Annual Report & Accounts 2013

 

DIRECTORS’ REMUNERATION REPORT

Introduction+-

This report has been prepared on a basis consistent with the requirements of the Directors’ Remuneration Report Regulations 2008 which set out requirements for the disclosure of Directors’ remuneration, and also with the requirements of the Listing Rules of the Financial Conduct Authority (“FCA”) and the guidelines within the UK Corporate Governance Code 2012. The Company has noted the introduction of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (“the Regulations”). The Company is not required to comply with the Regulations but it intends to monitor the application of the Regulations with a view to future compliance.

Remuneration committee+-

The members of the Remuneration Committee (“the Committee”) are Alan Parsley (Chairman), James Agnew and Rob Arnott, all of whom are Non-executive Directors. The Committee met six times during the year. The remit of the Committee is, primarily, to recommend for decision by the Board the remuneration of individual Executive Directors and other Executive Committee members and to review share incentive plans for approval by the Board and shareholders. The full terms of reference for the Committee are available on the Company’s website (www.petroceltic.com) and will be available for inspection at the AGM. The Board has delegated the following responsibilities to the Committee:

  • Remuneration policy: salary, performance related remuneration, benefits, pension contributions;
  • Director’s service contracts, terms of reference and amendments thereto; and
  • Grant of, and amendment to, share options or awards under the Performance Share Plan and Share Option Plan.

The Committee will, when appropriate, seek external independent remuneration advice from the Company’s remuneration advisers, MM&K Limited (“MM&K”), either on a specific project basis or for ad hoc advice. MM&K provides no other services to the Company. During 2013, MM&K was specifically engaged by the Company to advise, inter alia, on the terms and implementation of the Company’s new share plans which were approved by shareholders at the AGM.

The Chairman and other Directors may be invited to attend meetings of the Committee but do not take part in any decision.

Remuneration policy+-

It is the Company’s policy that the levels and structure of remuneration of the Executive Directors and other members of the Executive Committee should (i) encourage the alignment of the objectives of management and shareholders; (ii) reflect individual responsibilities and qualifications; (iii) encourage loyalty to the Company; (iv) reward good performance; and (v) be comparable with other companies of a similar size in the sector.

The objective of this policy is to provide a level of remuneration that is sufficient to attract, retain and motivate high quality directors to run the Company successfully. To ensure that alignment exists between delivery of the Company’s strategy and business plan and shareholder expectations, a significant proportion of remuneration is linked to long and short term performance objectives.

The Committee undertakes an annual external and independent review of remuneration levels in order to determine that these policies are being adhered to, and such a review was completed during 2013. The employment conditions and pay of employees of the Group are taken into consideration when Directors’ remuneration is determined.

The remuneration of the Executive Directors comprises salary, contributions to personal pension schemes, annual bonus and awards under the Performance Share Plan. Executive Directors are also covered under the Group’s health insurance, life insurance and income protection plans.

Base salary and annual bonus+-

In setting remuneration levels, the Remuneration Committee takes into consideration the remuneration practices of other companies of similar size operating in the oil and gas sector. The objective is to retain the services of high quality staff and to motivate them to perform in the best interests of the shareholders. Account is taken both of the performance of the individual and general market practice. When setting salaries each year, due account is also taken of the salary awards made in the wider workforce.

The guideline used to monitor executive base salaries is that they should be approximately at the median of a comparator group of at least 10 UK and Irish listed oil & gas companies for which Petroceltic is approximately at the median of a set of parameters characterising the scope and complexity of the management challenge. The companies and parameters are selected by MM&K and reviewed annually by the Remuneration Committee to ensure their continuing relevance as required by changing circumstances.

Executive Directors (and other members of the Executive Committee) may be awarded a cash bonus as determined by the Remuneration Committee upon delivery of corporate and personal objectives which exceed targets set based on the business plan of the Group. The objectives, and their relative weightings are for 2013: attainment of production targets (15%); attainment of financial and financing targets (25%); attainment of reserves replacement targets (15%); portfolio management initiatives (10%); exploration success (10%); attaining corporate and strategic objectives (10%); attaining health, safety, environmental and social targets (15%).

In calculating the levels of bonus awards attributable to 2013, the Remuneration Committee assessed the performance of the Company with reference to the objectives set out by the Committee at the start of the year. Following this analysis, each Executive Director received a bonus equating to 30% of salary. Bonuses for other members of the Executive Committee were determined partly on corporate performance and partly on personal performance.

In 2013, the Company introduced a Deferred Bonus Plan (“DBP”). This allows the Remuneration Committee to require that part of an Executive Director’s (and of any member of the Company’s senior management team) bonus may be required to be deferred for a period of three years or more and invested in Petroceltic shares over the deferral period. In respect of bonuses relating to 2013 performance, the Remuneration Committee has determined that if any Executive Director or senior manager’s bonus exceeds £50,000, then 30% of the gross bonus over £50,000 will be compulsorily deferred for three years and invested in Petroceltic shares during this period, known as “Deferred Shares.” Under the DBP individuals may also be invited to defer all or part of any remaining after tax bonus into Petroceltic Shares (“Voluntary Deferred Shares”). Provided that the Voluntary Deferred Shares are not disposed of for at least three years, at the end of that period the individuals will be entitled to further shares representing 20% of their number (“Matching Shares”). In the event the individual leaves employment of the Company within the three year period (except in certain good leaver scenarios), the Deferred Shares and Matching Shares will be forfeited and the Voluntary Deferred Shares will be transferred to the individual. Deferred shares may be subject to clawback if it is subsequently found that the original bonuses were based on incorrect assumptions. The DBP was implemented upon advice from MM&K, and approved by shareholders at the AGM on 28 May 2013. The DBP will be used for the first time for bonus awards granted in respect of the year ended 31 December 2013.

The bonus structure for 2014 follows a similar format to that of 2013.

Pension contributions +-

Pension contributions equivalent to 10% of basic salary are made on behalf of the Executive Directors to money purchase personal pension schemes on a defined contribution basis.

Individual aspects of remuneration+-

Directors’ remuneration, excluding share-based payments, during the year ended 31 December 2013 was as follows:

Salary

Bonus

Fees

Pension

2013 Total

2012 Total

 

$

$

$

$

$

$

 

 

 

 

 

 

 

Brian O’Cathain

622,426

186,728

-

62,243

871,397

1,115,849

Tom Hickey

416,493

124,948

-

41,649

583,090

837,377

David Thomas***

626,772

170,938

-

-

797,710

543,979

Robert Adair

-

-

187,296

-

187,296

482,207

Alan McGettigan

-

-

-

-

-

813,984

Hugh McCutcheon

-

-

92,554

-

92,554

71,040

Robert Arnott

-

-

70,236

-

70,236

68,151

Andrew Bostock

-

-

-

-

-

65,120

Con Casey**

-

-

33,055

-

33,055

54,301

James Agnew

-

-

78,040

-

78,040

18,081

Alan Parsley

-

-

70,236

-

70,236

16,273

Ian Craig*

-

-

22,512

-

22,512

-

 

1,665,691

482,614

553,929

103,892

2,806,126

4,086,362

… Note: no long term incentive awards vested during the year

* Appointed on 16 September 2013

** Resigned on 7 June 2013

*** David Thomas received salary in lieu of pension equivalent to 10% of base salary.

 

The above bonus awards for the Executive Directors in respect of the financial year ended 31 December 2013, as determined by the Remuneration Committee will be paid in June 2014. No bonus awards were made to Non-executive Directors. These awards are subject to the operation of the DBP, as detailed above.

Your attention is drawn to the details of the share awards that have been granted to the Directors as set out below. In accordance with IFRS 2, Share-based Payment, a further expense of $1.4m (2012: $1.6m) has been recognised in the Consolidated Statement of Comprehensive Income in respect of share awards granted to Directors.

Performance Share Plan (“PSP”)+-

In 2013, following advice received from MM&K, the Company introduced the PSP, approved by the shareholders at the AGM. The principal aim was to introduce a structure which incentivises senior management to deliver on the strategic plan for the Company and thus to align them with shareholders. The PSP takes due account of current best practice and good corporate governance principles and was approved by shareholders at the AGM held on 30 May 2013.

Awards may be granted annually over whole shares worth between 40% and 150% of base salary to Executive Directors and other senior management. The “normal” maximum limit is 150% of base salary, although in exceptional circumstances, (e.g. recruitment) up to 200% of base salary may be awarded. On the grant of an award, the Remuneration Committee is required to impose performance conditions which it determines to be challenging and aligned with the Company’s strategic goals and the interests of the Company’s shareholders. The vesting of the award shall be conditional on the satisfaction (or extent of satisfaction) of the applicable performance conditions. The awards normally vest three years after grant but only to the extent that the performance conditions are met.

The performance condition for awards made in 2013 is based on the Company’s relative total shareholder return (“TSR”: share price growth plus reinvested dividends) performance, measured over a three year vesting period. In the event of a change of control of the Company, the Remuneration Committee will consider whether and the extent to which the performance condition has been met when determining if the awards will vest in whole or in part.

The relative TSR condition compares Petroceltic’s TSR over the performance period with the TSRs of a group of selected quoted company comparators. The full comparator group comprises: Afren plc, Bankers Petroleum plc, Bowleven plc, Cairn Energy plc, Circle Oil plc, Falkland Oil & Gas Limited, Genel Energy plc, Gulf Keystone Petroleum Limited, Gulfsands Petroleum plc, Heritage Oil plc, Ithaca Energy Inc, JKX Oil & Gas plc, Premier Oil plc, Providence Resources plc, Rockhopper Exploration plc, Salamander Energy plc, Soco International plc, Sterling Energy plc and Xcite Energy Limited.

For all awards granted in 2013, Petroceltic must achieve a TSR of at least the median of a ranking of the TSR of each of the members of the comparator group over the performance period. If so, the PSP award will vest as follows:

Rank of Petroceltic’s TSR against the TSR of members of the comparator group

% of the award that vests

 

 

Equal to or greater than the upper quartile

100%

Between median and upper quartile

On a straight line basis between 25% and 100%

Equal to median

25%

Below median

0%


The Committee will determine whether the TSR calculation gives a fair reflection of the financial performance of the Company and will report any concern to the Board.

In the event that and to the extent that the performance condition is not met, the PSP award will lapse immediately.

The PSP awards granted to Directors under the PSP in 2013 are detailed below:

Director name

Award grant date

Granted in year

Share price at date of award Stg pence

% of salary

Held at 31 Dec 2013

Normal vesting date

Expiry date

Brian O’Cathain

16-Sep-13

391,688

151.70

150%

391,688

16-Sep-16

16-Mar-17

David Thomas

16-Sep-13

300,812

151.70

125%

300,812

16-Sep-16

16-Mar-17

Tom Hickey

16-Sep-13

218,413

151.70

125%

218,413

16-Sep-16

16-Mar-17



Other share schemes+-

Before the introduction of the PSP in 2013, Executive Directors and senior management were eligible for grants of share options, initially under the “2004 Incentive Scheme” and thereafter under the “2009 Incentive Scheme”. Awards are no longer made under these schemes although some historical awards remain outstanding. The options granted under these schemes may only be exercised if pre-determined growth rates in the Company’s share price are achieved. Full details of these schemes are contained in note 20 to the Financial Statements.

The number of options outstanding to Directors under these schemes as at 31 December 2013 is reported upon by the auditors and was as follows:

Director name

Options

held at 31

Dec 2012

Grant date

Granted

during

the year

Exercised

during

the year

Lapsed

during

the year

Options

held at 31

Dec 2013

Exercise

price Stg

pence

Expiry

date

2004 Incentive Scheme

 

 

 

 

 

 

 

 

Brian O’Cathain (Std) **

211,268 *

26-Mar-07

-

-

-

211,268

347.75

25-Mar-14

Brian O’Cathain (Spr) **

211,268 *

26-Mar-07

-

-

-

211,268

347.75

25-Mar-14

Brian O’Cathain (Std)

200,000 *

26-Aug-08

-

-

-

200,000

160.00

25-Aug-15

Brian O’Cathain (Spr)

200,000 *

26-Aug-08

-

-

-

200,000

160.00

25-Aug-15

2009 Incentive Scheme

 

 

 

 

 

 

 

 

Brian O’Cathain

300,000 *

14-Jul-09

-

-

-

300,000

222.50

14-Jul-16

Brian O’Cathain

608,000 *

10-Jun-11

-

-

-

608,000

285.00

10-Jun-18

Tom Hickey

652,000 *

10-Jun-11

-

-

-

652,000

285.00

10-Jun-18

Brian O’Cathain

416,000 *

6-Nov-12

-

-

-

416,000

169.50

6-Nov-19

David Thomas

340,000 *

6-Nov-12

-

-

-

340,000

169.50

6 Nov-19

Tom Hickey

300,000 *

6-Nov-12

-

-

-

300,000

169.50

6-Nov-19

 

 

 

 

 

 

 

 

 

* Adjusted for the consolidation of 25:1 on 7 June 2013.

** These Standard (Std) and Super (Spr) options were granted in Euro, the exercise price shown reflects the Sterling equivalent at grant date rates and expired on 25 March 2014.

 

The Directors have not been granted any options between the year end and 15 May 2014.

The Company’s share price during the year ranged from 196.5p at the maximum and 133p at the minimum. During 2013, no share options were exercised.

In addition, the Company introduced an employee share option plan (“SOP”) in 2013, also approved by shareholders at the AGM on 30 May 2013. The SOP is offered to Petroceltic staff but not to Executive Directors or other members of the Executive Committee, as these individuals are eligible for awards under the PSP.

The rules of all the Company’s share option schemes are available for inspection at the registered office of the Company on request and will be on display at the Company’s AGM.

Directors’ interests in transactions +-

There have been no contracts or arrangements of significance during the year in which Directors of the Company were interested. Related party disclosures are set out in note 21 to the financial statements.

Service contracts+-

The terms and conditions of employment of all the Executive and Non-executive Directors are available for inspection at the Company’s registered office and will be available for inspection at the AGM.

The service contracts of all the Executive Directors are rolling twelve month contracts from the date they were entered into with a notice period of twelve months. The dates of appointment of the Executive Directors are as follows: Brian O’Cathain, 24 April 2007; Tom Hickey, 1 November 2010; David Thomas, 10 October 2012.

Non-executive Directors +-

The dates of appointment of the Non-executive Directors are as follows: Robert Adair, 10 October 2012; Rob Arnott, 5 January 2010; James Agnew, 10 October 2012; Hugh McCutcheon, 14 December 2011; Ian Craig, 16 September 2013; and Alan Parsley, 10 October 2012. The Non-executive Directors receive a fixed fee only by way of remuneration, and no ancillary benefits, incentive arrangements, or share option scheme participation is offered. The level of this fixed fee is determined by the Chairman and Executive Directors with reference to external industry and sector remuneration surveys taking account of the level of work and time commitment that the position entails.

Total Shareholder Return+-

The TSR of the Company over the last five financial years relative to the FTSE AIM Oil and Gas Index and FTSE AIM All Share indices, based on closing values for each trading day, is shown below:

144760.png

This graph shows the value, by 31 December 2013, of £100 invested in Petroceltic plc on 31 December 2008 compared with the value of £100 invested in the FTSE AIM Oil and Gas Index and the FTSE All Share Index on the same date. The other points plotted are the values at intervening financial year-ends.

For and on behalf of the Board

Dr Alan Parsley

Director and Chairman of the Remuneration Committee
15 May 2014