Corporate Governance

The Workings of the Board and Its Committees

The Board

At 31 December 2008 the Board comprised two Executive Directors and one Non-Executive Directors, whose details are included on the Sibir website under the heading Board of Directors.

The Board is responsible to the shareholders for the proper management of the Group. It meets formally four times a year, to review trading performance, set and monitor strategy, examine acquisition and divestment possibilities, approve major capital expenditure projects, corporate overhead costs, significant financing matters and report to shareholders. Matters reserved for the Board are communicated in advance of formal meetings.

The following committees deal with specific aspects of the Group’s affairs.

Audit Committee

The Company currently does not have an Audit Committee however it is the intention that this situation will not continue as and when new Non-Executive Directors are appointed to the Board. The Audit Committee will then, once again, provide a forum for reporting by the Group’s external auditors. It is the intention that these meetings will be attended, by invitation, by the Finance Director and the CEO.

Remuneration Committee

The Remuneration Committee is responsible for recommending to the Board the remuneration of the Executive Directors and the ongoing review of the remuneration and other benefits of the Executive Directors and senior Executives; recommending from time to time the introduction, variation or discontinuance of any benefits, including bonuses and share options and keeping under review the line of succession of Senior Executives in the Group. The Remuneration Committee comprises all Non-Executive Directors.

The report on the Directors’ remuneration, which includes details of the Directors’ interests in options together with information on service contracts, is set out in the Annual Report.

Relations with Shareholders

Communication with shareholders is conducted through correspondence, face to face meetings, press announcements, stock exchange releases and Sibir’s website, www.sibirenergy.com. The Report of the Chairman and Chief Executive and Financial Review include a detailed summary of the business and future developments. The Board proposes to use Annual General Meetings (“AGM”) to communicate with private and institutional investors and welcomes their participation.

Internal Controls

The Group has not complied with the Turnbull guidance on internal controls and the Board believes that due to the current size of the Company’s business it is not necessary to do so. The Company is quoted on AIM and as such is not required to comply with the Turnbull guidance, however, the Directors continue to monitor and review the Group’s procedures and policies on internal control.

The Board acknowledges that it is responsible for establishing and maintaining the Group’s system of internal control, the effectiveness of which is reviewed on a regular basis. The internal control system is designed to meet particular needs of the Group and the risks to which it is exposed, and by its nature can provide reasonable but not absolute assurance against material misstatement or loss. In view of the size of the Company, the Board does not consider that an internal audit function is required at present, however, the Board intends to keep this under review.

The key procedures which the Directors have established with a view to providing effective internal control are as follows:

 Management Structure

The Board has overall responsibility for the Group and there is a formal schedule of matters specifically reserved for decision by the Board. Each Executive has been given responsibility for specific aspects of the Group’s affairs. The Executive Directors together with the key Senior Executives constitute the Executive Committee which meets as required to discuss operational matters.

Quality and Integrity of Personnel

The integrity and competence of personnel is ensured through supervision and training. High quality personnel are seen as an essential part of the control environment.

Identification of Business Risks

The Board is responsible for identifying the major business risks faced by the Group and for determining the appropriate course of action to manage those risks.

Budgetary Process

Each year the Board approves the annual budget. Key risk areas are identified. Performance is monitored and relevant actions taken throughout the year through the monthly reporting to the Board of variances from the budget, updated forecasts for the year together with information on the key risk areas.

Investment Appraisal

Capital expenditure is regulated by the budgetary process and authorisation levels. For expenditure beyond specified levels, detailed written proposals have to be submitted to the Board. Reviews are carried out after the acquisition is complete and, for some projects, during the acquisition period, to monitor expenditure. Major overruns are investigated.

The Directors continue to monitor and review the Group’s procedures and policies on internal controls on an annual basis.