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Review of Operations - Corporate

Environment, health, safety and risk management Employees Busines Systems Software Office Relocation Corporate Affairs

Fast Facts

Improving safety performance is the single highest priority for Caltex in 2007. A new initiative, Incident and Injury Free, is being introduced to encourage a way of thinking by Caltex employees and contractors where safety and safe behaviour is second nature. The initiative will support established systems and programs such as the Risk Management Framework, Operational Excellence Management System, Process Safety Management and the Loss Prevention System.

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Tanker truck and motor vehicle accidents

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David Hind and David Harvey... ...more

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Environment, health, safety and risk management

2006 was a year of consolidation and preparation. After a series of year on year improvements in safety, as measured by Lost Time Injury Frequency Rates (LTIFR), our performance plateaued. The 2006 LTIFR was 4.3 compared with 4.1 for 2005. There were also a higher number of motor vehicle and tanker truck accidents than the previous year. Despite these disappointing results, there were solid gains in our organisational capability in risk which will equip us to break through the plateau and continue the downward trend in incidents.

In 2006, a stronger focus on risk, reputation and sustainability was established across Caltex. In particular we implemented a newly developed enterprise wide risk management framework (RMF) and adopted an Operational Excellence Management System.

The RMF has improved and expanded the identification, reporting and management of risk across the Caltex business. To the existing focus on health, safety, environment and finance have been added areas ranging from operations, competition and reputation to asset integrity, fraud, systems and authorisation. This has provided the opportunity for clearer oversight of risk by Caltex directors and management.

Although we have traditionally reported our safety performance in terms of the LTIFR, it is increasingly becoming evident that this is only a partial, but important, indicator of safety performance. To address risk more systematically, we have adopted the Chevron developed Operational Excellence Management System (OEMS). Implementing OEMS enables us to take a more systematic approach to EHS risks and is an essential precursor to getting further and sustained improvement in our EHS performance.

We have also continued to develop our existing tools, such as the Loss Prevention System (LPS). A DVD version of LPS was deployed to all Caltex supervisors in 2006. This is a training tool to refresh supervisor knowledge and assist in improving the quality and effectiveness of incident investigations and job hazard assessments and other aspects of LPS.

Caltex achieved a bronze award in the 2005 Australian Corporate Responsibility Index (CRI) in its first year participating in the survey. The index assesses the extent to which corporate strategy is integrated into responsible business practice throughout an organisation.

The risk management framework, OEMS and CRI have provided Caltex with improved means of identifying gaps, improving and managing performance in environment, health, safety, risk reputation and sustainability.

Employees

Caltex strives to be a preferred place to work at a time when there is high demand for employees with the qualifications, skills and experience needed to operate our business successfully.

To retain our employees and improve their skills and experience we have a well embedded development process that requires employees to commit to development activities as part of their performance management plan. Operational excellence, capital stewardship and leadership were areas of focus in 2006.

Caltex also has a reward and recognition system that provides encouragement for employees to excel and be rewarded for outstanding performance.

Employee Share Plan

At the time Caltex celebrated 50 years of refining fuel for Australia, all Caltex full-time and part-time employees who were permanent at 31 December 2005, were offered a grant of Caltex shares valued at $1,000. Under the arrangement, 51 shares were allocated to all eligible employees in April 2006.

“Our achievements are a direct result of the efforts of all Caltex employees who have ‘put more in’ so we can get more out of the business,” then Managing Director and CEO David Reeves wrote in a letter to employees giving details of the offer.

A high percentage of Caltex employees are members of the Caltex Australia Limited Employee Share Plan (CALESP). Those who have participated in the plan and held their shares since it was founded in 2000 have now acquired 2,118 shares, including the grant of 51 shares and a parcel of 200 free shares offered to all employees in 2003.

At the end of 2006 this represented an investment of $6,000 in CALESP purchases. With the share price at $23 at the end of the year these shares were valued at $48,714.

Employee survey

The annual Caltex employee survey conducted in October 2006 focused on issues related to employee engagement.

Across Caltex, more than 90% of respondents said they were optimistic about the future of the company, that they understood the challenges that Caltex faces and understood how their work contributes to meeting their department’s business goals.

The results showed a high awareness of the importance of safety with 96% of respondents saying that they know what to do to achieve zero incidents. One of the most encouraging statistics was that 90% of respondents said that they are proud to be an employee of Caltex.

Areas for improvement revealed in survey responses included processes for communicating with employees and balance of work and personal life.

Business systems software

Additional projects were completed in 2006 as part of the expanded use of Caltex’s core business systems software. This included the installation of modules supporting a new financial planning, analysis and forecasting system, a new system for accessing and managing employee records and a system for the forecasting of sales volumes across Australia.

The successful software upgrade at Caltex in 2005 received national recognition with a special award for excellence from the provider in early 2006.

Office relocation

In December 2006, Caltex moved to new corporate offices at 2 Market Street in the Sydney CBD. The move involved the relocation of corporate and marketing employees and contractors from Sydney’s MLC Centre building in Martin Place, the site of the Caltex office since 1996.

The new Caltex offices occupy five floors and have several energy efficient features including natural and recycled materials used in the furniture and fittings and movement sensors controlling lighting.

Corporate Affairs

Corporate Affairs activities include government affairs and issues management, corporate communications and media relations, and corporate contributions and sponsorship. The department’s role includes both advancing shareholders’ interests within the existing government fiscal and regulatory settings for the business and seeking to improve those settings. At the same time, Caltex seeks positive outcomes for all stakeholders as a result of its activities and to improve its reputation.

In March 2006, Caltex negotiated a second government variation of 2006 fuel quality standards to allow continued refinery operation while the Clean Fuels Project was completed. The variation allowed security of supply to our customers to be maintained while a communications strategy minimised damage to Caltex’s reputation.

Caltex presented a comprehensive submission in August 2006 to the petrol pricing inquiry by the Senate Economics Legislation Committee and Caltex representatives appeared before the committee in October. The detailed submission showed that petrol prices follow international prices, prices do not jump because of public holidays, weekly price cycles benefit consumers, and supermarkets are the major source of price competition. It also provided a detailed explanation of Caltex pricing formulas. The inquiry report supported the points in Caltex’s submission and did not recommend any further regulation.

In October 2006, legislation advocated by Caltex for many years was enacted to provide a level playing field for petroleum retail marketing through repeal of restrictive legislation from March 2007 and its replacement with a mandatory code of conduct covering fuel reselling agreements, terminal gate pricing and dispute resolution. Caltex made submissions and representatives appeared before the Senate committee examining the reform bill and lobbied key stakeholders.

In October, the Australian Government confirmed a two-year grant of 1 cent a litre for producers and importers of extra low sulfur (10 ppm) diesel from January 2007. The grant is to encourage the early availability of this quality diesel, equal to the cleanest in the world and is consistent with longstanding Caltex advocacy of supportive regulatory and fiscal policies for cleaner fuels.

Caltex undertook extensive communications in the second half of 2006 to support achievement of our 2006 target under the Australian Government’s Biofuels Action Plan, including point of sale material, product launches, advertising and political communications. The communications support a market based rather than regulatory approach to ethanol and biodiesel market development.

The National Nine Network Sunday program in November presented a well balanced report on Caltex operations following the story from the purchase of crude oil, through the Kurnell refinery, to a service station and a customer’s fuel tank. The program clearly explained how the retail price of petrol in Australia is closely linked to the Singapore benchmark petrol price – the nearest import alternative – and what an intensely competitive market it is with oil companies, franchisees, independents and supermarkets all tussling for market share.

50th anniversary

In 2006, Caltex celebrated its fiftieth year of refining fuel for Australia. This milestone was commemorated in February with special open days and historical displays at the Kurnell refinery and a ceremony with a plaque formally unveiled by NSW Minister for Planning Frank Sartor. A special 36-page edition of Caltex’s magazine The Star was dedicated to Caltex’s 50 year contribution to keeping Australian industry, commerce and motorists on the move, a DVD on the history of Caltex refining was produced and the 2005 annual report published in March carried the 50 year anniversary theme with early photographs.

Publications

Communicating with the company’s employees, franchisees and resellers in an environment of rapid change in the company’s activities, political agendas and the expectations of the public was increasingly important in 2006.

The Star added a special insert, Talkingpoint, with key message information on issues such as petrol pricing, biofuels, fuel quality and petroleum products supply reliability.

Its circulation was extended to include Federal, NSW and Queensland politicians and the media with information on Caltex doing what it said it would do in achieving its biofuels sales volumes targets agreed with the Australian Government. That achievement was also communicated with advertising that appeared in national and NSW and Queensland newspapers.

Community support

Caltex has company contributions and sponsorship activities with welfare, education and arts organisations. Caltex refineries, terminals and service stations also support a number of community programs in local areas.

Caltex’s largest sponsorship is the Starlight Children’s Foundation, which the company has supported since 2000. Starlight is dedicated to brightening the lives of seriously ill and hospitalised children and their families throughout Australia.

In a strong partnership with Starlight, Caltex employees, franchisees and resellers around Australia are involved in fundraising activities in addition to an annual corporate donation. Activities include special fundraising dinners, local gala days, donations linked to site safety performance and product promotions in the convenience store network. Caltex is the main sponsor of the annual Star Day appeal and Caltex employee volunteers sell Starlight merchandise. A special sponsored activity in 2006 was the 50 towns in 50 weeks program to help Starlight bring smiles to the faces of seriously ill and hospitalised children around the country.

Caltex has two programs supporting education. Now in its 22nd year, the Caltex Best All Rounder Award in 2006 was presented at 97% of Australian secondary schools to Year 12 students who have demonstrated excellence in the classroom, on the sports field and in the community. Each winning student was also invited to enter a national writing competition on why Caltex should donate $1,000 to a charity or community organisation the student is involved in or supports. The five winners also received $500 for themselves and another $500 for their school.

The second education program is the Caltex and Rotary Club of Sydney Award for Innovation in Teaching. In November 2006, three NSW teachers were honoured with awards valued at $6,500 to be used on a return overseas airfare to visit an agreed school or institution with the aim of learning more about their area of interest in teaching.

Caltex continues to support the arts and in 2006 celebrated ten years of partnering the Australian Chamber Orchestra which also celebrated its 30th anniversary. The 2006 national program included the Caltex The Romantics tour which featured violin soloist and Guest Director Anthony Marwood.