On 10th May 2005, the Accounting Standards Board published its final Reporting Standard on the Operating and Financial Review ("OFR"). The Reporting Standard (RS1) is described in more detail in our Law-Now article published on 17th May 2005. In short, directors must include in an OFR a balanced and comprehensive analysis of the development and performance of the business, its financial position, trends and factors underlying these things; a description of the group's business, objectives and strategies, principal risks and uncertainties; and, to the extent relevant, information about the group's employees, customers, suppliers and shareholders, its impact on the environment, and analysis of its financial and non-financial performance using Key Performance Indicators that the directors consider relevant to the group.

Though the Reporting Standard is aimed at all companies that are required to prepare an Operating and Financial Review, the implementation guidance included with the Reporting Standard does set out examples of non-financial Key Performance Indicators (KPIs) which may be relevant to the oil and gas and mining sectors. These include:

Reserves

Proven and probable reserves may be an appropriate matter to be monitored as a KPI, which would need to address:

  • the definition of reserves, and their calculation
  • the purpose of the KPI – usually to show the status of reserve replacement
  • sources of the underlying data
  • quantified targets - the level of replacement of reserves
  • quantified data, and details of changes from year to year.

Employee health and safety

The frequency of work-related injuries may also be an appropriate KPI, to show how injury reduction initiatives may be working.

Other KPIs

Other non-financial KPIs may also be relevant in relation to the oil and gas and mining industries – such as:

  • employee performance and development – other health & safety issues; recruitment and retention; and training and development
  • environmental matters - management of water and energy; disposal of waste, etc.

Though the Reporting Standard makes it clear that it is up to directors to disclose the Key Performance Indicators which they judge to be effective in measuring the development, performance and position of their company’s business, there will no doubt be a certain amount of standardisation as to which KPIs are used in particular industry sectors.

Directors will also need to consider how existing policies may need to be reviewed, and whether new policies need to be implemented, and information gathered, measured and analysed, to enable them to produce meaningful data for the KPIs that they select.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 09/06/2005.