on joining the board. written responsibilities to ensure
As part of this, the directors should avail themselves of that new Directors receive a full,
opportunities to meet major shareholders. formal and tailored induction on
joining the Board.

Upon joining the Board a Director

will participate in an induction
programme covering the
principles and legal and
regulatory duties required of
them. This training is tailored to
an individual’s needs, taking into
account their qualifications and
experience. In addition, meetings
are arranged with senior
management to enable Non-
Executive Directors to develop
a detailed understanding of the
Company’s business, its strategy
and the key risks and challenges
facing the Company.

B.4.2 The chairman should regularly review and agree with each The Chairman regularly reviews
director their training and development needs. the training and development
needs of Directors as part of the
annual evaluation process.

B.5 Information and Support The Chairman, supported by the

The board should be supplied in a timely manner with CEO and CFO, ensures that all
information in a form and of a quality appropriate to Directors receive accurate, timely
enable it to discharge its duties. and clear information to support
informed discussions at Board
The chairman is responsible for ensuring that the directors meetings.
receive accurate, timely and clear information. Management
has an obligation to provide such information but directors See disclosure under B.5.2 below
should seek clarification or amplification where necessary. in relation to the Company
Secretary.
Under the direction of the chairman, the company
secretary’s responsibilities include ensuring good
information flows within the board and its committees and
between senior management and non-executive directors,
as well as facilitating and assisting with professional
development as required.

The company secretary should be responsible for advising

the board through the chairman on all governance matters.

B.5.1 The board should ensure that directors, especially
non-executive directors, have access to independent
professional advice at the company’s expense where they
judge it necessary to discharge their responsibilities as
directors. Committees should be provided with sufficient
resources to undertake their duties.
The right of all Directors to
access independent professional
advice whenever it is required and
at the Company’s expense is
written into the Board Charter.
The Terms of Reference of each of
the Board Committees sets out
that they must be provided with
sufficient resources for them to
undertake their duties.
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B.5.2 All directors should have access to the advice and services Given the size of the Company,
of the company secretary, who is responsible to the board the Board feels that it is in the
for ensuring that board procedures are complied with. Both shareholders’ best interests not to
the appointment and removal of the company secretary employ a full-time Company
should be a matter for the board as a whole. Secretary at this stage in the
Company’s development. The
current Company Secretary is a
corporate entity based in Jersey
that deals with the normal
statutory compliance for the
Company. The Board and its
Committees are, therefore,
serviced by the Company
Secretary or its nominee. The
other duties that would normally
be carried out by the Company
Secretary, such as the provision of
information flows to the Board,
are dealt with by the Chairman,
the CEO or CFO or their
nominee. In terms of corporate
governance issues, the Board is
advised by McCarthy Tétrault, a
firm of registered foreign lawyers
and solicitors with offices in
North America and in London.
The Board monitors the provision
of company secretarial duties and
takes any action as appropriate
to ensure its requirements are
met. The appointment or removal
of the Company Secretary is a
matter for the Board as a whole.

B.6 Evaluation
The board should undertake a formal and rigorous
annual evaluation of its own performance and that of its
committees and individual directors.

The chairman should act on the results of the performance

evaluation by recognising the strengths and addressing the
weaknesses of the board and, where appropriate, proposing
new members be appointed to the board or seeking the
resignation of directors.

Individual evaluation should aim to show whether each

director continues to contribute effectively and to
demonstrate commitment to the role (including
commitment of time for board and committee meetings
and any other duties).

B.6.1 The board should state in the annual report how A review of how performance Page 17
performance evaluation of the board, its committees evaluation has been carried out
and its individual directors has been conducted. may be found in this report.
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B.6.2 Evaluation of the board of FTSE 350 companies should be In 2013 the performance review Page 17
externally facilitated at least every three years. A statement was externally facilitated by Hay
should be made available of whether an external facilitator Group.
has any other connection with the company.

B.7 Re-election
All directors should be submitted for re-election at regular
intervals, subject to continued satisfactory performance.

B.7.1 All directors of FTSE 350 companies should be subject to With regard to retirement and
annual election by shareholders. All other directors should re-election of Directors, the
be subject to election by shareholders at the first annual Company is governed by its
general meeting after their appointment, and to re-election Articles, the Code and the Jersey
thereafter at intervals of no more than three years. Companies Law. Under the
Non-executive directors who have served longer than nine Articles, Directors have the power
years should be subject to annual re-election. The names of to appoint a Director to the Board
directors submitted for election or re-election should be during the year but any person so
accompanied by sufficient biographical details and any appointed must stand for election
other relevant information to enable shareholders to take an at the next AGM. However, in
informed decision on their election. line with the Code, all Directors
will retire and stand for re-
election annually. Directors
re-elected at the AGM will be
appointed for a one-year term.

B.7.2 The board should set out to shareholders in the papers The Notice of Annual General
accompanying a resolution to elect a non-executive director Meeting includes in the notes
why they believe an individual should be elected. The accompanying the resolutions to
chairman should confirm to shareholders when proposing elect Non-Executive Directors
re-election that, following formal performance evaluation, why the Board believes that
the individual’s performance continues to be effective and individual should be elected.
to demonstrate commitment to the role.
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C. A C C O U N TA B I L I T Y A N D A U D I T
C.1 Financial and Business Reporting
The board should present a balanced and understandable
assessment of the company’s position and prospects.

The board’s responsibility to present a balanced and

understandable assessment extends to interim and other
price-sensitive public reports and reports to regulators as
well as to information required to be presented by statutory
requirements.

C.1.1 The directors should explain in the annual report their The responsibility statements of Pages 7 to 10
responsibility for preparing the annual report and accounts the Directors and the
and state that they consider the annual report and accounts, Independent Auditor’s Report
taken as a whole, is fair, balanced and understandable and may be found in the Financial
provides the information necessary for shareholders to Statements Report.
assess the company’s performance, business model and
strategy. There should be a statement by the auditors about
their reporting responsibilities.

C.1.2 The directors should include in the annual report an A full review and report on the
explanation of the basis on which the company generates Company’s business model and
or preserves value over the longer term (the business strategy may be found in the
model) and the strategy for delivering the objectives Strategic Report, which
of the company. accompanies this Corporate
Governance Report.

C.1.3 The directors should report in annual and half-yearly A statement on going concern Page 7
financial statements that the business is a going concern, may be found in the Financial
with supporting assumptions or qualifications as necessary. Statements Report.

C.2 Risk Management and Internal Control The Board’s responsibilities for
The board is responsible for determining the nature risk and internal control are set
and extent of the significant risks it is willing to take out in the Schedule of Matters
in achieving its strategic objectives. The board should Reserved for the Board.
maintain sound risk management and internal
control systems.

C.2.1 The board should, at least annually, conduct a review of the Details of the Group’s risk Pages 32 to 34
effectiveness of the group’s risk management and internal management and internal control
control systems and should report to shareholders that they systems may be found in this
have done so. The review should cover all material controls, report and further details may be
including financial, operational and compliance controls. found in the Strategic Report.

C.3 Audit Committee and Auditors

The board should establish formal and transparent
arrangements for considering how they should apply the
corporate reporting and risk management and internal
control principles and for maintaining an appropriate
relationship with the company’s auditors.

C.3.1 The board should establish an audit committee of at least The Audit Committee Report Pages 36 to 40
three, or in the case of smaller companies two, independent may be found in this report.
non-executive directors. In smaller companies the company
chairman may be a member of, but not chair, the committee
in addition to the independent non-executive directors,
provided he or she was considered independent on
appointment as chairman. The board should satisfy itself
that at least one member of the audit committee has recent
and relevant financial experience.
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C.3.2 The main role and responsibilities of the audit committee The Audit Committee’s Terms Page 37
should be set out in written terms of reference and of Reference include these
should include: responsibilities. A summary of
the Terms of Reference of the
–– to monitor the integrity of the financial statements of Audit Committee may be found
the company, and any formal announcements relating in this report.
to the company’s financial performance, reviewing
significant financial reporting judgements contained
in them;
–– to review the company’s internal financial controls
and, unless expressly addressed by a separate board
risk committee composed of independent directors, or
by the board itself, to review the company’s internal
control and risk management systems;
–– to monitor and review the effectiveness of the
company’s internal audit function;
–– to make recommendations to the board, for it to put to
the shareholders for their approval in general meeting,
in relation to the appointment, re-appointment and
removal of the external auditor and to approve the
remuneration and terms of engagement of the external
auditor;
–– to review and monitor the external auditor’s
independence and objectivity and the effectiveness of
the audit process, taking into consideration relevant
UK professional and regulatory requirements; and
–– to develop and implement policy on the engagement of
the external auditor to supply non-audit services,
taking into account relevant ethical guidance regarding
the provision of non-audit services by the external
audit firm; and to report to the board, identifying any
matters in respect of which it considers that action or
improvement is needed and making recommendations
as to the steps to be taken.

C.3.3 The terms of reference of the audit committee, including its The Terms of Reference of the
role and the authority delegated to it by the board, should Audit Committee are available
be made available. A separate section of the annual report on the Company’s website
should describe the work of the committee in discharging www.heritageoilplc.com.
those responsibilities.
The Report of the Audit Pages 36 to 40
Committee can be found in
this report.

C.3.4 Where requested by the board, the audit committee should The Audit Committee, at the
provide advice on whether the annual report and accounts, request of the Board, assessed the
taken as a whole, is fair, balanced and understandable and Annual Report and Accounts as a
provides the information necessary for shareholders to whole to assess whether they were
assess the company’s performance, business model fair, balanced and understandable
and strategy. and provides information
necessary for shareholders to
assess the Company’s
performance, business model and
strategy. The Audit Committee
considered in particular the
consistency between the various
parts of the report, content
and risk.
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C.3.5 The audit committee should review arrangements by which A whistle-blowing policy is in
staff of the company may, in confidence, raise concerns operation across the Group. Any
about possible improprieties in matters of financial feedback from these arrangements
reporting or other matters. The audit committee’s objective is regularly reviewed by the Audit
should be to ensure that arrangements are in place for the Committee along with the
proportionate and independent investigation of such operation of the policy.
matters and for appropriate follow-up action.

C.3.6 The audit committee should monitor and review the Information on internal audit Page 38
effectiveness of the internal audit activities. Where there is can be found in this report.
no internal audit function, the audit committee should
consider annually whether there is a need for an internal
audit function and make a recommendation to the board,
and the reasons for the absence of such a function should
be explained in the relevant section of the annual report.

C.3.7 The audit committee should have primary responsibility Information on the external Pages 40
for making a recommendation on the appointment, auditors can be found in
re-appointment and removal of the external auditors. FTSE this report.
350 companies should put the external audit contract out
to tender at least every 10 years. If the board does not
accept the audit committee’s recommendation, it should
include in the annual report, and in any papers
recommending appointment or re-appointment, a statement
from the audit committee explaining the recommendation
and should set out reasons why the board has taken a
different position.

C.3.8 A separate section of the annual report should describe the Disclosures in respect of the Pages 36 to 40
work of the committee in discharging its responsibilities. significant issues considered by
The report should include: the Audit Committee, how it has
assessed the effectiveness of the
–– the significant issues that the committee considered in external audit process and
relation to the financial statements, and how these auditor objectivity and
were addressed; independence may be found in the
–– an explanation of how it has assessed the effectiveness Report of the Audit Committee.
of the external audit process and the approach taken
to the appointment or reappointment of the external
auditor, and information on the length of tenure of
the current audit firm and when a tender was last
conducted; and
–– if the auditor provides non-audit services, an
explanation of how auditor objectivity and
independence is safeguarded.
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D. R E M U N E R AT I O N Disclosures relating to Pages 22 to 35

D.1 The Level and Components of Remuneration remuneration and the provisions
Levels of remuneration should be sufficient to attract, of Section D of the Code may be
retain and motivate directors of the quality required to found in the Report of the
run the company successfully, but a company should Remuneration Committee.
avoid paying more than is necessary for this purpose. A
significant proportion of executive directors’ remuneration
should be structured so as to link rewards to corporate and
individual performance.

The performance-related elements of executive directors’

remuneration should be stretching and designed to promote
the long-term success of the company.

The remuneration committee should judge where to

position their company relative to other companies. But
they should use such comparisons with caution, in view of
the risk of an upward ratchet of remuneration levels with no
corresponding improvement in performance.

They should also be sensitive to pay and employment

conditions elsewhere in the group, especially when
determining annual salary increases.

D.2 Procedure Page 24

There should be a formal and transparent procedure for
developing policy on executive remuneration and for
fixing the remuneration packages of individual directors.
No director should be involved in deciding his or her own
remuneration.

The remuneration committee should consult the chairman

and/or chief executive about their proposals relating to the
remuneration of other executive directors. The
remuneration committee should also be responsible for
appointing any consultants in respect of executive director
remuneration. Where executive directors or senior
management are involved in advising or supporting the
remuneration committee, care should be taken to recognise
and avoid conflicts of interest.

The chairman of the board should ensure that the company

maintains contact as required with its principal
shareholders about remuneration.
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E. R E L AT I O N S W I T H S H A R E H O L D E R S Regular investor reports are made Page 19

E.1 Dialogue with Shareholders to the whole Board to ensure that
There should be a dialogue with shareholders based on the any major issues raised by
mutual understanding of objectives. The board as a whole shareholders are reviewed.
has responsibility for ensuring that a satisfactory dialogue
with shareholders takes place.

Whilst recognising that most shareholder contact is with

the chief executive and finance director, the chairman
should ensure that all directors are made aware of their
major shareholders’ issues and concerns.

The board should keep in touch with shareholder opinion

in whatever ways are most practical and efficient.

E.1.1 The chairman should ensure that the views of shareholders Regular investor relation reports
are communicated to the board as a whole. The chairman are made to the Board.
should discuss governance and strategy with major
shareholders. Non-executive directors should be offered the
opportunity to attend scheduled meetings with major
shareholders and should expect to attend meetings if
requested by major shareholders. The senior independent
director should attend sufficient meetings with a range of
major shareholders to listen to their views in order to help
develop a balanced understanding of the issues and
concerns of major shareholders.

E.1.2 Constructive Use of the AGM

The board should use the AGM to communicate with
investors and to encourage their participation.

E.2.1 At any general meeting, the company should propose a Proxy forms allow shareholders
separate resolution on each substantially separate issue, and to vote for or against a resolution
should in particular propose a resolution at the AGM or to withhold their vote. It is
relating to the report and accounts. For each resolution, made clear on the proxy form
proxy appointment forms should provide shareholders with that a vote withheld is not a vote
the option to direct their proxy to vote either for or against in law and will not be counted
the resolution or to withhold their vote. The proxy form as a vote either for or against
and any announcement of the results of a vote should make the resolution.
it clear that a “vote withheld” is not a vote in law and will
not be counted in the calculation of the proportion of the
votes for and against the resolution.
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E.2.2 The company should ensure that all valid proxy The collation of proxy votes is
appointments received for general meetings are properly undertaken by the Company’s
recorded and counted. For each resolution, where a vote Registrar, Computershare.
has been taken on a show of hands, the company should Information on proxy voting,
ensure that the following information is given at the including votes for, against and
meeting and made available as soon as reasonably votes withheld, are released to the
practicable on a website which is maintained by or market after the AGM or any
on behalf of the company: general meeting. Where voting is
carried out by poll, the Company
–– the number of shares in respect of which proxy releases details of the poll
appointments have been validly made; voting as soon as possible after
–– the number of votes for the resolution; the meeting.
–– the number of votes against the resolution; and
–– the number of shares in respect of which the vote
was directed to be withheld.

E.2.3 The chairman should arrange for the chairmen of the audit, All the Directors, including the
remuneration and nomination committees to be available to chairmen of the Board
answer questions at the AGM and for all directors to attend. Committees, attended the AGM
in 2013 and it is intended will do
so again in 2014.

E.2.4 The company should arrange for the Notice of the AGM Formal notice of the AGM,
and related papers to be sent to shareholders at least 20 including details of special
working days before the meeting. business, is set out in the Notice
of AGM and dispatched to
shareholders at least 20 working
days before the meeting. The
Notice of AGM will also be
available on the Company’s
website www.heritageoilplc.com.
 Corporate Governance  2013 H e r i ta g e O i l P L C

63

C o r p o r at e G o v e r n a n c e G l o s s a r y

$ US dollars unless otherwise stated

AGM Annual General Meeting
AL B I ON Albion Energy Limited
AP I a specific gravity scale developed by the American Petroleum Institute for measuring the
relative density of various petroleum liquids, expressed in degrees
ART I C LES Articles of Association of the Company
B B L / B B LS barrel/barrels
B B LS / D OR B OP D barrels per day or barrels of oil per day
BCF billion cubic feet
B OE barrels of oil equivalent1
B OE / D OR B OEP D barrels of oil equivalent per day
C O D E UK Corporate Governance Code
C O M PANY Heritage Oil Plc
C SR Corporate Social Responsibility
D AV I ES REPORT report issued in February 2011 concerning the representation of women on company boards
D TR Financial Conduct Authority’s Disclosure and Transparency Rules
EU European Union
F C A Financial Conduct Authority
G RO U P, H ER I TA G E the Company and all of its subsidiaries
H O C OR C ORPORAT I ON Heritage Oil Corporation, incorporated in Canada and a wholly owned subsidiary
of the Company
I F RS International Financial Reporting Standards
J ERSEY C O M PAN I ES LA W Companies (Jersey) Law 1991
KPI Key Performance Indicator
L I ST I N G R U LES Financial Conduct Authority’s Listing Rules
LSE London Stock Exchange
LT I Lost Time Injury
LT I F R Lost Time Injury Frequency Rate
LT I P Long-Term Incentive Plan
M metres
M 3 cubic metres
M B B LS thousand barrels
M M B B LS million barrels
M B OE thousands of barrels of oil equivalent
M M B OE millions of barrels of oil equivalent
MCF thousand cubic feet
M C F/ D thousand cubic feet per day
MMBTU million british thermal units
MMSCF million standard cubic feet
M M S C F/ D million standard cubic feet per day
M M ST B million stock tank barrels
N / A not applicable
OML 30 Oil Mining Licence 30
OR I G I NAL PLAN HOC plan
PETROLE U M any mineral, oil or relative hydrocarbon (including condensate and natural gas liquids) and
natural gas existing in its natural condition in strata (but not including coal or bituminous
shale or other stratified deposits from which oil can be extracted by destructive distillation)
PSA OR PS C production sharing agreement or production sharing contract

1 boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and
does not represent a value equivalency at the wellhead.
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64

C o r p o r at e G o v e r n a n c e G l o s s a r y c o n t i n u e d

RE G U LAT I ONS UK Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008
REPLA C E M ENT S C H E M E the Heritage Oil Limited 2008 Replacement Share Option Scheme
S H OREL I NE Shoreline Natural Resources Limited
SPE C I AL VOT I N G S H ARE Special Voting Share of HOC
TSR Total Shareholder Return
TS X Toronto Stock Exchange
T U RN B U LL G U I D AN C E FRC’s guidance on internal control
U K B R I B ERY A C T The UK Bribery Act 2010 which was introduced in July 2011
U K STE W AR D S H I P C O D E code introduced by the FRC in July 2010 which aims to enhance the quality of engagement
between institutional investors and companies
2 0 0 8 LT I P 2008 Long-Term Incentive Plan
2 0 11 LT I P 2011 Long-Term Incentive Plan

C ONVERS I ON TA B LE
The following table sets forth standard conversions from Standard Imperial Units to the International System of Units (or metric units).
To convert from To Multiply by

boe mcf 6
mcf cubic metres 28.316
cubic metres cubic feet 35.315
bbls cubic metres 0.159
cubic metres bbls oil 6.290
feet metres 0.305
metres feet 3.281
miles kilometres 1.609
kilometres miles 0.621
acres hectares 0.405
 Corporate Governance  2013 H eritage O il P L C

A DV I S E R S A ND F I N A N C I A L C A L E ND A R

C O M PA N Y S E C R E TA R Y A U D I TO R S O F T H E C O M PA N Y
Woodbourne Secretaries (Jersey) Limited KPMG Audit Plc
Ordnance House 15 Canada Square
31 Pier Road Canary Wharf
St Helier JE4 8PW Jersey London E14 5GL
Channel Islands United Kingdom

R E G I S T E R E D O F F I C E O F T H E C O M PA N Y R E G I S T R A R S O F T H E C O M PA N Y
Ordnance House Computershare Investor Services (Jersey) Ltd
31 Pier Road Queensway House
St Helier JE4 8PW Jersey Hilgrove Street
Channel Islands St Helier JE1 1ES Jersey
Channel Islands
H E A D O F F I C E A ND D I R E C T O R S ’
B U S I N E S S A DD R E S S P R I N C I PA L B A N K E R S O F T H E C O M PA N Y
Fourth Floor Standard Bank (Europe)
Windward House Barclays Bank
La Route de la Liberation Investec
St Helier JE2 3BQ Jersey Bank of Scotland (Europe)
Channel Islands
I ND E P E ND E N T P E T R O L E U M E N G I N E E R I N G
U K O F F I C E O F T H E C O M PA N Y C O N S U LTA N T S T O T H E C O M PA N Y
34 Park Street RPS Energy Consultants Limited
London W1K 2JD 309 Reading Road
United Kingdom Henley-on-Thames
Oxfordshire RG9 1EL
B R O K E R A ND F I N A N C I A L A DV I S E R S United Kingdom
J.P. Morgan Securities Limited
25 Bank Street PRESS AGENTS
Canary Wharf FTI Consulting
London E14 5JP 200 Aldersgate
United Kingdom Aldersgate Street
London EC1A 4HD
E N G L I S H L E G A L A DV I S E R S T O T H E C O M P A N Y United Kingdom
McCarthy Tétrault
Registered Foreign Lawyers & Solicitors F I N A N C I A L C A L E ND A R
125 Old Broad Street, 26th Floor Group results for the year to 31 December are announced in March/
London EC2N 1AR April. The Annual General Meeting is held during the second
United Kingdom quarter. Half year results to 30 June are announced in August.
Additionally, the Group will issue an Interim Management Statement
J E R S E Y L E G A L A DV I S E R S T O T H E C O M P A N Y between ten weeks after the beginning and six weeks before the end
Mourant Ozannes of each half year period.
22 Grenville Street
St Helier JE4 8PX Jersey WEBSITE
Channel Islands www.heritageoilplc.com

C A N A D I A N L E G A L A DV I S E R S T O T H E C O M P A N Y
McCarthy Tétrault LLP
Suite 4000
421–7th Avenue SW
Calgary Alberta
T2P 4K9
Canada
 H E R I TA G E O I L P L C . C O M

H eritage O il P L C
Fourth Floor, Windward House
La Route de la Liberation
St Helier JE2 3BQ Jersey
Channel Islands

T: +44 (0) 1534 835 400

F: +44 (0) 1534 835 412