Corporate Governance

The Board is responsible for putting in place and communicating a sound system to manage risk and implement internal control. We recognise that the management of risk is an essential business practice: we work to balance risk and return, threat and opportunity.

Audit and Risk Committee

The Board has established an Audit and Risk Committee to meet as necessary to consider the scope of the annual audit and the interim financial statements and to assess the effectiveness of the Company’s system of internal controls. It reviews the results of the external audit, its cost effectiveness and the objectives of the auditor. Given the present size of the Company the Audit and Risk Committee considers an internal audit function is not currently justified. The Audit and Risk Committee currently comprises Jeremy Asher (Chair), and Kenneth Seymour. 

Remuneration Committee

The Remuneration Committee reviews the performance of the executive directors and makes recommendations to the Board on matters relating to their remuneration and terms of employment. The Remuneration Committee also makes recommendations to the Board on proposals for granting share options and other equity incentives pursuant to any share option scheme or equity incentive scheme in operation. The Board sets the remuneration and terms and conditions of appointment of the non-executive directors of the Group. The executive directors are invited to attend for agenda items that require their contributions although they do not take part in any discussion on their own benefits and remuneration. The Remuneration Committee currently comprises Kenneth Seymour (Chair) and Jeremy Asher. 

Nominations Committee

The Nominations Committee meets as and when necessary to consider appointments to the Board, senior management positions and succession planning. The Nominations Committee currently comprises Philip Dimmock (Chair), Jeremy Asher and Paul Haywood. 

Disclosure Committee

The Disclosure Committee has the primary responsibility and authority to make decisions on disclosure delay for the purposes of Market Abuse Regulations (MAR). The Disclosure Committee currently comprises Jeremy Asher (Chair),  Philip Dimmock, and William McAvock.  

Technical Committee

The Technical Committee meets every month and sometimes more frequently on an informal basis to consider surface and sub-surface technical and operational matters. The Technical Committee currently comprises Kenneth Seymour (Chair) and Philip Dimmock. 

HSE Committee

Our operations are conducted within a robust Health, Safety and Environment (“HSE”) framework. We have employed a full time HSE manager to work onsite in Georgia to design and enforce our policy: a professional petroleum engineer with decades of experience overseeing HSE in Georgia for multinational oil and gas companies.

The Board has established a HSE Committee. It has taken on the responsibility of formulating the HSE policy and establishing an HSE management plan for the remainder of 2021. It monitors performance against the plan every month, assisted by regular reports from the HSE Manager. Any serious incident or high potential near miss will immediately be brought to the attention of the Board which will then oversee the appropriate remedial action. The HSE Committee currently comprises Philip Dimmock (Chair), Kenneth Seymour, and Paul Haywood. 

ESG Committee

The Board has established an Environmental, Social, and Corporate Governance (“ESG”) Committee to establish the Company’s ESG policy and to measure the sustainability and societal impact of the business. The ESG Committee currently comprises Kenneth Seymour (Chair), Paul Haywood and Simon Barry. 

As a priority, the ESG Committee will evaluate the potential for geothermal energy in its licences and Georgia generally.

Principle 5. Maintain the Board as a well-functioning, balanced team led by the Chair

The members of the Board have a collective responsibility and legal obligation to promote the interests of the Company, and are jointly responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the Chairman.

The Board currently consists of six directors, two of whom are executives and four independent non-executives (including the Chairman). The Board has established a set of committees to support its work (see Principle Nine below).

Board meetings are held regularly. All directors, executive and non-executive, are required to attend, and to make every effort to attend in person. They are also required to be available at other times as necessary for face-to-face (if permitted under Covid-19 restrictions) and telephonic and video conferencing meetings with staff and investors.

The Board follows a schedule of regular business, financial and operational matters, and each committee has compiled a schedule of work to ensure that all areas for which the Board has responsibility are addressed and reviewed during the period. The Chairman is responsible for ensuring directors receive accurate, sufficient and timely information to facilitate their decision-making. The Company’s Legal Counsel minutes the meetings. Directors are aware of the right to have any concerns minuted and to seek independent advice at the Company’s expense where appropriate.

The Board has at least one formal meeting every six weeks. Papers are issued covering the full range of subjects of interest to the Board in good time for review prior to each meeting. The directors also dedicate time to committee meetings. The committees meet from two to four times a year. The directors will attend the AGM, whenever possible, and will review the Annual Report and Statement of Accounts in preparation. The directors also visit Georgia regularly (except when travel restrictions are in place) to perform safety inspections and meet staff and stakeholders. In addition to these formal events, the directors frequently discuss day-to-day Company matters in person and by conference call. The number of days committed to the Company is challenging to quantify because directors make themselves available as required.

The Board believes its blend of experience, skills, personal qualities and capabilities is sufficient to enable it to execute the Company’s strategy successfully. The directors attend seminars and other regulatory and trade events to help ensure their knowledge remains current.

The Board has established a Nominations Committee, which meets at least twice a year. As well as making appointments to the Board it maintains a list of candidates for future selection.

Principle 6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities

On the Company’s admission to AIM in June 2018, the founding directors brought new directors onto the Board to ensure that the directors have the collective experience and skills to oversee the Company’s activities and the successful execution of its strategy. Together, the directors have broad and deep experience in the governance of publicly listed companies, HSE management, well and production operations, petroleum reservoir engineering, geoscience, oil and gas field development, contract negotiation, commercial, finance, accounting and government and community relations. Furthermore, three of our directors have experience of applying all of these skills within Georgia.

Profiles of our executive and non-executive directors demonstrating their suitability for the responsibilities with which they have been entrusted are available in this report and the About page of our website.

All of the directors accept personal responsibility for undertaking continuous professional development – through means including seminars, conferences and self-directed study – to understand and take advantage of the most recent developments in the sector, whether technical, commercial or related to governance.

The Nominations Committee will continue to assess the suitability of the Board’s skills and expertise for developing and implementing the Company’s strategy and, when warranted, will appoint new directors with the required skills.

The Board is kept abreast of developments of governance and AIM regulations. Hill Dickinson, the Company’s lawyers, provides updates on governance issues. In the course of a new director’s onboarding, the Company’s nominated adviser, Spark Advisory Partners, provides the initial training on the AIM Rules for Companies.

The directors have access to the Company’s nominated advisers, lawyers and auditors as and when required and are able to obtain advice from other external bodies when necessary.

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

The performance of each member of the Board (and senior management) is evaluated to assess their contribution to the success of the Company. The Board is collectively responsible for the evaluation of the performance of each member. The executive directors are incentivised to seek continuous improvement and innovation through remuneration schemes linked to share price, and thus, ultimately, Company performance.

It is intended that a questionnaire method of measuring the performance of the Board will be introduced for the financial year ending 31 December 2021.

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

Our long-term growth is underpinned by our core values:

• We continually work to develop and maintain excellent relationships with all of our stakeholders: with staff, shareholders, suppliers and the communities within which our operations work is embedded.
• We are an agile and ambitious company with a team carefully selected for their skills and experience, commitment to our values, and dedication the successful execution of our current and future strategy.
• We are committed to employing the industry’s most cost-effective technology and processes to achieve our objectives and deliver value to our stakeholders.
• We are courteous, honest and straightforward in all our dealings, honouring diversity, individuality and personal differences, and are committed to observing the highest personal, professional and ethical standards in conducting our business.
• We are acutely conscious of our particular responsibilities as an oil and gas producer. Our HSE obligations are the first operations-related agenda item at all of our Board meetings, and we have employed an experienced full time professional onsite in Georgia to develop and manage our HSE processes.

Our values are expressed and communicated regularly to staff through internal communications and forums. They are enshrined in the contract signed by all new employees, and evidence of commitment to them by candidates is considered as part of the selection process.

The Board believes the suffusion of our core values across the Company’s operations also gives Block a critical competitive advantage, improving our internal efficiency and the quality of our stakeholder relationships.

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

The Board is supported by the following governance structure:

The Board

The Board provides the Company’s strategic leadership and operates within the scope of a robust corporate governance framework. It ensures the delivery of long-term shareholder value by setting and promoting the culture, values and practices that operate throughout the business, and defining the Company’s strategic goals. The Board delegates certain defined responsibilities to its committees. The chair of each committee (defined below) reports its activities to the Board.

The Chair has overall responsibility for the quality of corporate governance. The Chair:

• leads and chairs the Board;
• ensures that committees are properly structured and operate with appropriate terms of reference;
• ensures that performance of individual directors, the Board and its committees are reviewed on a regular basis;
• leads the development of strategy and setting objectives;
• oversees communication between the Company and its shareholders.

The Chief Executive Officer oversees the coherent leadership and management of the Company. The CEO:

• leads the development of objectives, strategies and performance standards as agreed by the Board;
• monitors, reviews and manages key risks and strategies with the Board;
• ensures that the Company’s assets are maintained and safeguarded;
• leads on investor relations activities to ensure the Company’s standing with shareholders and financial institutions is maintained;
• ensures the Board is aware of the views and opinions of employees on relevant matters.

The executive directors are responsible for implementing and delivering the operational decisions agreed by the Board, making operational and financial decisions required in the day-to-day operation of the Company, providing executive leadership to managers, championing the Company’s core values and promoting talent management.

The independent non-executive directors contribute independent thinking and judgment through the application of their external experience and knowledge, scrutinise the performance of management, provide constructive challenge to the executive directors and ensure that the Company is operating within the governance and risk framework approved by the Board.

The executive directors are responsible for providing clear and timely information flow to the Board and its committees and the Company Secretary supports the Board on matters of corporate governance and risk.

The matters reserved for the Board are:

• setting long-term objectives and commercial strategy;
• approving annual operating and capital expenditure budgets;
• establishing and monitoring the implementation of the HSE Policy and Management Plan;
• changing the share capital or corporate structure of the Company;
• approving results and reports;
• approving dividend policy and the declaration of dividends;
• approving major investments, disposals, capital projects or contracts;
• approving resolutions to be put to general meetings of shareholders and the associated documents or circulars; and
• approving changes to the Board structure.

The Board has approved the adoption of the QCA Code as its governance framework against which this statement has been prepared. The Board will monitor the suitability of this Code on an annual basis and revise its governance framework as appropriate as the Company evolves.

The Board is supported by the work of its committees (please see Principle 4 above for brief descriptions of their respective duties):

• Audit Committee
• Nominations Committee
• Remuneration Committee
• Disclosure Committee
• Technical Committee
• HSE Committee
• ESG Committee

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

All historical annual reports, notices of general meetings and other corporate governance related material are available on the Investors section of our website. Here are brief summaries of the work of our committees since 30 June 2018:

Audit and Risk Committee Report

The Audit and Risk Committee meets as and when required to consider the Company’s risks and mitigating actions (including financial controls), review plans and completion reports prepared by its auditor, and to review financial statements and recommend them for approval by the Board. The Audit and Risk Committee met five times during the year ended 31 December 2021.

Nominations Committee Report

The Nominations Committee meets as and when necessary to consider appointments to the Board and senior management positions and has met nine times during the year ended 31 December 2021. It has developed criteria for selecting non-executive directors to formulate a succession plan. During 2021, the Committee recruited two non-executive directors to the Board, and has a strategy for further strengthening the Board.

The Nominations Committee comprises two non-executive director members and one executive director member, as follows:

• Philip Dimmock (Chair)
• Jeremy Asher
• Paul Haywood

The Nominations Committee has responsibilities relating to:

• Reviewing the structure, size and composition of the Board and recommending any succession planning related changes required; 
• Developing the process for appointments, and ensuring plans are in place for orderly succession to both the Board and senior management positions; and
• Overseeing the identifying and nominating of potential board candidates.

The Nominations Committee feels that, following the recruitment of the two non-executive directors in August and September 2021, the Company has a skilled and talented team of executives and managers in place that is fit for purpose for Block’s current operations.

Remuneration Committee Report

This Remuneration Report covers the year ended 31 December 2021. The Remuneration Committee currently comprises Kenneth Seymour (Chairman) and Jeremy Asher. Paul Haywood at times attends as a guest, and other directors attend on an ad hoc basis. During the year, the Remuneration Committee met eight times.

Remuneration policy

The Remuneration Committee, in forming its policy on remuneration, gives due consideration to the needs of the Group, the shareholders, and the provisions of the QCA Code. The ongoing policy of the Remuneration Committee is to provide competitive remuneration packages to enable the Group to retain and motivate its key executives and to cost-effectively incentivise them to deliver long-term shareholder value.

The Remuneration Committee keeps itself informed of relevant developments and best practice in the field of remuneration and seeks advice where appropriate from external advisers. It maintains oversight of the remuneration of staff, which is the responsibility of the Chief Executive Officer.

The remuneration policy for the non-executive directors is determined by the Board, considering best practice and the Articles of Association. It is the aim of the Remuneration Committee to reward key executives for delivering value for the Group and for shareholders. The Remuneration Committee also applies the broader principle that Block Energy’s executive remuneration should be competitive with the remuneration of directors of comparable companies.

Components of the remuneration package

The main components of the remuneration package for executive directors and senior management are:
• Base salary;
• Pension and other benefits;
• Performance-related annual cash bonus scheme; and
• Long-term incentive plan (“LTIP’’).

Base salary

The policy is to pay a fair and reasonable base salary, set around the median level of comparable companies. The base salary is reviewed at least annually by the Remuneration Committee, having regard to the performance of the Company and economic conditions and taking note of any changes to an individual’s job scope.

During 2020, owing to the combined impacts of lower demand for oil caused by Covid-19, the Brent oil price collapsed from over $50 per barrel at the start of March 2020 to less than $20 per barrel in April 2020. The Company responded by agreeing with its executive directors and senior management a scheme in which, with effect from 1 April 2020, 40% of their salary will be paid in nil-cost options to acquire Ordinary Shares in the Company, reducing monthly cash salary costs. Options are priced at a volume-weighted average price (“VWAP”) over the monthly salary period. This cash salary sacrifice scheme continued throughout 2021 and will continu until economic conditions allow the full salary to be paid in cash.

Pension and other benefits

The Company pays for a pension contribution of 10% of base salary for the executive directors.

During 2022, the company intends to provide other benefits, such as private medical cover and live cover, for some of its employees..

Performance-related cash bonus scheme

The Remuneration Committee has developed a set of individual and Company key performance indicators (“KPIs”) with the aim of measuring performance accurately, consistently and of rewarding performance appropriately.

For executives and staff, the KPIs are weighted 60% for the individual and 40% for the company. The CEO has 100% of his salary available for a bonus payment, while the potential maximum bonus payment for the Chief Financial Officer is 60%. Senior management can receive up to 50% of their base salary as a bonus.

For each KPI, measures are established at the beginning of the period for Threshold, Target and Stretch levels.

The bonus payments made in April 2022 were for the year ended 31 December 2021 and were accrued in the 2021 accounts. In keeping with the current practice of preserving as much cash as possible for operations, these bonuses were paid in the form of nil cost share options in lieu of cash. The next bonus payments are planned to be paid in early 2023, depending on the economic environmental conditions and the financial resources of the Company at that time, and will be for the year ending 31 December 2022.

Description of Company KPIs for the year ended 21 December 2021

• HSE – sought to reward top performance across all sections of the business and was measured by the number of lost time incidents. During the period there were no major lost time incidents and a comprehensive HSE plan was introduced with consistent reporting in place.
• Production – set ambitious production targets to be achieved from all company operations. Due to the Company’s decision to suspend production from the West Rustavi field in response to the challenges of Covid-19 and low oil prices, the Threshold measure was not reached.
• Work Programme – set targets for in country operations, such as drilling and facilities. While the drilling performance did not meet the Threshold measure, the gas sales system is now operational and a new drilling and production plan has been designed.
• Budget – encouraged meeting or coming under the agreed financial budget by setting targets for end of year cash balance. At the end of 2020, the Target measure was achieved.
• Governance – rewarded compliance with and enhancement of set company policies and procedures. For a company the size and maturity of Block Energy, a high standard of governance was maintained.

Description of Chief Executive Officer’s KPIs for the year ending 31 December 2021

• Business Development and New Ventures – given the company’s stated aim of becoming one of Georgia’s leading oil and gas companies, there needs to be a concerted effort in building Block Energy’s portfolio and, therefore, targets are designed to motivate the building of Block Energy’s portfolio. The Target measure was achieved against the backdrop of low oil price and Covid-19 with the closure of the deal with Schlumberger. This deal added acreage with ongoing production, development and exploration opportunities.
• Strategic Financing – growing the business required sourcing additional funding. The Target measure was achieved with the £5.28 million equity placing in December 2020.
• Planning / Execution – rewarded oversight of the company meeting its key objectives. The Threshold measure was not achieved.
• Leadership – this is a discretionary measure. During the year, relentless drive, in the face of Covid-19, was demonstrated by the CEO in the closure and integration of the business acquired from Schlumberger and the Target measure was achieved.

Description of Chief Financial Officer KPIs for the year ended 31 December 2021

• Cost Management – close adherence of the agreed budget is required for both operations and G&A. During the year, the Threshold measure was achieved.
• Value Adding Initiatives – the CFO is encouraged to pursue money saving initiatives throughout the year. In 2021, a number of these were identified and enacted and the Stretch measures was achieved.
• Strategic Financing  – the CFO is expected to ensure there are sufficient funds for running the business and future operations. In 2021, a level between the Threshold and the Target measures was achieved.
• Leadership – this is a discretionary measure. During the year, the CFO displayed good leadership and the Target measure was achieved.
  
• Investor Relations – the CFO helped to secure the support of of major shareholders to defeat two sets of resolutions that were put at two general meetings called by a shareholder group and therefore the Stretch measure was achieved.

Description of KPIs for the year ending 31 December 2022

For 2022, the executives have been set a similar set of KPIs as the ones set for the year ended 31 December 2021 at both company and individual levels, with the weighting of individual KPIs being 40% and the weighting of company KPIs being 60% of the total. The KPIs are based on production, work programme and cost management, in addition to HSE excellence at the corporate level.    

At the individual level, KPIs for the Chief Executive Officer prioritised planning and execution, while KPIs for the Chief Financial Officer focused on cost management. Both CEO and CFO are expected to deliver on strategic financing.

Long-Term Incentive Plan (“LTIP”)

The LTIP aligns executive director interests with those of shareholders and drives superior long-term performance. Under the LTIP, executive directors and other members of the management team may be provided with awards in the form of share options that will vest over a three year period. From January 2021, the vesting of any LTIP awards will be conditional on the certain performance milestones being satisfied.

Disclosure Committee Report

There has been no call to convene the Disclosure Committee since 30 June 2018.

Technical Committee Report

A Technical Committee meeting (“TCM”) is usually held every six weeks and approximately one week before each board meeting. A brief summary of the key findings of each TCM is then added to he board papers o=for the board’s information. Each TCM commences with a summary of HSE matters and is followed by sections on subsurface matters and surface (operation) matter. The agenda is agreed ahead of each TCM by the Chairman and the respective technical managers.  

The purpose of the TCM is to share key findings of the ongoing technical work programme and to provide a degree of independent peer review and critical assessment of work done. Minutes of the TCMs are produced and also a list of critical action points arising that are then reviewed at subsequent TCMs.

During the course of 2021, the Company drilled well WR-B01a and spudded well    JKT-1Z

During the course of 2020, the team integrated the newly processed 3D-seismic data into its West Rustavi database and analysed the adjacent Schlumberger data. This work resulted in a number of further drilling opportunities, some of which were used in the Q4 2020 investor presentation. The first of these wells will be the well at WR-BA location, where drilling is planned to commence during June 2021.

HSE Committee Report

The HSE Committee is newly established and did not meet during 2021.

ESG Committee Report

During 2021, The ESG Committee was established and met once.

General Meeting voting

The Company maintains that, if there is a resolution passed at a General Meeting with 20% or more votes against, the Company will seek to understand the reason for the result and, where appropriate, take suitable action.

The Company’s Corporate Governance Statement has been approved by the Board.

Philip Dimmock, Chairman of the Board
Updated 21 July 2022