Corporate Governance

The Board recognises the value and importance of high standards of corporate governance. Accordingly, the Board has adopted the Corporate Governance Code 2018 ("the Code") published by the Quoted Company Alliance ("QCA").

Outlined below is our approach to addressing the key principles of the Code. This will further be expanded upon as required under the Code in our next and subsequent annual reports.*

This disclosure was last reviewed and updated on 27 September 2018.

Principle 1: Establish a strategy and business model which promote long-term value for shareholders

The Company's business model is that of an independent exploration and production company with operations in Russia. The Company's business model involves operations at Articneft based on Kolguyev Island in the Barents Sea and Petrosakh on the Eastern coast of Sakhalin Island in the North Pacific Ocean. Urals Energy's objective is to increase shareholder value by focusing on development of its foundation of proven and probable reserves. Urals Energy business model has also, where appropriate, involved making acquisitions and seeking exploration licences to increase and broaden its portfolio and provide potential shareholder upside where the potential for significant recoverable reserves exists.

The Board sets the Company's strategy, ensuring that the necessary resources are in place to achieve the agreed strategic priorities, and reviews operational and financial performance. It is accountable to shareholders for the creation and delivery of strong, sustainable financial performance and monitoring the Company's affairs within a framework of controls which enable risk to be assessed and managed effectively.

The Company's strategy and business model and amendments thereto, are developed by the Chief Executive Officer and his senior management team, and approved by the Board. The management team, led by the Chief Executive Officer, is responsible for implementing the strategy and managing the business at an operational level.

The main objectives of our strategy can be found in the following announcement (in the section titled 'Update on strategy'), in our Annual Chief Executive Officer statement (in the 'strategy' section toward the end of the statement) that accompanies the Company's consolidation financial statements, and in our presentation (on pages 10, 14, 17 and 18), both available on the Company's website via the links below:

The Company's principal operating risks, being the key challenges to the execution of the Company's business model and strategy, can be found in note 24 to the Company's consolidated financial statements as of and for the year ended 31 December 2017, on pages 41 to 42.

The Company operates in an inherently high risk sector which is highly dependent on the prevailing macroeconomic situation. In executing the Company's strategy and operational plans, management will typically confront a range of day-to-day challenges associated with these key risks and uncertainties, and will seek to deploy the identified mitigation steps to manage these risks as they manifest themselves.*

Principle 2: Seek to understand and meet shareholder needs and expectations

The Company remains committed to listening and communicating openly with its shareholders to ensure that its strategy, business model and performance are clearly understood. Understanding what analysts and investors think about us, and in turn, helping these audiences understand our business, is a key part of driving our business forward and we actively seek dialogue with the market where appropriate.

The Board is committed and communicates regularly with shareholders on the Company's strategy, financial performance, developments and prospects via the issuance of annual and interim financial statements to shareholders, regulatory announcements and via investor meetings.

The Board has engaged CMA to prepare analysis of the Company's performance compared with other AIM companies that are operating in the Former Soviet Union and also generally. The CMA reports are posted to our web site

The Company encourages two-way communication with both its institutional and private investors. Shareholders can communicate with the Company via email and by telephone and we respond to their specific questions and inputs as required. Company contact details are included in all announcements. Since 2013, the Company has published a number of questions and answers documents (which are available from the Company's website), that seek to address questions from shareholders. The Company has a dedicated online portal for shareholder questions, which can be found here:

Responses to the inquiries will then be considered by the Chairman. The Company may exercise discretion as to which shareholder questions shall be responded to, and the information used to answer questions will be information that is freely available in the public domain. If deemed necessary, the inquiries will be brought to Board's attention.

The Chairman and Board members meet regularly with investors and analysts to provide them with updates on the Group's business and to obtain feedback regarding the market's expectations of the Company.

The Board recognizes the Annual General Meeting as an important opportunity to meet private shareholders. The Company encourages all shareholders to attend its AGM where they can meet and question the Directors and express ideas or concerns.

The Directors believe that the Company's efforts to engage with shareholders have been well received and that shareholders who take an active interest in the Company will have an understanding of its strategy and objectives, and that they recognise its progress in the last few years, although the Directors also appreciate there is a need to attract new shareholders and potentially institutional shareholders in order to improve its relative valuation, compared with its peers on AIM.

Principle 3: Take in account wider stakeholder and social responsibilities and their implications for long-term success

The Board considers relationships with, and the engagement of, our stakeholders to be one of the critical factors underlying the ongoing success of our business. The Company is aware of its corporate social responsibilities and the need to maintain effective working relationships across a range of stakeholder groups. In addition to communication with shareholders, the Company has established systems for feedback from staff, customers and suppliers, which, on the basis of the Directors' and Management experience and their knowledge from the operation of the Company, the Directors believe are the key resources and relationships upon which the business relies.

The Company actively seeks employees' feedback on all aspects of employment with the Company. The Management closely monitors any concerns raised and ensure the alignment of interests between those of the Company and our employees.

The Company actively seeks employees' feedback on all aspects of employment with the Company. The Management closely monitors any concerns raised and ensure the alignment of interests between those of the Company and our employees. The Company encourages feedback from our customers and engages with them through the subsidiaries' local sites. The Company encourages feedback from its suppliers and engages with them through purchasing managers who work at the Group's two main operations.

The Company takes due account of any environmental or social impact that its activities may have and seeks to minimise this impact wherever possible. Through the various procedures and systems it operates, the Company ensures compliance with health and safety and environmental legislation relevant to oil and gas production activities. The oil and gas activities in Russia are overseen by Rosnedra, which legislates and monitors adherence to a strict set of health safety and environmental laws that are equivalent to US and European standards. All of the Company's plans for exploration, production, and on-going operations or abandonment are tracked in mandatory annual filings and reviews by Rosendra.   The nature of the Company's business dictates that its operations and employees are located in remote rural environments with extreme weather characteristics. Being the only company operating on Kolguev Island and one of the largest taxpayers on Sakhalin Island, the Company understands its responsibility and actively participates in the social and charitable life of the regions. These programmes include charity and non-monetary support (fuel supply) to small indigenous groups living on Kolguev, and schools, children sport clubs and settlement-type municipal entities on Sakhalin Island.

The Company seeks to take into account feedback received from stakeholders, making amendments to working arrangements and operational plans where appropriate and where such amendments are is consistent with the Company's longer term strategy. However, no material changes to the Company's working processes were required over the year to 31 December 2017, or more recently, as a result of stakeholder feedback received by the Company.

Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organization

The Board has ultimate responsibility for the Company's system of internal controls and for reviewing its effectiveness. However, any such system of internal control can only provide reasonable, but not absolute, assurance against risks to the execution and delivery of the Company's strategy. The Board considers that the internal controls in place are appropriate for the size, complexity and risk profile of the Company.*

Risk management and compliance policies, controls and practices are in place in order to allow the Company to identify, assess, manage and monitor key business risks and exposure and for the evaluation of their financial impact and other implications.

The Company seeks to apply policies and procedures consistently across its subsidiary operations, including newly acquired entities, and relies upon local management to ensure that those policies and procedures are followed.

The principal elements of the Group's internal controls include: management structure, financial monitoring, approval limits, internal policies, codes of conduct and IT controls.

This is managed and reviewed by the Executive Directors and senior management. The Company also relies on third party reviews and audits to ensure compliance with local regulations.

The Audit Committee receives feedback on the effectiveness of internal controls from executive management and correlates that with separate reports from the external audit process. The Audit Committee also considers the risks applicable to the Company, including any new or emerging risks, in conjunction with the internal controls in place and whether it is sufficient in light of the risks. The Executive Directors meet at least monthly to review ongoing performance and forecasts and any new or emerging risks associated with the Company's ongoing activities and the execution and delivery of the Company's strategy .

Summaries of the Company's principal operating risks can be found in note 24 to the Company's consolidated financial statements as of and for the year ended 31 December 2017, on pages 41 to 42.

Principle 5: Maintaining the board as a well-functioning, balanced team led by the Chair

The Company is managed by its Board of directors. The Board contains a balance of Executive and Non-Executive Directors and is comprised of two independent Non-Executive Directors (including the Chairman) and one Executive Director.*

The QCA Code suggests that a board should have at least two independent Non-Executive Directors.

Both of the Company's Non-Executive Directors have been granted of conditional share awards under the Company's Performance Share Plan (as announced on 20 January 2017). However, the Board does not believe that the level of these grants and the structure of these grants unduly affects the independence of the Non-Executive Directors. The Company's Chairman was appointed in 2012, but previously held the position of Chairman with Urals Energy NV (the predecessor company) from 2000 until resigning from that position and reducing his equity holding prior to the Company's IPO in 2005. The Company's other Non-Executive Directors was appointed in 2012, but previously held the position of Chief Financial Officer at the Company from 2005 until resigning from that position and reducing his equity holding in 2007.Given the period of time since their previous roles and the changes that have occurred at the Company in the interim period, the Board does not believe that this prior service unduly affects the independence of the Non-Executive Directors. Consequently, the Board regards its Non-executive Directors who currently sit on the Board as independent.

The Board is responsible for taking all major strategic decisions and also addressing any significant operational matters. In addition, the Board reviews the risk profile of the Company and ensures that an adequate system of internal controls is in place.

The Board has sufficient members to contain the appropriate balance of skills and experience to effectively operate and control the Company's business. No one individual has unfettered powers to make decisions.

The roles of the Chairman and the Chief Executive are separate, with their roles and responsibilities clearly defined and set out. The Chairman's main responsibility is the leadership and management of the Board and its governance. He meets regularly and separately with the Chief Executive and the Non-Executive Director to discuss matters for the Board.

The Chief Executive is responsible for the leadership and day-to-day management of the Company. This includes formulating and recommending the Company's strategy for Board approval and executing the approved strategy.

The Board meets every two months or at any other time deemed necessary for the good management of the business and at a location agreed between the Board members. Board meetings may also take place by telephone. In the year to 31 December 2017, the Company held nine board meetings.

The Board members are in frequent communication by phone, email and via meeting in person, mostly on a weekly basis, to discuss the key issues involved in the business. The Company is fortunate that its Board members are familiar with its operations and with doing business in Russia. The Non-Executive Directors play an active role in the business of the board and its two committees, Audit and Remuneration, and in representing the Company to its shareholders and investors generally.

Principle 6: Ensure that between them the directors have the necessary up to date skills and capabilities

The Company operates in a complex and challenging environment and the Board is mindful that in order to deal effectively with the challenges of the business and to maximize the Company's growth opportunities the Board has to incorporate a range of skills.*

The existing Board brings a balance of skills and experience to the Company, including financial, oil and gas production and capital markets expertise.

Board members maintain their skillsets through practice in day-to-day roles, enhanced with attending specific training where required. The Board uses external advisors where necessary to enhance knowledge or to gain access to particular skills or capabilities: PwC as its financial auditor and Blackwatch Petroleum Services as its firm of Competent Persons who report on the Company's oils reserves.

The Board considers that all of the Non-Executive Directors are of sufficient competence and add strength and objectivity to the Board's activities, and bring considerable experience in relation to the operational and financial development of the Company.

The Board's composition is kept under review and the Board is committed to ensuring diversity of skill and experience

The Board currently comprises Andrew Shrager (Non-Executive Chairman), Leonid Dyachenko (Chief Executive Officer and Executive Director) and Stephen Buscher (Non-Executive Director). Further details regarding these Board members may be found here:

Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

The Board considers the evaluation of its performance and individual directors to be an integral part of the Company's corporate governance to ensure that the Board has the necessary skills, experience and abilities to fulfil its responsibilities. The goal of the Board evaluation process is to identify and address opportunities for improving the performance of the board.*

The Board considers the evaluation process is best carried out internally given the Company's current size. The internal evaluation process and criteria includes:

1. Board and Committees Evaluation



Board composition in terms of skills, experience and balance

Annually or as required

Board operational effectiveness and decision making


Board meetings conduct and content and quality of information

Annually or as required

The Board's engagement with shareholders and other stakeholders


The corporate vision and business plan


2. Individual Director and Committees Evaluation



Executive Director performance# in their specific executive role


Executive Director performance# and contribution to the Board and Committees


Non-Executive Director performance# and contribution to the Board and Committees


Non-Executive Director's independence and time served


# The performance criteria used are: contribution; strategy; control and procedures; sector experience; financial stewardship; communications and relationships and public company requirements.

The Audit Committee meets quarterly to assess and approve the financial statements. The Audit Committee and Board annually discusses the content of the auditor's letter, as well as all comments that have been relayed by the auditor to assess the effectiveness of the accounting and control functions at the company and by extension the effectiveness of the audit committee and its chairman. Similarly the Board oversees an annual peer review and incentive compensation award program for its employees company wide. Aligned to this structure is a series of discussions held annually to set award levels, assess the employee structure matrices and review general employee issues. The Board maintains active contact with established headhunters in its market sector and uses information from these sources to shape policies and for forward planning, but also to assess past performance and by extension effectiveness of the remuneration and nomination committees. Lastly, in its frequent meetings with investors the Board regularly asks shareholders and prospective investors for their impression of the quality and effectiveness of the Board and by extension its committees.

The evaluation process is focused on the improvement of Board and Committee performances, through open and constructive dialogue and the development and implementation of action plans. Where deficiencies are identified these will be addressed in a constructive manner.

The Board uses the results of the evaluation process when considering the adequacy of the composition of the Board and any succession planning requirements. There are no plans at present for changes or additions to the Board, reflecting the need to control costs, while the Directors believe the current board meets the needs of the Company's governance.

The Chairman is responsible in ensuring that the Company's Board, individual director and committee evaluation processes are 'fit for purpose', as well as dealing with matters raised during the process. The Chairman will keep under review the frequency, scope and mechanisms for the evaluation process and amend the process as required. Following the most recent evaluation process, the Chairman has concluded that there is no need for changes to the current board and Committee structures and membership at present. The Company's Board, individual director and Committee evaluation process have not changed materially over the previous years, on the basis that the Chairman and the Board as a whole consider these evaluation processes to be appropriate for the Company's requirements. 

Principle 8: Promote a culture that is based on ethical values and behaviours

The Company conducts its business in a socially responsible manner, acting with integrity and professionalism. An open culture is encouraged within the Company, with regular communications to staff regarding progress and staff feedback regularly sought. Our comprehensive set of policies and procedures cover all of our operations. In the context of our locations and the inherent risks of oil operations, the Company is particularly concerned to reinforce the need for priority to be given to safety in the work place, as well as ethical considerations. These are regularly updated and communicated to relevant employees and everyone else working on our sites.*

The Board actively promotes a positive health and safety culture within the business and ensures that this is reflected in all of our policies and procedures, as well as in our approach to the training and development of the people involved in our operations. As an example, at times we have ceased operations at our locations when weather conditions are adverse, which might otherwise have potentially created dangerous conditions for our employees. The Board and Management will seek to enforce the Company's policies and procedures where appropriate and we are particularly intolerant of misuse of Company property. Many of our employees work in difficult climatic conditions for significant parts of the year, and are managed and rewarded accordingly.

Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the board

The Board's primary objective is to protect and enhance long-term shareholders' value. All members of the Company's Board take collective responsibility for the performance of the Company and all decisions are taken with the best interests of the Company in mind. Whilst the Board has delegated the operational management of the Company to the Executive Director and other senior management, there are specific matters that are matters reserved for decisions by the Board of Directors. These include development of overall Group strategy; acquisitions and disposals; major projects of a capital nature and significant contracts; approval of the auditor of the Company and the annual and interim results; annual budgets; dividend policy; and Board structure.

There is a clear separation of the roles of Chief Executive Officer and Non-executive Chairman.

The Chairman has overall responsibility for corporate governance matters in the Company, leadership of the board and ensuring its effectiveness on all aspects of its role. The Chairman promotes 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 Chief Executive Officer leads the executive team and is responsible for implementing those actions required to deliver on the agreed strategy. The Chief Executive Officer is also responsible for engagement with shareholders, customers and developing strategic alliances within the industry.

The Board is supported by the Audit and Nomination committees with formally delegated duties and responsibilities.

The Audit Committee normally meets twice a year and has primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the Company is properly measured and reported on. As well as ensuring compliance with the AIM Rules, it receives and reviews reports from the Company's management and auditors relating to the interim and annual accounts. The Committee also approves external auditors' fees and ensures the auditors' independence as well as focusing on compliance with legal requirements and accounting standards. Audit Committee Terms of reference may be found here:

The Remuneration Committee, which meets as required, but at least once a year, has responsibility for reviews the performance of the executive directors and making recommendations to the Board on matters relating to their remuneration and terms of employment. The committee also makes recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any share option scheme or equity incentive scheme in operation from time to time. It also supervises the Company's share incentive schemes and sets performance conditions for share options granted under the schemes. Remuneration Committee Terms of reference may be found here:

As is common for companies of the Company's size, the Board does not have a nominations sub-committee, so appointments and succession planning remain with the full Board.

The Board is committed to a process of continuous improvement in its governance approach and aims to enhance and develop compliance in line with best practice. At present, the Board is satisfied with the Company's corporate governance and as such there are no specific plans for changes to the Company's corporate governance arrangements in the short-term.

Principle 10: Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

The Company places a high priority on regular communications with its various stakeholder groups and aims to ensure that all communications concerning the Company's activities are clear, fair and accurate.*

The Annual Report, complimented by our Interim Report and regulatory announcements on key business developments are the main way the Board communicates with the Company's investor base.

The Company encourages two-way communication with both its investors, where possible, and tries to respond quickly to all queries received. The Chairman and Chief Executive Officer meet regularly with the Group's major shareholders and ensure that their views are communicated fully to the Board.

The Company's website is regularly updated and shareholders can direct their questions via Shareholder Q&A section

Annual reports since 2005, notices of general meetings since 2014 and regulatory announcements since 2007 can be found on the Company's website, via the following links:

From the current year onwards, the results of voting on all resolutions in future general meetings will be posted to the Group's website and announced via RNS, including any actions to be taken as a result of resolutions for which votes against have been received from at least 20 per cent of independent shareholders.

* The Company has not included the annual report and accounts disclosures required by the 2018 QCA Corporate Governance Code in the Company's consolidated financial statements as of and for the year ended 31 December 2017, as these disclosures have not been finalised as of the date of issuance of those financial statements. The Company intends to include the annual report and accounts disclosures required by the 2018 QCA Corporate Governance Code in the Company's consolidated financial statements as of and for the year ended 31 December 2018.