Integrity

The Oil Search Code of Conduct represents our commitment to upholding ethical business practices that meet or exceed applicable legal requirements. We believe a consistent and principled approach to conduct builds trust and generates stakeholder support.

The Code of Conduct applies to all Directors, employees, contractors, consultants, agents, advisors and representatives engaged by us and our related companies.

Everyone who carries out Company business is expected to understand and practise the Code. We provide compulsory training to new employees and consultants during induction and conduct ongoing awareness and refresher training sessions annually, or when there are significant updates to the Code.

If an employee fails to comply with the Code, this may result in disciplinary action, including termination of employment. We expect employees to report any breaches and, if any applicable laws have been broken, we will report this to the relevant authorities. Every year, we publish the number of Code of Conduct breaches that result in a disciplinary action warranting a written warning or termination of employment, to demonstrate our commitment to managing this serious issue.

Senior management and members of the Board are obliged to certify their compliance with the Code each year. The Oil Search Integrity Committee - which consists of all members of the Executive Leadership Team, Head of Assurance and Compliance, General Manager Stakeholder Engagement and Social Responsibility and the Compliance Manager - reports to the Board and its Committees on material breaches of the Code and corrective action taken.

Corruption prevention

Oil Search has a zero tolerance approach to bribery and corruption and we expect that employees, contractors and any third parties acting on our behalf perform their duties ethically, honestly, responsibly and diligently, and in full compliance with the law, our Code of Conduct and the  Corruption Prevention Policy.

Our procedure on corruption prevention outlines our expectations in relation to:

• Whistle-blower protection.
• Recognising and avoiding corrupt behaviour and activity.
• Rules for offering, accepting and recording gifts and entertainment.
• Managing conflicts of interest.
• Prohibiting political contributions.
• Conducting due diligence of joint venture partners and agents.

Our Assurance and Compliance team periodically conducts Company-wide fraud risk assessments to ensure our controls remain strong enough to minimise the likelihood and significance of fraud. All our supplier contracts include corruption prevention clauses and we check compliance during supplier performance reviews.

Training on our corruption prevention requirements is mandatory for all employees and select consultants during induction and we run compulsory refresher training every two years. We communicate updates to the Corruption Prevention Policy through the Company intranet and staff emails.

We conduct ongoing monitoring of sanctions as part of our due diligence processes. Our Corruption Prevention Policy elicits the need to conduct background checks using these processes.

Our Board Audit and Financial Risk Committee is informed of the completion rates of mandatory corruption prevention training and is notified of all fraud and corruption incidents.

Any instance of corruption, fraud or bribery can be reported via the Oil Search Whistle-blower Hotline or other contact points, as outlined in the ‘Speaking out’ section.

Speaking out

We expect employees, contractors, joint venture partners, customers and other stakeholders to report suspected violations of our procedures or corrupt practices. This includes conduct that:

• Involves bribes or inducements,
• Is dishonest, fraudulent or corrupt,
• Is illegal,
• Is negligent, directly or indirectly resulting in a substantial waste of Company funds,
• Is detrimental to our interests,
• Involves unsafe work practices or is a danger to public health, safety or the environment.

Any suspected breaches can be reported to an employee’s line manager or to one of the following:

• General Counsel,
• A Compliance team member,
• Human Resources.

Suspected breaches can also be reported in confidence and anonymously through the Oil Search Whistle-blower Hotline. The Hotline is managed by an independent third party and languages other than English are available.

Details are available at: www.oilsearchhotline.deloitte.com.au

The identity of the person making the disclosure is protected as far as the law permits. Where practicable, we will consult with them before informing government agencies.

We support open and transparent dialogue with legislators and senior policy-makers as a means of ensuring good corporate citizenship and sensible regulatory outcomes.

With expertise and operations in PNG and Alaska, we seek to engage with governments, industry groups and others with the ability to shape policies that impact our business and stakeholders. We provide these policy-makers with information and advice in areas of interest and relevance so we can promote informed decision-making.

Policy-makers wishing to obtain an industry-specific perspective or insights into broader socio-economic issues often seek our opinions. As a socially responsible operator, we contribute with integrity and engage in an accurate, factual, transparent and meaningful way. We restrict such engagements to issues where we have a legitimate business interest i.e. when a proposed action may directly affect our operations.

Our Stakeholder Engagement team is responsible for leading these engagements. Our government engagement specialists work with people throughout the Company to identify priority areas that may impact our ability to achieve our business objectives.

We also participate in advocacy and policy engagement by belonging to industry associations. These draw on the skills and experience of members to shape the industry’s collective response to public policy issues. We do not employ serving politicians for engagement on our behalf or public affairs agencies for political monitoring or strategic advice.

Oil Search belongs to several associations and networks engaged in policy. These are listed in the Memberships and Commitments section of our website.

We are politically neutral and do not make financial contributions to any government official, political party, political party official, election committee or political candidate. We prohibit payment of bribes, kickbacks, inducements or illegal payments of any kind that might influence a government official to obtain a business advantage for us.

We regard the taking up of political office as a potential conflict of interest for our employees and Directors. Anyone who is considering it must notify us. Directors standing for election must resign, whilse an employee may be required to resign from their job.

These commitments are embedded in the Oil Search Human Resource Manual, Code of Conduct and Corruption Prevention Policy.

Oil Search pays millions of dollars every year in royalties, taxes, levies and other fees and charges to governments in countries where we operate. In PNG, this makes up a large proportion of the Government’s revenue from the private sector and is one of our most significant socio-economic contributions. We support and advocate for improved transparency around how these payments are received and spent.

Transparency is important because it:

• Empowers policy-makers and citizens in resource-rich countries to ensure wealth generated by extractive industries is used to fund economic and sustainable development and reduce aid dependency.
• Enables investors to better assess the financial and political risks to which extractive companies are often exposed.
• Fosters stronger local institutions and governance and, as a result, a more stable operating environment and level playing field for our industry.

It also helps to mitigate the risk of corruption and enables populations to hold their governments to account.

Our commitment to transparency is underpinned by:

• The principles in our Social Responsibility Policy, especially operating with integrity, generating shared value and maintaining and enhancing our social licence.
• Our commitment to the Principles of the UNGC.
• Our corporate and local support for the implementation of the EITI in PNG.

We have actively encouraged revenue transparency in countries where we operate and are long-time supporters of PNG’s journey towards EITI compliance. For many years we published and promoted our payments in local newspapers and we have voluntarily disclosed our payments to governments in countries where we operate as part of our Transparency Report and in our Data Centre.

We became an EITI Supporting Company in 2013 and actively participate in PNG’s EITI Multi-Stakeholder Group (MSG).  We support the introduction of a public register of beneficial ownership of resource companies and licence interests in PNG, Alaska and Australia.  .

In 2014, the EITI Board approved PNG’s application to become an EITI candidate country. We continue to work with the PNG Government, civil society and industry peers to support implementation of the EITI in PNG.

As a responsible operator, the Oil Search Group¹ pays taxes in full compliance with both the letter and intent of the tax laws that govern our operations and commercial dealings. We seek to comply with statutory obligations and disclosure requirements on a full and timely basis.

Oil Search’s tax strategy is supported by our principle-based tax management approach. This aligns with the Company’s core values, including acting with integrity, acting responsibly, and respecting communities, partners and governments that we work with. It also supports our efforts to provide information to governments and their agencies, so they can review tax policy and enhance their tax systems’ equity, effectiveness, efficiency and administration in the jurisdictions where we operate.

Tax governance

Oil Search’s internal tax compliance procedures ensure our business is committed to implementing our tax management approach and meeting our tax obligations. The Board Audit and Financial Risk Committee (AFRC) is responsible for overseeing tax management and has endorsed our tax strategy. The Group's Chief Financial Officer holds direct responsibility for tax management and communicates with and advises the AFRC on tax affairs and risks with support from our corporate tax team. The Group Head of Tax is responsible for implementing our approach to tax.

Our risk management approach to tax management includes the following core principles:

• Align tax principles with Oil Search’s core values, including: acting with integrity; acting responsibly; respecting communities, our partners and governments that we work with; and building mutually beneficial relationships based on openness and trust.
• Comply on a full and timely basis with statutory obligations and disclosure requirements.
• Comply with both the letter and the intent of the tax laws that govern our commercial dealings.
• Align Group structure and transfer pricing approach for international related party dealings with genuine commercial substance, risk allocations and value creation within Oil Search’s supply chains.  Pricing of international related party dealings is determined through the application of OECD principles, as enacted, in each of Oil Search’s operating and/or investment jurisdiction.  Our transfer pricing approach and outcomes are documented and disclosed to regulators in accordance with country-by-country tax reporting rules enacted in PNG and Australia.
• Foster high-quality engagement with regulators and other stakeholders.
• Support timely decision-making and dispute resolution.

Effective tax rate and income tax

Oil Search’s effective tax rate is disclosed in our Annual Report along with our income tax expense for the year. Our Annual Report is prepared in accordance with International Financial Accounting Standards and is independently audited.

Taxation elements

Subsidiaries

The Oil Search Group includes seven subsidiaries incorporated in the British Virgin Islands, six of which were incorporated to hold exploration interests in the Middle East. This structure provides stability and flexibility in relation to potential future divestment or equity-raising in relation to each jurisdiction and has minimal effect on our tax obligations in all relevant jurisdictions. Any income from these investments is subject to tax in accordance with the tax laws of the jurisdiction where the exploration licences are located. The Group currently has minimal activities in the Middle East and the existence of these subsidiaries therefore has only a negligible effect on the overall tax position.

The seventh subsidiary is an in-house finance company in the British Virgin Islands with no material profits.

The Oil Search Group also maintains a dormant exploration subsidiary in the Cayman Islands.

Uncertainty in tax laws

Where there is a degree of uncertainty in relation to the application of a tax law, Oil Search applies a ‘more likely than not’ principle to determine the intended operation of the tax law and its application to the Oil Search Group. In doing so, we consider technical legal interpretive issues, established administrative guidance and precedents, all relevant facts, reasonable and generally accepted valuations methodologies and independent advice (where relevant).

Payment of ‘fair share of tax’

The amount of tax we pay in each of the jurisdictions in which we operate is determined by the laws of that jurisdiction, as enacted by the relevant governments. We are obliged to report and pay tax in accordance with these laws. Our approach is designed to ensure there is no difference between the tax that is expected to be paid in accordance with enacted laws and the tax we actually pay. Our approach to tax compliance and transparency is also designed to provide sufficient information for governments to formulate tax policy settings and enact laws that provide for a ‘fair share of tax’ in each jurisdiction.

Tax concessions

The Oil Search Group does not receive any unique tax concessions. All tax liabilities are calculated in accordance with relevant legislative requirements. Some jurisdictions include provisions such as accelerated depreciation for capital equipment used in oil and gas production and/or fiscal stability. These provisions may be generalised or may relate to specific projects. These kinds of provisions are common in jurisdictions that seek to attract investment in large-scale, long-life oil and gas projects and each government determines its preferred tax settings based on its policy objectives.

Tax credits

Oil Search contributes to the socio-economic development of PNG by supporting critical infrastructure development through the PNG Government’s Infrastructure Tax Credit Scheme (ITCS). ITCS payments are voluntary pre-payments of income tax that contribute to the delivery of infrastructure projects selected by the PNG Government. The PNG Government pays no interest and the tax credits remain outstanding until we offset them against future income tax liabilities. Limits apply to the value of tax credits that can be claimed as a tax offset in a particular income year.

Engagement and disclosure

We maintain a transparent and constructive dialogue with governments and tax authorities regarding our tax approach and disclosures. This supports our efforts to enhance tax system effectiveness, such as through direct engagement on tax reform and the commitments associated with being an EITI Supporting Company.

As a long-time supporter of PNG’s journey towards compliance with the EITI, we continue to work with the PNG Government, communities and industry peers to support its implementation in PNG. In December 2016, the PNG Government published a roadmap highlighting the need to include beneficial ownership disclosure in its national priorities. We support this initiative as it makes a positive contribution to transparency and accountability in a manner that is consistent with EITI objectives.

Oil Search actively participates in formal consultations with the relevant tax authorities in countries where we have a presence. We are also a member of the PNG Chamber of Mining and Petroleum sub-committee that engages with the Internal Revenue Commission, International Monetary Fund and Department of Treasury on tax reform matters.

We voluntarily provide information on our payments to governments on a country-by-country basis in our Social Responsibility Report. Being open about these payments is in the best interests of our shareholders, employees, host communities and other stakeholders. Transparency allows for an informed debate on the integrity of tax regimes and highlights the benefits of contributions we make to our host countries.

The Oil Search Group operates primarily in PNG, but also has activities in Australia, the US, Japan and the Middle East

Click here for our most recent integrity performance information