Governance

In explaining the strategy, the board should have specific long-term objectives against which it can determine if the company is succeeding and in so doing delivering on its purpose.

The board should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future.

In order to achieve energy independence, Mongolia has commissioned the construction of an oil refinery which is expected to be operational in 2028 with a US$1.4billion loan from the Government of India. Furthermore, to keep pace with rising electricity demand, Mongolia must urgently expand its generation capacity and replace outdated, inefficient coal-fired power plants. Mongolia is uniquely positioned to harness renewable energy, offering a reliable and affordable power supply for its growing population—and even neighbouring regions. The Gobi Desert, for example, boasts some of the world’s highest solar and wind energy potential, with more than 260 days of intense sunlight and powerful, consistent winds. Petro Matad’s strategy and purpose are well within these visionary plans of Mongolia.

In Mongolia’s hydrocarbon sector, shareholder value will be realised with the development and production of any commercial discoveries made by the Company. In addition to development of discoveries the Group will continue to pursue exploration projects within high graded exploration areas in Mongolia by accessing state of the art technical resources to maximise the probabilities of identifying the best opportunities for making potential discoveries. Petro Matad will also look at risk diversification measures such as farmouts should a favourable opportunity arise.

In the rapidly growing renewable energy sector in Mongolia as well as the extractive industry where mining companies such as Oyu Tolgoi are seeking to utilize renewable energy sources to combat climate change where huge potential exits, Petro Matad is pursuing to develop energy generation and electricity storage projects ranging in size from tens to hundreds of megawatts with high ROIs creating shareholder value.

The Board is committed to applying best practice technical, commercial and financial solutions to mitigate risks as much as possible, while always maintaining a proper control environment to ensure all laws and regulations are followed. The Board reviews available funds closely and is always a step ahead to ensure that funds are sought to fund planned future work programmes and projects.

The Board has undertaken to review risks annually using a purpose-built risk matrix, which covers all aspects of the business, including technical, financial, commercial, government and community risks. Risks identified are ranked in relation to the probability of occurrence and impact on operations.

For more information please see the Directors’ Statement and Risk Management section on pages 12 and 36 respectively of our 2024 Annual Report for the year ended 31 December 2024.

The board should embody and promote a corporate culture that is based on sound ethical values and behaviours, and which is supportive of the delivery of the company’s established purpose, strategy and business model.

The desired culture should be reflected in the actions and decisions of the board and executive management team. Corporate values should guide the objectives and strategy of the company.

The culture should be visible throughout the company’s operations, including recruitment, nominations, training, and engagement. The performance and reward system throughout the company should reflect and reinforce the maintenance of this culture.

The corporate culture should be recognisable throughout the disclosures in the annual report, website, and any other communications by the company, both internal and external.

Business conduct, ethics, environmental protection and corporate social responsibility are key factors for the Company and the Board.

Our Board and all Directors have come from a variety of other international companies and have decades of collective experience in upholding the highest possible ethical standards.

In relation to the Extractive Industries Transparency Initiative (EITI), the Company’s Mongolian subsidiaries are cooperating with the Mongolian government and participates in the transparency report prepared by the Mongolian government.

Business integrity and ethics are upheld within the operations of the Company at all levels to demonstrate a zero-tolerance approach on bribery and corruption. In this respect the Company has adopted a stringent Anti-Bribery and Corruption Policy, including training of its staff.

Petro Matad operates in remote frontier locations in Mongolia and as such are entrusted to protect and minimize impact to the environment. Our environmental values cultivate an environmental awareness throughout Petro Matad as well as within the contractors and third parties whom we operate with. For example, employees, contractors and local hires are trained on Mongolian occupational, health and safety standards and regulations for all required operations and activities. The awareness and training programme includes topics such as Mongolian occupational safety and hygiene laws, investigating industrial accidents, avoidance of acute poisoning, and prevention of occupational diseases, amongst others.

Corporate Social Responsibility (CSR) is an integral part of Petro Matad’s activities. The Company is committed to evaluating and minimizing the social impact of its operations, thereby ensuring its long-term sustainability.

Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base.

Where not already acquired, companies with a controlling shareholder (for example, an investor controlling 30% or more of the votes able to be cast at a general meeting of the company) should consider putting in place arrangements to protect minority shareholders which may include a relationship agreement or other measures.

The board should ensure proactive engagement with shareholders on governance matters. This should be led by the chair, where appropriate, the Senior Independent Director. Other directors, such as the chairs of the board’s sub-committees, should also make themselves available for engagement with shareholders.

The board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.

The Petro Matad Group encourages two-way communication with both its institutional and private investors and responds quickly to all queries received within the limits of the regulations and market rules. The CEO talks regularly with the Group’s major shareholders and investors and ensures that their views are communicated fully to the Board.

The Board recognizes the AGM as an important opportunity to meet private shareholders. The Directors are available to listen to the views of shareholders informally immediately following the AGM. The Company’s Articles of Association were amended at the September 2018 AGM to enable the Company to potentially hold AGMs in the United Kingdom, in recognition of Petro Matad Limited being listed on AIM, where a substantial number of the Company’s private investors are based. The Company has taken measures at the recent AGMs to enable shareholders to dial-in and observe the proceedings of the meeting and submit questions to be responded which has enabled greater engagement with shareholders. To the best of the Company’s ability, all received questions prior to the AGM are collated and the presentation are tailored accordingly, as to what shareholders want to hear and ensure that as many questions are answered as possible during the session.

In order to provide more informational updates on operations, the Company has established a social media presence.

Where voting decisions are not in line with the Company’s expectations the Board will engage with those shareholders to understand and address any issues.

The Company’s Executive Management is the main point of contact for any enquiries, and the Company has established an email address for this purpose: admin@petromatadgroup.com.

The company should devote particular attention to its workforce and ensure its practices towards its employees (direct and indirect) are consistent with the company’s values. Arrangements should be in place to enable employees to raise concerns in confidence and processes to ensure that such matters are considered and where appropriate actions are taken.

The board should periodically identify the company’s key stakeholders – for example, suppliers, customers, employees, communities, regulators, or others. The board should understand their needs, interests, and expectations.

Feedback is an essential part of all control measures. Systems need to be in place to solicit, consider and act on feedback from all stakeholders.

The company should devote particular attention to its workforce and ensure its practices towards its employees (direct and indirect) are consistent with the company’s values. Arrangements should be in place to enable employees to raise concerns in confidence and processes to ensure that such matters are considered and where appropriate actions are taken.

The governance and appropriate oversight of company’s approach towards relevant environmental and social issues is a responsibility of the board. Matters that relate to the company’s impact on society, the relating to or stemming from climate change – have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term. These matters must be integrated into the company’s strategy, risk management and business model. The QCA Practical Guide to ESG can assist companies in this regard.

Our vision and values include ongoing engagement with all stakeholders at all levels. Key resources and stakeholders are identified at periodic juncture of the company’s operations and are duly assessed.

Corporate Social Responsibility (CSR) is an integral part of Petro Matad’s activities. The Company is committed to evaluating and minimizing the social impact of its operations, thereby ensuring its long-term sustainability. Petro Matad has developed a Social Performance (SP) Plan based on socio-economic and social impact assessments, which sets out the socioeconomic context, identifies the key stakeholders and associated consultation process, community grievance management mechanism, social investment strategy and commitments including the required resources and budget. As social investment activities, given the severity of the 2023-2024 winter in Mongolia with great livestock loss, Petro Matad made a donation to Matad Soum. including 132 tonnes of fuel, wrapped hay, livestock cover blankets, winter working gloves and food supplies to help the Matad herders protect their livelihoods. In conjunction with the 100th year anniversary of Matad Soum’s establishment celebrations, Petro Matad would funded the construction of a basketball court and children’s playground which was executed by a local company.The core objective of Petro Matad’s SP stakeholder engagement strategy is to build relationships, strengthen trust, gain broad-based support and broaden understanding of the communities in which Petro Matad is operating, which provides a mechanism for effective social risk management.

Petro Matad operates in remote frontier locations in Mongolia and as such are entrusted to protect and minimize impact to the environment. Our environmental values cultivate an environmental awareness throughout Petro Matad as well as within the contractors and third parties whom we operate with.

For more information please see the ESG Statement of our 2024 Annual Report for the year ended 31 December 2024 as well as the ESG page on our website.

The Company liaises closely with the Mongolian regulators in bringing forward issues in the conduct of business and operations within the Mongolian oil industry and renewables sector.

Petro Matad believes a collaborative, dynamic and effective workforce is key to achieving its objectives, and in the execution of operations. The Company is highly committed to mentoring, training and developing the local workforce where possible and their wellbeing. Petro Matad maintains an open and transparent culture and encourages any feedback to improve any deficiencies.

The Petro Matad Group conducts regular reviews on the effectiveness of stakeholder engagement and is committed to improve in areas where deficiencies are recognised.

The Petro Matad Group ensures that feedback from stakeholders are collated from the various channels and liaison points and reviewed by the Executive Management in the process of evaluating execution of operations. Updates are provided to the Board on timely periodic basis which are considered during all decision-making. Necessary measures to ratify any discrepancies are immediately guided and actioned.

The Company encourages feedback from all stakeholders and has established an email address for receiving feedback: admin@petromatadgroup.com. The Company has engaged a public relations firm which will respond to general enquiries on behalf of the Company, recognising that price sensitive information will not be divulged.

The board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver on its stated purpose and strategy. Companies need to consider not only the enterprise view but also their extended business, including the company’s entire supply chain, other material third-parties (including suppliers of outsourced services) and any reliance on strategic partners.

Setting strategy includes determining the extent of exposure to the identified principal risks that the company is able to bear and willing to take (risk tolerance and risk appetite). The company should ensure that a balanced view of risk is achieved, and, as well as threats should consider opportunities and the potential for value creation.

The board should ensure that all potential risks are considered, on a proportionate and material basis, including those relating to climate change.

The board should review and consider whether the company’s enterprise-wide internal controls are sufficiently robust to manage the identified risks adequately.

To achieve effective risk management, the board, and in particular the audit committee, must ensure that there are appropriate assurance activities in operation. This may be based on access to internal resources, or particularly in specialist or technical areas, the utilisation of external experts.

It is important to ensure that the company auditor is and is seen to be sufficiently independent of management.

Risk Management on page 36 of our 2024 Annual Report for the year ended 31 December 2024 details risks to the business, how these are mitigated and the change in the identified risk over the last reporting period. As a priority, the Company reacts to changing risk profiles as they are identified.

The Board considers risk to the business at every Board meeting. The Company formally reviews and documents the principal risks to the business at least annually.

The Board has undertaken to review risks annually using a purpose-built risk matrix. Risks identified are ranked in relation to the probability of occurrence, impact on operations. Each identified risk is delegated to a senior member of the management team to monitor and define mitigating and intervening actions, should circumstances warrant it. Where required, expert opinion and assessment are obtained and consulted to reduce exposure.

The Company receives the audit report issued by the auditors prior to release of final results to review auditor independence declarations and audit findings. Any recommendations proposed based on audit findings are immediately noted and measures are implemented to rectify the situation. The Petro Matad management has decades of experience in the energy industry and brings specialist knowledge formed over decades in this area. It is well worth noting that only immaterial control findings were noted in financial audits.

Shareholders should be given the opportunity to vote annually on the (re-) election of all individual directors to the board.

In order to uphold the quality of board independence, the board should be comprised of an appropriate balance between executive and non-executive directors. The independent non-executive directors should comprise at least half of the board. The chair, if independent upon appointment and still considered independent, can be included in this calculation. However, as a minimum there should be at least two non-executive directors whom the board considers to be independent.

Key committees, in particular the audit committee and remuneration committee, should comprise at least a majority of independent NEDs and ideally aim for full independence. The company should consider whether it is appropriate to have a senior independent director.

Boards should be sensitive to both real and perceived impediments to independence. Consideration should be given to those factors which may impede independence which include (but are not limited to): length of board tenure; size of shareholding; prior and/or current commercial or contractual relationships with the company, prior and/or current commercial or contractual relationships with executive directors; and significant incentive pay arrangements beyond a director’s fee.

Since independence can be easily compromised, NEDs should rarely participate in performance-related remuneration schemes or have a significant interest in a company share option scheme. Where performance-related remuneration is considered beneficial, it should be proportionate, and shareholders should be consulted before proceeding.

The board should reflect on its own levels of diversity. Of most importance is ensuring the board possesses the necessary knowledge and skillset – while avoiding groupthink. Consideration should be given to factors such as socio-economic backgrounds, nationality, educational attainment, gender, ethnicity and age. Boards should assess how their collective and individual perspectives add to board discussions and ensure there is sufficiently wide-ranging and business relevant input, to deliver the best decision-making process in the context of the company’s business model, geographic footprint and forward-looking strategy. This assessment should feed into ongoing succession planning for the board.

Due consideration is given to the composition of the Board to ensure:

• The principle of having at least one Independent Director on the Board to oversee the interests of the Company and all shareholders
• Ensuring that the Board has appropriate skills, experience and expertise
• Maintaining appropriate representation for the Company’s major shareholder Petrovis Matad Inc. (Petrovis)
• Ensuring appropriate executive representation on the Board

Whilst the Chairperson of the Board may not fully meet the definitions of an Independent Chairperson, with her experience, skill sets, and independence from Petro Matad’s day to day operations, the Company is continually confident of her leadership in fostering an effective corporate governance regime and the effectiveness of the Board.

The retirement of the CFO/Executive Director at the end of 2020 has reduced the number of Board members to four. Accordingly, in order to deal with potential split votes by the Board, Directors have agreed that the Independent Non-Executive Director will hold the tie breaking vote. This arrangement will be revisited by the Board if and when the number of Directors increases above its current level.

The Company also intends to appoint a second independent Non-Executive Director; discussions are underway on the skills and background that the ideal candidate should possess.

All Directors stand for re-election on a rotation basis whereby one third of the Directors of the Company are required to retire from office at each AGM of the Company and may submit themselves for re-election at each AGM of the Company.

The ESG Statement of our 2024 Annual Report for the year ended 31 December 2024 for more details.

The company should maintain governance structures and processes in line with its desired corporate culture and appropriate to its:

• size and complexity; and
• capacity, appetite and tolerance for risk

The governance structures, processes and policies should evolve over time in parallel with its size, strategy and business model to reflect its maturity and stage of development.

The board should be supported by committees – typically at least an audit, remuneration and nomination committee – that also have the necessary skills and knowledge to discharge their duties and responsibilities effectively.

The board should ensure that it has the necessary skills and experience to fulfil its governance responsibilities, including among other things with respect to cyber security, emerging technologies, and relevant sustainability matters such as climate change. The board should consider any need to establish further dedicated sub-committees and, where appropriate, seek input from external advisers on such matters.

All directors should continually update their skills and knowledge. As a company and the external environment evolves, the mix of skills and experience required on the board will change. The board should consider its training and development needs in this context, plan ahead and structure such provision accordingly.

The board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight. The board should consider this and the design and implementation of its decision-making processes to ensure they are effective.

The Company is controlled by the Board of Directors. Enkhmaa Davaanyam, the Non-executive Chairperson, is responsible for the running of the Board and Mike Buck, the Chief Executive, has executive responsibility for running the Group’s business and implementing Group strategy.

Each Director brings different skill sets and capabilities to the Board, resulting in a balanced Board with the necessary blend of relevant experiences, skills and personal qualities to deliver the strategy of the Company.

On an ongoing basis the Board reviews the expertise required on its Board to ensure it is fully capable to determine and implement the Company’s strategy.

Board additions or replacements are made with the required skill set for the Company’s current outlook and business development stage in mind, and candidates are considered on merit, against objective criteria and with due regard for the benefits of diversity on the Board, including gender.

The Company will ensure, where necessary, that all Directors receive the necessary updates and training to keep their skillset up to date.

All Directors receive regular and timely information on the Group’s operational and financial performance. Relevant information is circulated to the Directors in advance of meetings. All Directors have direct access to the advice and services of the Company’s Corporate Manager and are able to take independent professional advice in the furtherance of the duties, if necessary, at the Company’s expense. The Board through a combination of meetings and conference calls regularly reviews operations and implementation of its strategy. Board meetings and discussions are attended by all directors a large majority of the time. Non-Executive Directors are closely involved and updated with regular information flows and are expected to spend at least circa 3-4 weeks of their time each year on Petro Matad matters.

The Board has established an Audit Committee, a Remuneration Committee and a Corporate Governance Social Action and Environmental (CGSAE) Committee, each with formally delegated rules and responsibilities. Management executives and other individuals are invited to attend all or part of the Committee meetings as and when appropriate.

The ESG Statement of our 2024 Annual Report details the Company’s governance structures and why they are appropriate and suitable for the Company. As the Company develops, the corporate governance structures may be reviewed and modified as appropriate.

The board should regularly review its performance as a unit, as well as that of its committees and the individual directors.

The board performance review should be carried out on an annual basis and include opportunities for improvement with respect to the performance of the chair, and the operation of the board and its committees. The review should identify development or mentoring needs of individual directors and/or the wider senior management team.

The annual review can be carried out internally and should, ideally, be supplemented periodically by an external independent third-party review.

It is healthy for membership of the board to be periodically refreshed. No member of the board should become indispensable.

Success planning for both the executives and non-executives is a vital task for boards. This should extend to contingency planning for the absence of key staff. There should be a robust process for the orderly appointment of new directors to the board and senior management positions. Considerations should be given to establishing a nomination committee to help with the process and ensure a diverse pipeline – both internally and externally – for succession. The skills, experience, capabilities and background required for directors and senior management to support the next stage of the company’s development should be identified and factored into succession planning.

The Board has not formally adopted performance evaluation procedures. However, the Board takes the effectiveness and efficiency of its Directors seriously and will continue to review its own performance and effectiveness in an informal way against the strategy and objectives the Company has established.

However, all Directors are evaluated on an ongoing basis before being proposed for re-election to ensure that their performance is and continues to be effective, that where appropriate they maintain their independence and that they are demonstrating continued commitment to the role.

Performance of all Executive Directors is monitored on a continual and ongoing basis in order to identify development and mentoring needs where applicable and more generally to ensure effectiveness of the incumbent in meeting the Board’s goals.

All Directors stand for re-election on a rotation basis whereby one third of the Directors of the Company are required to retire from office at each AGM of the Company and may submit themselves for re-election at each AGM of the Company.

The Board keeps in mind succession planning at the Board level, executive management and key personnel at all times in consideration of current and future strategy to minimize uncertainty.

It is the board’s responsibility to establish an effective remuneration policy which is aligned with the company’s purpose, strategy and culture, as well as its stage of development.

A remuneration policy should motivate management and promote the long-term growth of shareholder value. Remuneration practices across the company, in particular for senior management, should support and reinforce the desired corporate culture and promote the right behaviours and decisions.

Pay structures for senior management should be simple and easy for participants to understand and foster alignment with shareholders through the building and holding of a meaningful shareholding in the company.

The remuneration committee should, as necessary, consult with other board committees in order to set appropriate incentive targets and to appraise performance in respect of those targets.

The annual remuneration report should be put to an advisory shareholder vote. Where not mandated to be put to a binding vote, remuneration policies should at least be put to an advisory vote. Larger companies may wish to follow best practice and put their remuneration policy to a binding shareholder vote. Given the significance and dilutive impact of such plans, new (or significant amendments to existing) share schemes or long-term incentive plans should be put to a shareholder vote.

The Remuneration Committee establishes a framework for setting and maintaining remuneration at appropriate levels in the Group.

The remuneration policy generally aims to ensure personnel at all levels are remunerated in accordance with industry and local market ranges measured against performance of the overall Company achievements. The Company participates in periodic salary surveys to ensure that the remuneration packages are competitive in the international and local labour markets to attract and retain talents.

In order to ensure careful and efficient spending of available financial resources, the Board has taken decisions in the past to implement temporary remunerations reductions as cost saving measures.

The Board will consider shareholder support of its remuneration policy as necessary.

A healthy dialogue should exist between the board and all of its key stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company. Board members, in particular the chair, should be proactive in their effort.

In particular, appropriate communication and reporting structures should exist between the board and all constituent parts of its shareholder base and other key stakeholders. This will assist:

• the communication of shareholders’ views to the board; and
• the shareholders’ understanding of the unique circumstances and constraints faced by the company.

Boards should ensure that corporate disclosures, in particular through annual reporting, are appropriate to satisfy the reporting needs of investors, including, but not limited to, sustainability matters.

It should be clear where these communication practices are described (annual report or website).

The Company encourages two-way communication with both its institutional and private investors, responds quickly to all queries received and regularly engages with shareholder platforms in the media. The CEO talks regularly with the Group’s major shareholders and ensures that their views are communicated fully to the Board.

The Board recognizes the AGM as an important opportunity to meet private shareholders. The Directors are available to listen to the views of shareholders informally immediately following the AGM. The Company has taken measures at the recent AGMs to enable shareholders to dial-in and observe the proceedings of the meeting and submit questions to be responded which has enabled greater engagement with shareholders.

In order to provide more informational updates on operations, the Company has established a social media presence and the CEO holds interviews several times a way to provide information on current status of matters and forward plans.

The Company also engaged FTI Consulting in 2017 to enhance investor relations.