Melbana Energy : Corporate Governance Statement 2017

For the year ended 30 June 2017

The Board is committed to conducting the business of Melbana Energy Limited (Melbana or the Company) both ethically and in accordance with principles of good corporate governance. The Company's corporate governance framework is kept under review and changes are made in response to changes in the Company's business or applicable legislation and standards.

This corporate governance statement sets out the key elements of our corporate governance framework that have operated throughout the year, unless otherwise indicated. The Company considers that the corporate governance framework and practices comply with the 3rd edition of ASX Corporate Governance Council's Principles and Recommendations, released in March 2014 (and have effect for financial year commencing on or after 1 July 2014) (the ASX Principles), unless indicated otherwise below.

As required by the ASX Listing Rules, this Corporate Governance Statement (CGS) discloses the extent to which Melbana has followed the ASX Principles during the financial year ended 30 June 2017. Melbana has also prepared an "ASX Appendix 4G - Key to Disclosures", which reports on the Company's compliance with each of the ASX Principles. This together with the CGS will be lodged with the ASX and may be viewed and downloaded from the Company's website.

The table at the end of this statement provides cross references between the disclosures and statements in this corporate governance statement and the relevant ASX Principles.

1. The Board of Directors

   The Board operates in accordance with the Company's Constitution and has adopted a Board Charter which outlines a framework for the Board's operation, the matters reserved to the Board and the functions delegated to management. The Charter was reviewed at the Board meeting held in June 2017 and can be viewed in the Corporate Governance section of the Company's website.
2. Role of the Board

   The role of the Board of Directors is to create sustainable shareholder wealth in a manner consistent with the Company's constitution and principles of good corporate governance. The Board achieves this by representing the interests of shareholders in setting and overseeing the Company's values, direction, strategies, financial objectives and performance within a framework of prudent and effective controls for the assessment and management of risk.

   The Board is responsible for appointing and monitoring the performance of the Managing Director and Chief Executive Officer (hereafter referred to as the Managing Director), to whom it has delegated responsibility for the operation and administration of the Company. Directors receive regular and comprehensive reports from the Managing Director and have unrestricted access to Company records, information and the senior management team.

   The Board strives to create shareholder value and ensure that shareholder funds are safeguarded. To fulfil this role, the Board is concerned with:

   • approving the corporate strategy;

   • overseeing the Company's long-term performance against targets and objectives;

   • monitoring systems of risk management and internal control, ethical standards, environmental and safety performance and legal compliance;

   • monitoring the Group's financial performance;

   • approving operating budgets and major capital expenditures;

   • monitoring and assessing the performance of the Managing Director;

   • assessing business risk profile, risk management and business continuity plans, the adequacy of corporate governance and other policies, internal controls and organisation structures; and

   • reporting to shareholders on the direction, governance and performance of the Company. The Board reviews its composition and processes annually (as detailed below).

3. Composition of the Board and Expertise

   The composition of the Board is determined using the following principles:

   • the Board may, in accordance with the Constitution, comprise up to ten Directors, a majority of whom should be independent; and

   • the Chairman of the Board should be an independent non-executive Director.

   The Board comprises Directors with a broad range of experience having a proper understanding of the current and emerging issues facing the Company, who can effectively review and challenge management's decisions. Each Director brings different skills and professional expertise to the Board. The Board seeks to achieve a mix of skills and diversity that includes exploration (Australia and overseas), marketing and financial experience as well as an understanding of the oil and gas industry in which the Company operates. The Board assesses existing and potential directors' skills to ensure they are appropriate for the current and future needs of the Company.

   At 30 June 2017, the Board was comprised of two Non-Executive Directors (including the Chairman) and one Executive Director (the Managing Director). Details of the skills, experience and expertise of the Directors, and of the Company Secretary, as well as the period for which the Directors have held office are set out in the 2017 Annual Report.

   The Company Secretary is accountable directly to the Board, through the Chairman, on all matters to do with the proper functioning of the Board.

   The following table summarises the skills and experience of non-executive directors serving on the Board as at the end of the Reporting Period:

   Andrew Purcell	Michael Sandy
   Leadership and governance	✓	✓
   Strategy and risk management	✓	✓
   Financial acumen	✓	✓
   Health and safety	✓
   Oil and gas experience	✓	✓
   Directorships of other listed companies	✓	✓

4. Independence

   The Board reviews the independence of each Director in light of interests disclosed to the Board from time to time and at least once a year. The Board has determined that the Chairman, Mr Andrew Purcell, and Non-Executive Director, Mr Michael Sandy, are independent in accordance with the definition recommended in the ASX Principles, having no business or other relationship that could compromise their independence.

   The Board has adopted guidelines to determine materiality thresholds for the purposes of that definition. Broadly speaking, these guidelines seek to determine whether the Director is generally free of any interest and any business or other relationship that could, or could reasonably be perceived to, materially interfere with the Director's ability to act in the best interests of the Company. The Board will consider thresholds of materiality for the purposes of determining 'independence' on a case by case basis, having regard to both quantitative and qualitative principles. Directors have agreed to advise the Board, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Further details of the Company's guidelines for determining the independence of Directors are set out in the Company's Board Charter.

   The Board believes the separation of the roles of Chairman and Managing Director, and the composition of the Board being comprised of a majority of independent Non-Executive Directors, is appropriate.

   Directors' shareholdings are set out in the 2017 Annual Report.

5. Term of office and re-election of Directors

   All Non-Executive Directors are appointed under a letter of appointment, setting out the terms of their appointment, including their powers, rights and obligations.

   In making recommendations to the Board regarding the appointment of Directors, the Remuneration & Nomination Committee periodically assesses the appropriate mix of skills, experience and expertise required by the Board and assesses the extent to which the required skills and experience are represented on the Board. Nominations for appointment are then approved by the Board as a whole. When a vacancy exists or there is a need for particular skills, the Remuneration & Nomination Committee determines the selection criteria based on the skills deemed necessary. The Committee identifies potential candidates, and if appropriate, will utilise an external consultant to assist in identifying potential candidates. The Board then appoints the most suitable candidate.

   The Company will undertake appropriate background checks and screening checks prior to nominating a director for election by shareholders, and provides to shareholders all material information in its possession concerning the director standing for election or re-election in the explanatory notes accompanying the notice of meeting.

   New Directors will participate in an induction program to assist them to understand Melbana's business and the particular issues it faces.

   All Directors (except the Managing Director) are elected by shareholders at the Annual General Meeting following their appointment and thereafter are subject to re-election at least once every three years.

6. Access to information and independent advice

   Each Director has the right of access to all relevant Company information and to the Company's senior management, external advisers and auditors.

   Directors may also seek independent professional advice at the Company's expense. Any Director seeking such advice is required to make a formal request to the Board. Any advice so received must be made available to all other Directors unless otherwise agreed.

7. Board Committees

   The Board generally operates as a whole across the range of its responsibilities but, to increase its effectiveness, uses committees where closer attention to particular matters is required. The role of the Board Committees is to make recommendations to the Board on matters set out in each Committee's Charter. The Charters for the Audit & Risk, Remuneration & Nomination and the Health, Safety & Environment Committees are available on the corporate governance section of the Company's website. The Board currently assumes the role and responsibilities of the Health, Safety & Environment Committee.

   The Audit & Risk Committee and the Remuneration & Nomination Committees comprise the two Non- Executive Directors, which is considered appropriate give the size of the company. Details regarding the role of each Committee and their composition as at 30 June 2017 are set out below. Details regarding the number of Board meeting and committee meetings held during the year and the attendance of each member is set out in the 2017 Annual Report.

8. Audit & Risk Committee

Members	Michael Sandy (Committee Chairman) and Andrew Purcell.
Role	The Audit & Risk Committee's role is to assist the Board in the effective discharge of its responsibilities for financial reporting and taxation, internal control structure, risk management systems and the relationship with the external and internal auditors.
Responsibilities	The Audit & Risk Committee's responsibilities include: reviewing the Company's financial statements prior to approval by the Board, including discussing with the external auditor the implications of any major transactions and the accounting policies adopted by the Company; regularly reviewing the ongoing solvency of the Company; overseeing the relationship with the external auditor, auditor independence and the external audit function; overseeing the adequacy of processes and controls established by senior management over the Company's business processes, including financial information and IT processes; reviewing and monitoring the propriety of related party transactions; reviewing the adequacy and effectiveness of the Melbana's risk management framework, and assist the Board with oversight of Melbana's risk management by gaining assurance that all major identified risks are being adequately managed and that mitigation practices are appropriate.
Composition	The Committee is chaired by an independent Non-Executive Director and currently comprises two Non-Executive Directors, both of whom are independent and financially literate. The Chairman of the Board is not permitted to chair the Committee. Mr Purcell has substantial accounting and financial experience and Mr Sandy has industry experience and held non-executive directorships with ASX listed oil & gas companies, and assumed the role of Chairman for the Audit and Risk Committee for ASX listed oil & gas companies.
Consultation	The Managing Director is invited to attend all committee meetings. Other members of management may also attend by invitation. The Committee has access to financial and legal advisers as it considers appropriate. The Committee also meets with the external auditor in the absence of management whenever deemed appropriate to ensure the Committee can be satisfied that the auditors have had the full cooperation of management in conducting audit functions, and to give the auditor the opportunity to raise any matters of concern.

External Auditor The external auditor is appointed by the Board and approved by shareholders in accordance with the requirements of the Corporations Act. The Audit & Risk Committee is responsible for reviewing the terms of appointment of the external auditor and for making recommendations to the Board regarding the appointment of the external auditor. It is the Company's policy to require that the external audit partner be rotated within 5 years from the date of appointment.