Caltex and Sustainability:
HELPING TO BUILD a sustainablE future

We are committed to limiting our impact on the environment, addressing climate change, being an employer of choice, remaining a good community neighbour and continuing to add value to the business for our shareholders. This commitment is reflected in our business plan and across our day-to-day operations.

A culture of operational excellence is embedded in the supply chain at Caltex and this incorporates sustainability at all levels. Caltex achieved a bronze ranking in the 2007 Australian Corporate Responsibility Index (CRI) for the third year.

The index assists organisations measure and report on corporate performance relating to the community, environment, marketplace and workplace. Caltex recognises that competing successfully in the oil industry requires us to be prudent about the way we approach and manage risk. As such, Caltex employs an enterprise wide risk management framework to ensure that risks are identified and appropriately managed in order to protect and grow shareholder value. Caltex fosters a culture of risk awareness and maintains a robust dialogue across the organisation to ensure appropriate management of risk is top of mind for all of our employees, contractors, franchisees and resellers.

Environment

National greenhouse and energy reporting compliance

Since 1 July 2008, Caltex has been recording energy use and greenhouse gas emissions across the company in line with the new National Greenhouse Emissions Reporting System (NGERS). Prior to undertaking the mandatory reporting, Caltex had been reporting for over a decade under the voluntary Greenhouse Challenge Program. All Australian companies are now required to provide a report by 31 October 2009 if they emit greenhouse gases and produce or consume energy at, or above, specified quantities.

Carbon Pollution Reduction Scheme

Caltex supports action on climate change. However, as the biggest refiner and marketer of petroleum products in Australia, the proposed Carbon Pollution Reduction Scheme (CPRS) has significant implications for Caltex.

Under the proposed CPRS, Caltex’s refineries will be treated as “emissions-intensive trade-exposed” and will likely receive approximately 60% free permits, although the rules for exact permit eligibility are still to be determined. The impact of the CPRS on Caltex’s future profit will depend on the price for the remaining permits that must be purchased. Total refinery emissions will be approximately 2.5 million tonnes, so the net carbon liability will be approximately one million tonnes per annum. Caltex will be unable to recover these carbon costs due to import competition.

Fuel suppliers will also be required to purchase permits for their customers’ emissions. Caltex customer emissions are approximately 40 million tonnes per annum and Caltex will have to incorporate the full cost of these permits into fuel prices. This will be offset by a government excise reduction for motorists and farmers to help avoid price increases for these customers.

We remain committed to working with the Federal Government to design an effective CPRS that does not adversely impact our business.

Energy Efficiency Opportunities Program

During 2008, Caltex conducted energy efficiency assessments across our refining operations as part of the Energy Efficiency Opportunities Program.

The assessments considered all aspects of energy efficiency – operational enhancements, capital investment and operational management for long-term sustainable benefits.

Meeting biofuels mandate

Caltex currently has over 400 sites supplying biofuel blends to customers. This includes both Bio E10 Unleaded petrol and B2 and B5 biodiesel blends. Since the introduction of biofuel blends to our portfolio, we have been offering Caltex Bio E10 Unleaded petrol to customers at a discount to regular unleaded petrol to encourage customer take-up.

We have been taking all reasonable steps in order to meet the existing New South Wales 2% ethanol target and Caltex is currently on track to meet our share of the former Australian Government’s biofuels target of 350 ML by 2010.

The New South Wales Government is proposing an increase from 2% to a 10% ethanol blend in all regular grade unleaded petrol to be phased in by 1 July 2011 and a minimum 2% biodiesel requirement rising to 5% by 1 January 2012. In addition, the Queensland Government is proposing a 5% ethanol content requirement in the total volume of unleaded petrol wholesaled or produced in Queensland by 31 December 2010.

Move to recycled water at refineries

2008 saw the introduction of the use of recycled water at the Lytton refinery. Sourced from a local microfiltration reverse osmosis plant, the refinery at Lytton now saves up to 4.5 million litres of fresh drinking water per day for the local community.

Project work for the supply of recycled water to the Kurnell refinery is currently in the planning phase. The recycled water, when produced, will be used within process units to generate steam and for cooling. Savings of up to 4.5 million litres of drinking water every day at Kurnell are anticipated, replacing 70% of the current refinery water use. The project is supported by the New South Wales Government’s Climate Change Fund.

Enhancing our environment

In 2008, Caltex also began dredging the Lytton refinery’s wastewater storage ponds of contaminated deposit accumulated over years of operation. Technology used to de-water deposits included a set of large centrifuges and a chemical dosing plant. This assisted in reducing the environmental impact of the activity. The dredged deposit is being biologically remediated in preparation for an off site disposal. This work will continue in 2009.

Repeating similar work that was undertaken in 1994 and 2001, the refinery at Kurnell completed an off site groundwater sampling audit in 2008. In total, 39 residents from the Kurnell community gave permission for their bore water to be sampled. Each sample was tested for physical, biological and chemical characteristics. The survey confirmed there was no impact on Kurnell’s groundwater from refining activities.

Underground tank replacement and monitoring

A risk assessment conducted in 2007 on underground tanks considered the age of the tanks, the location of the tanks in relation to water supply and the natural environment, and throughput of the tanks. As a result of the review, tanks were placed on a priority list and 12 stations with multiple underground tanks had their tanks replaced or repaired across Australia in 2008. This replacement program represents a significant investment in the ongoing security and reliability of supply and protection of the environment surrounding the tanks.

Monitoring wells were also installed at the 12 stations to continually monitor the tanks to ensure that no product is leaked into the surrounding soil. In addition, the Caltex statistical inventory reconciliation and analysis system (SIRA) was upgraded in 2008. SIRA provides a statistical reconciliation of all product stored in Caltex’s underground tanks. It allows monitoring of the product volume in the tanks and provides a checkpoint for tank and line integrity, and delivery accuracy.

Marketplace

Petrol pricing

The average pump price for unleaded petrol in 2008 was 141 cents per litre compared to 126 cents per litre in 2007. However, Australian petrol prices were still low in 2008 relative to those in most other developed countries.

Throughout the year, prices of crude oil experienced unprecedented volatility. The wholesale price of Singapore grade petrol, on which Caltex bases its unleaded petrol prices (MOPS95), peaked at around US$148 a barrel in July and closed at the end of 2008 at a low of around US$39 a barrel. Retail and wholesale prices closely tracked these international prices, as they have in previous years.

Caltex sets the petrol price at only around 190 service stations in its branded service station site network. Prices are set by Caltex at these 190 sites in response to local market competition.

Petrol pricing is complex and we have included on our website, www.caltex.com.au, extensive information to help the public understand petrol pricing.

Suppliers audited for health, safety and environmental performance

During 2008, supplier audits were conducted with 10 suppliers who undertake potentially high risk activities on our sites. This was to ensure that the safety programs and processes of our suppliers complied with Caltex’s internal safe work practices and environmental protection standards. The audits identified areas for improvement; Caltex worked alongside these suppliers to improve their work methods and they now fully comply with Caltex’s health, safety and environment policies and procedures. In addition to this, Caltex also undertook an audit of food suppliers to our convenience store network to ensure compliance with national food regulations.

Biofuels website launch

Caltex launched its biofuels website in 2008. The website, www.caltex.com.au/biofuels, was designed to ensure that our customers have a clear understanding of the facts and figures around biofuels. It covers why they are being introduced, what they are made from, in which vehicles they can be used and the cost when compared with traditional fuels. It also includes a glossary and links to relevant external websites.

Commitment to sustainable biofuel sourcing

Caltex is committed to ensuring that all biofuel feedstocks are sourced from sustainable sources. Caltex is cognisant that biofuel production may impact on environmental sustainability and, as such, only uses locally manufactured biodiesel made using locally grown feedstocks processed in Australian plants. Our ethanol comes from wheat, in the form of waste from wheat starch manufacturing, from molasses, a byproduct of sugar refining, and sorghum, a stock feed. Caltex will not consider buying imported biodiesel feedstock like palm oil until we can be sure it has been sustainably produced.

Workplace

Safety and risk management

Caltex employs an operational excellence management system (OEMS) to ensure we operate in a safe, secure, environmentally sound, efficient and reliable way.

OEMS is a systematic approach to operational excellence that is linked to the business planning process. Caltex is continuing to drive improvement through OEMS across the entire supply chain, addressing both process safety and the personal safety of our employees.

We have an unwavering commitment to the safety of our workforce and want to ensure that every one of our people returns home safely every day. This commitment again resulted in an improvement to our lost time injury frequency rate (LTIFR) which was 3.0 per million hours worked, a decrease from 3.8 per million hours worked in 2007. Caltex also continued investing in driver training programs and fleet upgrades and maintenance to ensure the safety of our drivers. In 2008, the number of motor vehicle accidents decreased by 25% and the number of tanker truck accidents per million kilometres travelled decreased by 28%.

Caltex also made significant progress on improving process safety in the refineries during 2008. Hazard assessments were completed on operating plant and significant progress was made moving personnel outside of hazardous areas.

Attracting and developing talent

Caltex recognises that the supply of high quality talent is key to our sustained commercial success and as a result has made significant improvements in talent sourcing and talent development. The introduction of a dedicated team of Caltex recruitment professionals, underpinned by contemporary technology and improved recruitment methodology, has greatly enhanced Caltex’s ability to attract talent at a lower recruitment cost.

Developing an internal pipeline of leadership talent was a continuing priority for Caltex in 2008. The implementation of a rigorous talent management system has enabled Caltex to identify high potential talent across the middle and senior levels of the organisation and build development plans to prepare people for career growth.

Development of leadership capability is also a key strategic focus for Caltex. In support of this, a new Caltex curriculum was developed which includes a professional development stream and a leadership development stream. This is designed to support managers through the different transition passages in a typical leadership career path, shifting from tactical leadership and management positions to a high strategic level.

Building a performance culture

Caltex launched an improved performance management process ensuring greater alignment of individual goals to strategic business goals. The performance management system also reinforces personal accountability for performance outcomes. These enhancements were underpinned by comprehensive training programs for managers and employees designed to further improve the effectiveness of performance conversations.

Strengthening diversity in the workplace

Caltex continued to make improvements to the parental leave benefits and flexible working arrangements in 2008. We also reinforced our commitment to a more diverse and inclusive culture with the rollout of a workplace behaviours program to our workforce. A diversity program was also designed and developed to build manager capability in leading diverse teams.

Employees fuelling change

Fuelling Change is Caltex’s employee contributions program that provides our people with an effective way to make a real difference in our community. The program enables our employees to make charitable contributions directly from their pay to one of our nominated charity partners. These charity partners are The Cancer Council of Australia, OZ Green, The Smith Family, The Heart Foundation, RSPCA and The Starlight Children’s Foundation. In 2008, almost $70,000 was contributed by our employees through this program. This was then matched by Caltex, doubling our total contributions to our Fuelling Change partners.

Community

We are committed to supporting the Australian communities in which we work and live. This is achieved through a select range of community partnerships and sponsorships. Our community initiatives are focused on supporting and enhancing the communities within our areas of operation, in particular within the vicinity of major facilities such as our Lytton and Kurnell refineries.

In and around Kurnell and Lytton, Caltex actively supports a number of local community programs and provides sponsorships for schools, charities, sporting groups and cultural activities. This is achieved through donations in kind, such as StarCash, and through monetary contributions.

Caltex is proud that our employees also readily contribute both their time and money to company supported initiatives and are proactive in supporting the local community.

For over nine years Caltex has worked in partnership with The Starlight Children’s Foundation to support Australian children and families in need. While Caltex contributes financially and through provision of fuel, it is Caltex’s dedicated employees all over the country who have taken this partnership to heart and work tirelessly to raise funds and awareness in their local communities. We are the principal partner of Starlight Day which is the highlight of a year round program of support for Starlight by Caltex employees, resellers and franchisees across Australia. In 2008, Caltex employees dedicated countless hours to raise over $350,000 for The Starlight Children’s Foundation which helped grant wishes and purchase Interactive Starlight Fun Centres for seriously ill children and their families.

Caltex also recognises excellence in the performing arts through its sponsorship of the internationally acclaimed Australian Chamber Orchestra (ACO). In 2008, Caltex was the National Tour partner of the ACO’s The Red Tree. Music and imagery combined in a moving concert experience featuring the ACO, Gondwana Voices and projected illustrations from Shaun Tan’s popular books The Red Tree and The Arrival.

In addition, Caltex sponsored the Rotary Sydney Award for Innovation in Teaching and awarded the Caltex Teaching Award for Excellence in Chemical Engineering. Caltex continues its commercial association with both the Australian Football League and the Australian Rugby League’s State of Origin series, developing unique and entertaining promotions for fans and customers alike.

In its 23rd year, the Caltex Best All Rounder Award is still one of Australia’s most prestigious secondary school awards. Caltex Best All Rounder Award winners excel across a number of areas including studies, sport, community involvement, conduct and leadership. In 2008, over 500 schools participated in this program nationally.

Each year, Caltex Best All Rounder Award recipients are invited to enter a national writing competition. In 2008, entrants were asked to submit a compelling written argument as to why Caltex should donate $1,000 to an Australian charity or community organisation along with $500 for themselves and $500 for their schools.