4.3Report of the Supervisory Board


Message from the Chairman of the Supervisory Board

Dear Shareholders,

In my new capacity as Chairman of the Supervisory Board of SBM Offshore N.V., I am pleased to present you this Report of the Supervisory Board for 2015. Before reporting on the activities of the Supervisory Board in 2015, I take the opportunity to highlight two matters of special importance for SBM Offshore.

Market and Oil price

2015 was marked by a sharp decline of the oil price and a lack of new projects in the oil and gas industry. This led the Management Board under supervision of the Supervisory Board to critically reassess the Company’s cost structure and resources. The Supervisory Board paid specific attention to the need to adapt the organization and its ways of working to the new market reality. SBM Offshore had started reorganizing in 2014 and this was continued in 2015. The Supervisory Board supports the Management Board in setting the guiding principles of affordability, credibility and proactivity.

In October 2015, the Supervisory Board held an extra meeting, where the Management Board presented the further worsening market expectations and as a consequence the setting of the strategic parameters for the 3 Year Plan 2016-2018. In December 2015 this was followed by a discussion of the Strategy Plan, which was subsequently approved by the Supervisory Board. The Supervisory Board is pleased to see that the Management Board is very much focused on preparing SBM Offshore in the best way possible for the future.

Brazil

In 2015, SBM Offshore not only focused on the difficult market environment, but also continued its efforts to deal with legacy matters. During 2015, negotiations with Brazilian authorities and Petrobras were ongoing. The Supervisory Board discussed this matter both in its regular Supervisory Board meetings, as well as in extra meetings and outside of meetings.

The Supervisory Board was closely informed about the Memorandum of Understanding that was signed in March 2015 between the Comptroller General’s Office (Controladoria-Geral da União – ‘CGU’), the Attorney General’s Office (Advocacia-Geral da União – ‘AGU’) and SBM Offshore. In addition, the various reports in Brazilian and international media were regularly discussed. In April and October 2015, the company responded to media speculations via press releases. During the year, in various meetings the status of the negotiations were discussed and attention was given to how discussions may be brought to closure in the challenging environment in Brazil.

The Supervisory Board is pleased with the formal invitation by Petrobras in November 2015 for SBM Offshore to tender for the Sépia and Libra FPSOs. However, awarding of new contracts by Petrobras to SBM Offshore remains conditional upon the conclusion of a settlement agreement between SBM Offshore and the Brazilian authorities in the compliance investigation.

In December 2015, the Supervisory Board took on an active role when allegations were made regarding Mr. Chabas, SBM Offshore’s CEO and Mr. Hepkema, Supervisory Board member and former Chief Governance and Compliance Officer of the Company. Two additional meetings were held on this matter in which the board was also advised by external advisors. The Supervisory Board refers to the various press releases that were issued in this respect.

For further details about the activities of SBM Offshore in general and of the Supervisory Board and its committees in particular, I refer to the next sections of this chapter.

F.J.G.M. Cremers

Chairman of the Supervisory Board

Activities of the Supervisory Board

Meetings

In 2015, the Supervisory Board held five regular meetings according to the pre-set schedule (in February, April, August, November and December). One Supervisory Board member could not attend the April meeting and two Supervisory Board members could not attend the December 2015 meeting. During all other meetings the Supervisory Board was complete. In addition to the regular meetings, seven extra meetings were held (in March, May, June, July, October (2x) and December). These meetings were attended by all Supervisory Board members except for the extra meeting in October 2015, during which three Supervisory Board members had prior obligations. The purpose of these meetings was to provide updates on the developments in Brazil, on Strategy and on quarterly performance.

The Management Board prepares detailed supporting documents and attends the formal meetings of the Supervisory Board. The regular meetings last about five hours. Pre-set meetings are usually spread over two days, starting on the first day with the meetings of the Audit Committee, the Technical and Commercial Committee and the Appointment and Remuneration Committee. The Company Secretary is the secretary of the Supervisory Board and its sub-committees.

The Management Board and the Company Secretary attended all meetings of the Supervisory Board. Prior to each of the regular Supervisory Board meetings, an informal pre-board dinner was held in the presence of the Management Board. The pre-meetings aim at enhancing the effectiveness of the Supervisory Board meeting. In case of potential conflicts of interest, agenda items are discussed without presence of the Management Board members.

Standard items on the agenda of Supervisory Board meetings are updates from each of the Management Board members including the following topics:

  • Health Safety Security Environment;
  • Operational performance;
  • Financial performance;
  • Updates on various topics related to compliance matters and the negotiations with the Brazilian authorities;
  • Updates on the preparatory work for the initial public offering of a Master Limited Partnership;
  • Risk and Opportunity reporting;
  • Market environment and commercial activities; and
  • Strategic and commercial initiatives.

More specifically, in 2015, amongst other items, the following was discussed in the Supervisory Board meetings:

  • In February 2015, the Supervisory Board discussed and approved the Annual Financial statements. The Supervisory Board approved the proposed amendment of the dividend policy and resolved not to propose any dividend distribution. In that same meeting, the Operating Plan 2015 (budget) was approved in its final form;
  • In March 2015, a large part of the meeting was spent on developments in Brazil. Also, an effectiveness review as part of the Supervisory Board’s annual self-assessment was held in the presence of an external advisory firm;
  • In April 2015, the Supervisory Board discussed the IT/IS strategy and prepared for the General Meeting during which Mr. Barril (COO) and Mr. Lagendijk (CGCO) were appointed as Management Board members and Mr. Hepkema, Mrs. Mulliez and Mrs. Richard were appointed as Supervisory Board member;
  • In August 2015, the Half Year Financial Statements 2015 were approved and the Management Board introduced SBM Offshore’s corporate values. In addition, commercial activities and tender preparations were on the agenda as well as a strategic analysis as a result to the changing market circumstances, in particular the low oil price. In October 2015 this strategic assessment was further discussed during an extra strategy day in preparation of the 3 year strategic plan;
  • In the November 2015 meeting, the Supervisory Board discussed the Q3 2014 Trading Update. Also, the Management Board presented technological innovations in relation to FPSO engineering and construction. In this meeting, the Supervisory Board also discussed succession planning of the Management Board and senior management of the company;
  • Finally, in the December meeting of 2015, the Strategy Plan 2016-2018 was discussed and approved. During this meeting, the Supervisory Board also discussed extensively the risk appetite statement of the Company and the design and effectiveness of the internal risk management systems.
  • In addition, during each meeting, the three committees of the Supervisory Board provide feedback of their meetings and make recommendations for decisions by the Supervisory Board.

The Supervisory Board Committees

Audit Committee

The Audit Committee convened five times in 2015 (February, April, August, November and December). During the February and December meetings, one member could not attend. All other Audit Committee meetings were attended by all members. The Audit Committee meetings were held the day prior to the Supervisory Board meeting. The Management Board, the Group Internal Audit Manager, the Group Controller and the External Auditor attended the meetings. There were regular private meetings of the Audit Committee with the External Auditor outside the presence of the Management Board.

Besides the standard agenda topics such as reports on Compliance, Risk and Internal Audit activities, the following was discussed in 2015:

  • Review of payments to agents;
  • Funding of projects;
  • The divestment of shares in the FPSO Turritella joint venture companies;
  • The project of creating a Master Limited Partnership;
  • The Group’s tax structure, tax planning and transfer pricing policies.

Also, the Audit Committee paid specific attention to the funding strategy and liquidity forecasts of the Company.

Appointment and Remuneration Committee

The Appointment and Remuneration Committee met four times in 2015 (February, April, August and November). The meetings of the Appointment and Remuneration Committee were held prior to the Supervisory Board meetings. The Appointment and Remuneration Committee consists of two parts as prescribed by the Corporate Governance Code: a part for Selection and Appointment matters and a part for Remuneration matters. During the Supervisory Board meetings, the respective Chairmen reported on the selection and appointment matters and on the remuneration matters reviewed by the Committee, on actions arising and the follow-up of such actions. They made recommendations on those matters that require a decision from the Supervisory Board. The meetings were attended by the Management Board and the Group HR Director, except where the Appointment and Remuneration Committee choose to discuss matters in private.

At various times, the members of the Appointment and Remuneration Committee met outside of formal meetings in preparation of the regular meetings. The main subjects discussed by the Appointment and Remuneration Committee besides the standard topics were the following.

Remuneration matters:

  • Determination of the relevant Short Term and Long Term Incentive setting and realization in accordance with the applicable Remuneration Policy;
  • Share based incentives for senior management.

Selection and Appointment

  • Succession planning of the Supervisory Board and proposal for appointment of Mr. Hepkema, Mrs. Mulliez and Mrs. Richard as members of the Supervisory Board to be submitted for approval by the AGM of 15 April 2015;
  • Selection and proposal for appointment of Mr. Barril (COO) and of Mr. Lagendijk (CGCO) as members of the Management Board to be submitted for approval by the AGM of 15 April 2015.
  • An overview of succession candidates for critical senior management positions;
  • The Company’s organization and rightsizing actions proposed by the Management Board.

Technical and Commercial Committee

The Technical and Commercial Committee met four times in 2015 (February, April, August and November). The meetings of the Technical and Commercial Committee were held prior to the meetings of the Supervisory Board. The chairman of the Technical and Commercial Committee reported on the principal issues discussed, on actions arising and the follow-up of such actions and made recommendations on those matters requiring a decision by the Supervisory Board. The meetings were attended by the CEO, the COO, the Managing Director of the Business Unit FPSO and the Managing Director for Operations. Other executives gave presentations on specific topics within the remit of the Technical and Commercial Committee.

The main subjects discussed by the Technical and Commercial Committee were the following:

  • Health, Safety, Security and Environment performance;
  • Project Delivery;
  • Operational performance and strategy;
  • Commercial prospects and the international competitive environment;
  • Technology.

Performance Evaluation of the Supervisory Board

In March 2015, the Supervisory Board held a private session with an external advisory firm further to an effectiveness review that was performed in 2014. In November 2015, the Supervisory Board assessed its performance over 2015 on the basis of a questionnaire that was completed by all Supervisory Board and Management Board members. An executive evaluation meeting was held in December 2015. The conclusions and actions deriving from this review were noted and implemented.

Supervisory Board Profiles

The last term of office of Mr. H.R. Rothermund expired at the Annual General Meeting of 2015. The Supervisory Board would like to thank Mr. Rothermund for his leadership and excellent contributions – as a member of the Supervisory Board and for 10 years as Chairman of the Supervisory Board. Mr. F.J.G.M. Cremers, previously Vice-Chairman, was designated as Chairman as of that date. Mr. T.M.E. Ehret was designated as Vice-Chairman.

The first term of office of Mrs. K.A. Rethy expired at the AGM of 2015. Mrs. K.A. Rethy decided not to stand for re-election. The Supervisory Board values Mrs. Rethy’s contributions in general, but specifically in her capacity of Chairman of the Appointment and Remuneration Committee dealing with Selection and Appointment matters.

Following a selection process conducted by the Appointment & Selection Committee with the assistance of a specialist consultant, Mrs. L. Mulliez and Mrs. C. Richard were proposed to the General Meeting by the Supervisory Board for appointment as members of the Supervisory Board. In addition, Mr. Hepkema, formerly Chief Governance and Compliance Officer, was proposed by the Supervisory Board to be appointed as a member of the Supervisory Board. At the General Meeting of 15 April 2015 all three candidates were appointed members of the Supervisory Board. Their first term of office expires at the General Meeting of 2019.

In his role as Management Board member, Mr. Hepkema managed the resolution of major legacy issues and the Supervisory Board is pleased that his expertise and experience remains available to the Company in his new role of Supervisory Board member.


Composition of the Committees of the Supervisory Board

Audit Committee

Technical & Commercial Committee

Appointment & Remuneration Committee

Members

Appointment matters

Remuneration matters

F.J.G.M. Cremers (Chairman)

Chairman

T.M.E. Ehret (Vice-Chairman)

Chairman

L.A. Armstrong

F.G.H. Deckers

Chairman

F.R. Gugen

Chairman

S. Hepkema

L.B.L.E. Mulliez1

C.D Richard1

  • 1 Supervisory Board members in their first year after appointment are invited to participate in all Committee meetings.

Conclusion

The Financial Statements have been audited by the external auditors, PricewaterhouseCoopers Accountants N.V. Their findings have been discussed with the Audit Committee and the Supervisory Board in the presence of the Management Board. The External Auditors have expressed an unqualified opinion on the Financial Statements.

The Supervisory Directors have signed the 2015 Financial Statements pursuant to their statutory obligations under article 2:101 (2) of the Dutch Civil Code.

The members of the Management Board have signed the 2015 financial statements pursuant to their statutory obligations under article 2:101(2) of the Dutch Civil Code and article 5:25c (2) (c) of the Financial Market Supervision Act.

The Supervisory Board of SBM Offshore N.V. recommends that the Annual General Meeting of Shareholders adopts the Annual Report 2015 incorporating the Financial Statements for the year 2015.

Schiphol, 10 February 2016

Supervisory Board

F.J.G.M. Cremers, Chairman

T.M.E. Ehret Vice-Chairman

L.A. Armstrong

F.G.H. Deckers

F.R. Gugen

S. Hepkema

L.B.L.E. Mulliez

C.D. Richard