Pacific Rubiales is committed to the highest standards of corporate governance and complies fully with Canadian securities legislation. As a result of its listing on the BVC in December of 2009, the Company is also subject to certain rules and regulations applicable to companies listed on that exchange, with which it is in full compliance.
The Board of Directors delegates certain responsibilities to the following standing committees of the Board of Directors: Audit, Compensation and Human Resources, Reserves, Corporate Governance and Nominating, and Executive. The Company’s mandates for each of these committees are published on the Company’s website at www.pacificrubiales.com.
The primary role of the Audit Committee is to ensure that the Company’s management has designed and implemented an effective system of internal financial controls, and to review and report on the integrity of the consolidated financial statements of the Company and related financial information. In pursuing these objectives, the Audit Committee oversees relations with the external auditors and reviews the effectiveness of the internal audit function. The Audit Committee also reviews the Company’s financial statements and related financial information including the impact of unusual items and changes in accounting principles and estimates, and approves the financial sections of the annual report to shareholders, annual and interim MD&A, prospectuses, news releases discussing financial results of the Company, and other public reports of financial nature requiring approval by the Board of Directors.
The Audit Committee has reviewed accounting principles, policies and practices adopted in the preparation of public financial information and has examined documentation related to the annual report, interim reports, and related public reports. The clarity of disclosures included in the financial statements was reviewed by the Audit Committee and its recommendations are submitted to the Board of Directors for approval.
The Company also arranges for external quarterly reviews of the interim financial statements to be performed by the Company’s auditors.
The Audit Committee approved the external auditor’s terms of engagement, the scope of work, the process for the 2010 review, the annual audit and the applicable levels of materiality. Based on written reports submitted, the Audit Committee reviewed, with the external auditors, the findings of their work and confirmed that all significant matters had been satisfactorily resolved.
The Audit Committee’s assessment of the external auditors’ performance and independence underpins its recommendation to the Board of Directors to propose to shareholders the re-appointment of Ernst & Young LLP as auditors in 2011. Resolutions to authorize the Board of Directors to re-appoint Ernst & Young LLP and determine their remuneration will be proposed at the Annual and Special Meeting of shareholders on May 31, 2011.
The internal audit function of the Company, created in 2008, is responsible for providing assurance to both management and the Audit Committee regarding the effectiveness of all aspects (not only financial, but also operational and compliance) of the Company’s internal controls, risk management and governance practices. The head of internal audit is responsible for reporting the findings of the internal audit work to the Audit Committee on a regular basis. Internal audit teams operate in all of the Company’s business units in the period under review, reporting findings to senior management.
The internal audit function has established an internal control process to provide to the Board of Directors and management with reasonable assurance regarding the achievement of the following objectives:
• Effectiveness and efficiency of operations
• Reliability of financial reporting; and
• Compliance with applicable laws and regulations
The internal audit activities included assessments of all controls and other procedures designed to ensure that information to be disclosed by the Company in its filings and reports is recorded, processed, summarized, and reported within the time periods specified by Canadian securities legislation. These also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company is accumulated and communicated to management (including its executive officers) for timely assessment and disclosure pursuant to National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings.
The internal audit team, in conjunction with management, conducted an assessment using a risk-based and top-down approach of the internal controls over financial reporting, and performed the evaluation of the operating effectiveness of the controls and procedures as of the end of the period.
A summary of audit results and risk management information was presented to the Audit Committee throughout the year.
The Audit Committee is presently comprised of German Efromovich, Donald Ford and Miguel Rodriguez, all of whom are independent non-executive directors. The Board of Directors has determined that the Audit Committee’s members have the skills and experience necessary to contribute meaningfully to the Audit Committee’s deliberations.
The Audit Committee met six times during 2010, and at all such meetings the members of the Audit Committee had the opportunity to hold discussions with the external audit partners without management present.
During 2010, the Executive Committee was comprised of Serafino Iacono – Executive Co-Chairman Board of the Directors, Miguel de la Campa – Executive Co-Chairman Board of the Directors, Ronald Pantin – Chief Executive Officer, and José Francisco Arata – President. The Executive Committee supports the Chief Executive Officer, implements all decisions of the Board of Directors and supervises all management levels of the Company.
The members of the Corporate Governance and Nominating Committee for 2010 were John Zaozirny, Miguel de la Campa, Alexander Bialer and Miguel Rodriguez. The Corporate Governance and Nominating Committee reviews and makes recommendations to the Board of Directors for the appointment of directors and executive directors. In December 2010, Miguel Rodriguez was appointed the Lead Independent Director of the Board of Directors and Chairman of the Corporate Governance and Nominating Committee, replacing John Zaozirny as Chairman. The Corporate Governance and Nominating Committee met three times in 2010.
The members of the Compensation and Human Resources Committee are Miguel de la Campa (Chairman), Miguel Rodriguez and Neil Woodyer. The Compensation and Human Resources Committee determines the compensation policy for the Chief Executive Officer, and the Executive Directors. The Compensation and Human Resources Committee monitors the compensation for other senior Executives and makes recommendations to the Board of Directors.
During the year, the Compensation and Human Resources Committee undertook a competitive analysis of the Company’s compensation packages and benefits. The Compensation and Human Resources Committee also monitored performance for short-term and long-term incentive outcomes including stock options granted to the Company’s employees. The Compensation and Human Resources Committee met twice in 2010.
The members of the Reserves Committee in 2010 were José Francisco Arata, Victor Rivera and John Zaozirny. The Reserves Committee is responsible for reviewing the Company’s externally disclosed oil and gas reserves estimates, including the qualification of, and procedures used by, the independent engineering firm(s) responsible for evaluating the Company’s reserves. The Reserves Committee met three times in 2010. In February 2010 Victor Rivera was appointed to the Reserves Committee, replacing Miguel Rodriguez.
Internal Controls
The Company’s system of internal controls, which is embedded in all key operations, provides reasonable assurances that the Company’s business objectives will be achieved within the risk tolerance spectrum defined by the Board of Directors. The Board of Directors also receives assurance from the Audit Committee, which derives its information from regular internal and external audit reports on risk and internal controls at all levels of the Company.
The internal audit is a collaborative process with the external auditors. The Company’s internal audit function is responsible for providing independent assurance to the Audit Committee on the effectiveness of the risk and control process throughout the Company.
Risk Management
The Company has adopted an Enterprise Risk Management (“ERM”) approach that encompasses all significant business risks to the Company, including financial, operational and compliance risk, which could undermine the achievement of the Company’s business objectives. ERM depends on the internal audit function for reassurance, facilitation, and consultation in order to identify opportunities for business improvement and cost savings. Continuous monitoring of risks and control processes, across all areas of business risk provides the basis for reporting to management and the Board of Directors.
Committees of the Board of Directors
