Material Risks Risk Management Approach Commodity Price Risk The profitability of the Company’s operations is directly linked to commodity prices, particularly oil. These prices fluctuate widely and are influenced by global supply and demand, currency exchange rates, interest rates, inflation expectations, weather conditions, availability of alternative fuels, government and cartel actions, and production levels in key regions—factors largely beyond the Company’s control. Sustained price declines could adversely affect project economics, cash flows and the Company’s ability to finance exploration, development and production activities. The Company incorporates conservative price assumptions and sensitivity analyses into project planning and financial forecasts and maintains flexibility to adjust capital expenditure and development schedules in response to market conditions. Where appropriate, the Company may use commodity price hedging and diversified offtake and sales arrangements to help stabilise cash flows. Prudent cost management and disciplined capital allocation further strengthen the Company’s ability to withstand commodity price volatility, though some residual exposure remains. Environmental Risk The Company’s oil and gas exploration, development and production activities carry inherent environmental risks, including accidental spills, leaks or other incidents that could cause environmental harm. Such events may result in substantial rehabilitation and remediation costs, third-party claims and regulatory penalties, even when operations are conducted in compliance with environmental laws and regulations. The Company operates under strict environmental management systems and complies with all applicable environmental laws and permit conditions. Regular monitoring, maintenance and emergency response planning are in place to prevent and contain spills or leaks, and staff and contractors receive training in environmental protection and incident response. Insurance and ongoing engagement with regulators and local stakeholders further reduce potential financial and reputational impacts, though some residual risk remains. Climate Change Risk The Company’s operations and financial performance may be affected by both the physical impacts of climate change and by evolving legislation and regulation addressing greenhouse gas emissions. Potential measures include carbon pricing, emission limits, stricter permitting requirements and mandatory reporting, which could raise energy and production costs, reduce profitability and constrain future development opportunities. Regulation of greenhouse gas emissions in jurisdictions where the Company or its customers operate, combined with shifting market sentiment and reduced investment appetite for hydrocarbon projects, may also limit access to capital or offtake opportunities and negatively affect project economics. The Company incorporates climate-related physical and regulatory risks into strategic and operational planning. Site selection, facility design and maintenance programs factor in resilience to extreme weather, flooding and temperature variations, while business continuity and emergency response plans are regularly tested. Carbon and energy cost scenarios are embedded in long-term financial models, and operational practices aim to improve energy efficiency and reduce emissions. The Company also engages with regulators, industry groups and investors to stay ahead of evolving policy and market expectations. These actions help reduce exposure to both physical and regulatory climate-related risks, though some residual risk remains. War, terrorism, and natural disaster risks Geopolitical instability, acts of terrorism, government intervention, trade restrictions, sanctions, and natural disasters such as earthquakes, floods or severe weather can disrupt energy markets, supply chains and trade routes. These events may increase commodity price volatility, restrict access to capital or insurance, and materially impact the Company’s operations, financial performance and long-term objectives. The Company monitors global geopolitical and climate developments, diversifies key suppliers and logistics where possible, and maintains contingency and business continuity plans to limit operational disruption. Insurance cover is reviewed to address political and natural disaster risks, and financial models incorporate sensitivity analyses for commodity price and supply interruptions. While these measures reduce exposure, such external events remain largely outside the Company’s control. Governance and Risk continued 40 Melbana Energy Limited Annual Report 2025
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