TULLOW OIL PLC
TULLOW OIL PLC
2016 ANNUAL REPORT & ACCOUNTS
2016 ANNUAL REPORT & ACCOUNTS
AFRICA’S LEADING
INDEPENDENT
OIL COMPANY
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AFRICA’S LEADING
INDEPENDENT OIL COMPANY
Tullow Oil is a leading independent oil and gas exploration
and production company. Our focus is on finding and
monetising oil in Africa and South America. Our key activities
include targeted exploration and appraisal, selective
development projects and growing our high-margin
production. We have a prudent financial strategy with
diverse sources of funding.
Our portfolio of over 100 licences spans 18 countries and
is organised into three Business Delivery Teams. We are
headquartered in London and our shares are listed on the
London, Irish and Ghana Stock Exchanges.
ABOUT THE REPORT
Each year, Tullow Oil aims to produce an open, transparent and balanced Annual
Report which gives an honest portrayal of our performance, strategy and impacts.
Disclosure on our sustainability performance and objectives is included in this report
and on our website. Each year we try to improve our reporting and we welcome
feedback on how well we are doing.
Please give us your feedback: ir@tullowoil.com
You can find this report and additional information
about Tullow Oil on our website www.tullowoil.com
Cover: David Kafui Lawe, Safety Specialist onboard the TEN FPSO, Prof. John Evans Atta Mills, offshore Ghana
www.tullowoil.com 2016 ANNUAL REPORT CONTENTS
1
STRATEGIC REPORT
Our operations
Chairman’s statement
Chief Executive’s review
Market review
Our business model
Our strategy
Key performance indicators
Creating value
Operations review
Finance & Portfolio Management
Responsible Operations
Governance & Risk Management
Principal risks
Organisation & Culture
Shared Prosperity
2
CORPORATE GOVERNANCE
Directors’ report
Audit Committee report
Nominations Committee report
EHS Committee report
Ethics & Compliance Committee report
Remuneration report
Other statutory information
3
FINANCIAL STATEMENTS
Statement of Directors’ responsibilities
Independent auditor’s report for the
Group Financial Statements
Group Financial Statements
Company Financial Statements
Five-year financial summary
Supplementary information
Shareholder information
Licence interests
Commercial reserves and resources
Transparency disclosure
Sustainability data
Tullow Oil plc subsidiaries
Glossary
4
6
8
10
12
14
16
22
24
32
38
40
44
54
56
60
69
74
76
78
80
101
108
109
116
150
159
160
161
166
167
172
175
177
1
www.tullowoil.com Front Challenger, offloading tanker,
and helideck of the TEN FPSO,
Prof. John Evans Atta Mills,
offshore Ghana
1 STRATEGIC
REPORT
Our operations
Chairman’s statement
Chief Executive’s review
Market review
Our business model
Our strategy
Key performance indicators
Creating value
Operations review
Finance & Portfolio Management
Responsible Operations
Governance & Risk Management
Principal risks
Organisation & Culture
Shared Prosperity
4
6
8
10
12
14
16
22
24
32
38
40
44
54
56
OUR OPERATIONS
A QUALITY PORTFOLIO
OF ASSETS
Tullow has a balanced portfolio of high-quality producing fields,
areas for future development and exciting exploration acreage.
4
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT OPERATING COUNTRIES
LICENCES
ACREAGE (SQ KM)
TOTAL WORKFORCE
18
Tullow’s key operations are in
Africa and South America,
which are split into three
Business Delivery Teams,
as set out below.
100+
Tullow’s portfolio of licences
is balanced between
exploration, development
and production activities.
253,034
Our acreage onshore and
offshore Africa, and South
America includes newly
acquired licences in Zambia
and Guyana.
1,152
Our talented employees and
contractors work together
across our corporate centre
and Business Delivery Teams.
WEST AFRICA
EAST AFRICA
NEW VENTURES
The West Africa Business Delivery
Team focuses on Tullow’s production
and development projects in West Africa.
Our European production is also managed
by this team.
In this high potential region, the Group
is progressing onshore exploration
and the development of its Uganda
and Kenya discoveries.
The New Ventures Business Delivery
Team is responsible for Tullow’s frontier
exploration activity across Africa and
South America.
Key activities
• First oil from the TEN Project,
on time and on budget
Key activities
• Uganda farm down deal to
Total agreed
• TEN facilities tested to over
80,000 bopd with systems
operational and final commissioning
near completion; production forecast
to average 50,000 bopd in 2017
• Safe and efficient management of
Jubilee turret issue; solution swiftly
identified and being implemented
• Affirmation of Jubilee insurances to
cover costs and production losses
• Jubilee FPSO interim spread
moor solution being completed in
February 2017
• Group production of 71,700 boepd
including Jubilee insurance
barrels equivalent
• Decision made on Uganda and Kenya
export pipelines
• Eight production licences awarded by
Government of Uganda over Tullow
& Total operated fields
• Kenya Early Oil Pilot Scheme
sanctioned by Tullow, forecasted
to produce ~2,000 bopd in 2017
• Estimated South Lokichar Basin
gross mean recoverable resources
increased to 750mmbbls
• Four well exploration programme in
South Lokichar Basin commenced in
Q4 2016; Erut-1 discovers 25 metres
of net oil pay
Key activities
• 3D seismic survey and drop core
survey completed over Block 54 in
Suriname, in preparation for drilling
the Araku well in 2017
• Extended acreage in prospective
South America region by entering
Orinduik licence, offshore Guyana
• New country entry to Zambia,
extending Tullow’s onshore rift
basin acreage
• Divestment of Norway assets
nearing completion
• Portfolio high-grading process
ongoing with exits agreed from
Madagascar, Ethiopia, French
Guiana, Guinea, Greenland
and Norway
• Significant activity ongoing for
new licence acquisitions
>>
>>
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Operations review: West Africa
28
Operations review: East Africa
29
Operations review: New Ventures
31
Group financial overview
Sales revenue ($m)
Pre-tax operating cash flow ($m)
Operating loss ($m)
Net loss after tax ($m)
Basic (loss) per share (cents)
2016
1,270
774
(755)
(597)
(65.8)
2015
1,607
967
(1,094)
(1,037)
(113.6)
5
1www.tullowoil.com CHAIRMAN’S STATEMENT
CONFRONTING CHALLENGES
& ACHIEVING RESULTS
During the course of 2016 we have repositioned Tullow Oil for growth.
The Company is leaner, more efficient and more effective.
DEAR SHAREHOLDER
Tullow prides itself on being a resourceful,
adaptable, resilient Company. During 2016,
these characteristics were tested to the
full. The collapse in the oil price that
started in mid-2014 continued into 2016.
In January 2016, the price of Brent crude
fell to $27 a barrel from a peak of $115
in 2014, one of the worst downturns in
the history of the oil industry. During 2015
we took decisive action in response to
the sharp deterioration in the market,
reducing our headcount by around
40 per cent, cutting exploration costs, and
refocusing our capital expenditure on the
TEN Project in Ghana. As we entered 2016,
our strategic priorities were clear:
maximise cash flow from existing
operations; deliver the TEN Project on time
and on budget; continue to progress our
attractive, low-cost development projects in
East Africa; maintain liquidity whilst
working towards our long-term goal
of reducing debt; pursue monetisation of
portfolio options; and position the Company
for renewed growth when market
conditions improve. I am pleased to report
that we have made significant progress on
all of these objectives, notwithstanding a
major, unforeseeable, setback with the
Jubilee FPSO during the course of the year.
Maximising cash flow from operations
West Africa oil production for the year
averaged 60,900 boepd, excluding
insurance proceeds (2015: 73,400 boepd),
despite an unprecedented failure of the
main turret bearing on the Jubilee FPSO
in February, which temporarily halted
production. The response to this
emergency, described on page 28, was
exemplary, combining technical skill and
ingenuity with an absolute commitment
to safety and environmental protection.
6
The speed of response mitigated
our losses and reassured our lenders,
allowing us to increase the loan facilities
available to us. Our insurers have
subsequently confirmed insurance cover
for cost of repairs and lost production.
Revenues for the year amounted to
$1,270 million (2015: $1,607 million),
underpinned by our longstanding,
prudent hedging programme, and
continuing tight cost control resulted
in a reduction in G&A expenses from
$194 million to $116 million. Pre-tax
operating cash flow amounted to
$774 million (2015: $967 million),
but the Company again reported
a net loss after tax of $597 million
(2015: $1,037 million), largely as
a result of non-cash write-offs and
impairments relating to the Uganda
farm-down, the low oil price and the
disposal of non-core assets.
Delivering TEN first oil
The TEN Project achieved first oil,
on time and on budget, in August 2016.
This was an outstanding achievement
for a complex, $4 billion, multi-national
project, particularly given the uncertainty
introduced by the maritime border
dispute between Côte d’Ivoire and Ghana,
where a decision by the International
Tribunal on the Law of the Sea is
expected by the end of 2017. The start-up
of TEN marks a major inflection point for
Tullow. A combination of significantly
reduced capital expenditure and increased,
high-margin production means that we
are now cash flow positive after capex, and
can start to steadily pay down debt.
Progress in Uganda and Kenya
In Uganda, we were granted production
licences in August 2016 and in
“The Company has
demonstrated technical
and operational excellence,
delivering TEN on time and
on budget, and responding
to the unprecedented events
on the Jubilee FPSO with
speed and skill.”
Simon R Thompson
Chairman
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT January 2017 announced the sale of 21.57 per cent of our
33.33 per cent holding in the project to Total, in return for a
total consideration of $900 million, payable over the course of
the development project. This represents a reimbursement of
a portion of our past costs, part of which will be used to fund
our share of the development capex required for the upstream
project and the export pipeline. Subject to completion, Tullow
will have an 11.76 per cent shareholding (expected to reduce
to 10 per cent in the upstream after the Government of Uganda
formally exercises its back-in right) in a long-life, low-cost
project that will be cash positive to the Company from day one.
In Kenya, following the successful Etom discovery earlier in
the year, we restarted our exploration programme in Turkana,
which has begun with a discovery by Erut-1 in the far north
of the South Lokichar Basin. We are also well advanced in
planning the Early Oil Pilot Scheme, which will provide valuable
reservoir information and build effective working relationships
with the local government and community on a small-scale
project, before we embark upon the major upstream and
pipeline development.
Repositioning Tullow for growth
Throughout the downturn, while exploration capex was reduced,
the team continued to identify and evaluate opportunities and
has built a pipeline of good quality targets across Africa and
South America. Exploration activities are picking up during
2017 and we will take advantage of the significantly reduced
cost of drilling and the attractive opportunities the team has
identified over the past two years.
Risk management, culture and values
The Major Simplification Project, started in 2015, has not only
resulted in a leaner company, it has created a more efficient
and effective one, with clearer lines of responsibility and
accountability, better performance management, and improved
risk management and assurance processes, from inception
of a project to closure. But effective risk management, in an
uncertain and unpredictable world, also depends upon a culture
that is open, transparent and responsive to changes in the external
environment, not least the expectations of society. Tullow was
among the first in the industry to disclose tax payments to
governments and is also one of the first oil companies publicly to
rule out exploration in or close to World Heritage sites. Corruption
remains a major challenge in many of the countries where we
operate, and during 2016, 97 per cent of staff, including the Board,
completed an ethical conduct E-learning programme. Improving
the diversity of the executive pipeline, so that it better reflects the
countries where we operate, remains a key priority, with new
aspirational targets and concrete steps to accelerate the career
development of Africans and women. In Kenya, our community
relations officers are working closely with the local community
to understand and address their concerns, particularly in
relation to land access and water. Tullow is working to obtain their
informed consent in advance of the development of the project.
By proactively addressing such issues, we de-risk our operations
and seek to enhance the long-term returns to our shareholders.
that Aidan has built bears many of the hallmarks of the man:
entrepreneurial, adaptable, resilient and committed to creating
shared prosperity for our shareholders and for the countries
and communities where we operate. The Board reviewed both
internal and external candidates to replace Aidan as CEO, but
in the end there was no doubt about the preferred successor.
Paul McDade has worked for Tullow Oil for 16 years, the last
12 as COO. During this time he has been responsible for
Tullow’s day-to-day operations and he is imbued with the
Company’s culture and values.
The Board has taken the unusual step of asking Aidan to remain
with the Company as Chairman, for a transitional period of up
to two years. Over the past three decades, Aidan has built up a
broad network of contacts and relationships across Africa that
represents a significant competitive advantage for the Company.
Although the appointment of a former CEO as Chairman
diverges from UK corporate governance principles, given the
history of the Company and the markets in which it operates,
the Board unanimously believes that a phased transition of the
leadership of the Company is in the best interests of shareholders.
As a consequence, after completing the CEO succession process,
I will step down as Chairman at the AGM in 2017, after six
challenging, enjoyable and fulfilling years at Tullow.
Ann Grant, who has served as Senior Independent Director
(SID) with great distinction during the succession planning for
both the CEO and the Chairman, will also step down at the AGM
after nine years with Tullow. Jeremy Wilson will replace her as
SID, a role that will carry additional responsibilities, since Aidan
will not be an independent Chairman. All of these appointments
will be subject to shareholder approval at the AGM.
I would like to thank all of my colleagues at Tullow for their
hard work and dedication over the past 12 months, and to
congratulate them on their achievements. I wish Paul, Aidan
and Jeremy every success in their new roles.
Outlook
During the course of 2016 we have repositioned Tullow Oil for
growth. The Company is leaner, more efficient and more effective.
It has demonstrated technical and operational excellence,
delivering TEN on time and on budget and responding to the
unprecedented events on the Jubilee FPSO with speed and skill.
The farm-down in Uganda gives Tullow a material interest in an
attractive project, which will be cash positive to the Company
from completion. In Kenya we continue to make good progress
towards the development of a major long-life, low-cost project
with significant upside potential. And our exploration team is
poised to restart drilling activities, taking advantage of the
significantly reduced cost of exploration, with a portfolio of
prospects accumulated over two years of research. Tullow Oil
will be led into the next phase of its development by Paul, with
the continuing support of Aidan. 2016 therefore marks the end
of one exciting era, and the beginning of another.
Board changes
Thirty one years after founding Tullow Oil, Aidan Heavey has
decided to step down as CEO at the AGM in 2017. The Company
Simon R Thompson
Chairman
7 February 2017
7
B_Chairman_statement_TLW_AR16_SR.indd 2
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1www.tullowoil.com
CHIEF EXECUTIVE’S REVIEW
POSITIONED TO THRIVE IN
A NEW INDUSTRY REALITY
Over the last two years we have moved quickly to make significant changes to our
business and as a result we are a far better business than we were in 2014.
Over the past year staff, investors,
industry partners and friends have all
asked me the same question. How does
this industry downturn compare to all
the others? My answer is clear. This has
been the worst slump that the industry
has faced in the 31 years since I founded
Tullow and, although it does seem that
the worst has passed, the collapse in the
oil price leaves behind it an oil and gas
sector that has changed permanently.
Critically, there appears to be no
consensus over the future of the sector:
there is no settled view about how oil
prices will behave over the next ten
years, when peak demand or supply
will arrive, or how serious the threat
to oil and gas from new technology and
carbon-focused legislation really is.
As a result, oil and gas companies will
probably be forced to assume that oil
prices will remain low in the short to
medium term, permanently placing an
emphasis on efficient exploration and
low-cost production. Through the work
Tullow has done over the past two years,
I believe that the Group is very well
placed to cope with and thrive in this
new industry reality.
West Africa production
We have low-cost oil-producing assets
in West Africa. The highlight of 2016
was, of course, first oil from the TEN
oil fields in August. This project was
exceptionally well executed and on time
and on budget and I sincerely thank all
colleagues and partners involved with
this project for their hard work and
dedication. To deliver a complex project
of this nature on time is a stunning
achievement. But first oil from TEN has
wider significance for Tullow in terms
of cash flow and debt. Due to the
8
additional production from TEN, we are
now generating free cash flow for the
first time in some years and we have
begun the process of steadily paying
down our debt.
The Jubilee field is also a low-cost
oil-producing asset and, with TEN now
up and running, we believe that we can
achieve operating expenditure of around
$8/barrel in Ghana which, in a world of
$50 oil, is vital. But Jubilee has had its
own challenges this year with problems
with the turret on the FPSO, which was
handled expertly by teams across the
Group. Those teams worked tirelessly
throughout the year looking at the
solution to the problem, ongoing
production operations, insurance,
financing and other critical functions and
I thank them for all that they have done
in dealing with this highly complex issue.
We now have a clear plan of action and
are working closely with the Government
of Ghana and our partners to make sure
the issue is dealt with professionally and
safely. Importantly, our costs and
production losses associated with this
issue are covered by our insurance.
Exciting East Africa developments
Progress on our East Africa projects
gained momentum in 2016 with the
decision by the Government of Uganda
on its pipeline routing through Tanzania,
necessitating a standalone Kenyan
pipeline; the granting of our long-awaited
Uganda production licences; and, in
January 2017, agreeing to farm-down
a 21.57 per cent interest in the Uganda
project to Total. The deal with Total
delivers on our longstanding commitment
to reduce our equity in Uganda and
aligns the Joint Venture partnership
on the upstream, accelerating progress
“Through the work Tullow
has done over the past two
years, I believe that the
Group is very well placed to
cope with and thrive in this
new industry reality.”
Aidan Heavey
Chief Executive Officer
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT towards Final Investment Decision which
we anticipate at the end of 2017 and first
oil three years later. On completion of
the deal, our 11.76 per cent interest in
the upstream and pipeline, which is
expected to reduce to 10 per cent in the
upstream when the government exercises
its back-in rights, is expected to provide
the Company with around 23,000 bopd
when the project achieves plateau
production, at no further cost to
the Company. It also underpins the
commercial nature of our East Africa
portfolio and allows us to focus on our
Kenyan operated exploration and
development assets.
We expect to reach FID for the Full
Field Development in Kenya in 2018.
Both developments in East Africa have
changed over the past year as falling
industry costs, new technology and new
approaches to these fields have shown
that we can produce these resources
significantly below the cost levels
forecast before the oil price fell.
THANKS TO
SIMON THOMPSON
Simon Thompson will be stepping
down from the Board at Tullow’s
2017 Annual General Meeting in
April, after five years as Tullow's
Chairman and six years on the
Board. I would like to thank Simon
for his significant contribution to
the Board during this time and
wish him every success in his
next endeavours. He has been
a remarkable Chairman and has
provided excellent leadership,
particularly in the last few years
where the Board has had to
make some difficult decisions.
His direction has taken us through
some of our most exciting but also
some of our most challenging years
and the Board and I are grateful for
the help, guidance and advice he has
provided throughout his tenure.
Simon Thompson visiting the Jubilee
FPSO, Kwame Nkrumah, offshore Ghana
High impact exploration
We have an exploration team that is
well positioned in this environment.
We remain focused on Africa and South
America and on geologies that we know
well and have developed a strategic
approach that ensures we carefully
manage our technical and financial
risk in new licences. This new approach
means that our team can make progress
even with highly constrained budgets
and are well prepared for when market
conditions change. Angus McCoss,
our Exploration Director, sets out
more information on our exploration strategy on pages 26
and 27.
Even if oil prices do not change significantly in the short to
medium term, Tullow remains well placed having gone into
the slump with a strong set of licences, substantial technical
expertise and 31 years of experience and contacts across
Africa, which we believe is unrivalled amongst our peers.
We continue to look at opportunities and data rooms across
Africa and South America. The oil that we are developing in
West and East Africa is oil that Tullow found and I remain
convinced that organic growth through the drill bit is the
best way to grow our Company.
Starting the deleveraging process
The Group’s net debt at the end of 2016 was almost $5 billion.
While it was not the Board’s intention for our debt to be so
high, the combination of continued low oil prices and our
commitment to develop TEN made this unavoidable.
We are now in a position where we are
beginning the process of deleveraging
through free cash flow from our
producing assets, by constraining our
capital investment while oil prices
remain low, potentially farming down
assets in West and East Africa where
we have significant equity and other
options available to the Group.
Board changes
31 years after founding and running the
Company, I will be stepping down as
Chief Executive at the next AGM. Paul
McDade, who has run our business as
Chief Operating Officer for the last 12
years, will succeed me. Simon Thompson,
the Company's Chairman, will step down
after six years on the Board and I will
become Chairman for a transitional
period of up to two years, by which time I
will have fully transitioned my
responsibilities to Paul and worked with
the Nominations Committee to find
a new Chairman for Tullow. These
changes bring a balance between
continuity and fresh thinking and I’m
confident that Paul is the right candidate
to lead the Company during what we
intend to be a period of growth.
Conclusion
Tullow’s repositioning has involved a long
period of hard work and restructuring
that began in the autumn of 2014 as the
oil price began to fall from $100 per
barrel. We moved quickly and made huge
changes to our business. Many of those
changes were very painful but we are a
far better business than we were in 2014:
we are more efficient, focused and
leaner than we have been for many years and I thank all the
staff of Tullow for their hard work in making these changes
happen in very difficult times.
Aidan Heavey
Chief Executive Officer
7 February 2017
>>
Our strategy
Organisation & Culture
Shared Prosperity
14
54
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1www.tullowoil.com MARKET REVIEW
A YEAR OF CHANGE
Analysts predict a gradual and cautious increase in investment
across the sector as oil prices rise.
Economic and political overview
In 2016, the global economy was
shaped by a number of political events,
most notably the UK’s decision to vote
in favour of leaving the European Union,
Donald Trump’s win in the United States
presidential election, the rejection of
constitutional reforms in Italy and
a series of terrorist incidents
across Europe.
The trajectory of global interest rates
continues to be the primary focus for
investors. Following the first rate rise
in seven years in December 2015, the
Federal Reserve voted in favour of a
further rate rise to 0.25 per cent in
December 2016 on the back of an
ongoing recovery in GDP, decline in
unemployment and a less-volatile-than-
anticipated reaction to Donald Trump’s
election. In the UK, Sterling endured a
significant sell-off following the UK’s
decision to leave the European Union,
falling from 1.50 to 1.23 by year end
versus the US dollar. The 8 per cent fall
on 24 June was the largest one-day fall
since the introduction of free-floating
exchange rates in the early 1970s. On
the back of the decision, the Bank of
England cut interest rates by 25 basis
points to a record low of 0.25 per cent
alongside a variety of stimulus
measures including the purchase of
gilts and corporate bonds and a lending
programme for banks. The outlook in
Europe continues to be challenging;
in March 2016 the ECB announced a
significant package to ease monetary
policy, shifting the focus away from rate
cuts to quantitative and credit easing, a
process which the ECB has confirmed
will be continuing throughout 2017.
10
2016 EQUITY MARKETS
%
200.0
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
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Tullow
FTSE 100
FTSE 250
FTSE 350 Oil & Gas
AVERAGE OIL AND GAS PRICES
$/b
120
100
80
60
40
20
0
$/mmbtu
6.0
5.0
4.0
3.0
2.0
1.0
0
11
12
13
14
15
16
17E
WTI
Brent
US Nat Gas
Source: Reuters and Barclays Research
Oil price
Brent crude made a material recovery
in the second half of 2016, breaching
$50/bbl by year end having traded
between $25 and $30 for much of the
first quarter of 2016. Oversupply
concerns and demand uncertainty
had previously subdued oil prices, and
whilst both themes remain pertinent,
the former was somewhat addressed
by OPEC, firstly in September when
the cartel announced an agreement in
principle, and then again at the end of
November 2016 when it agreed its first
supply cut in eight years. Saudi Arabia
and its Gulf allies accepted large
production cuts whilst Iran agreed to
freeze output. Led by Russia, an eclectic
consortium of non-OPEC nations ranging
from Mexico to Brunei agreed to curb
output as well to compound the effect.
The importance of this joint accord was
underlined by the rise in Brent on the
back of the announcement, rallying
eight per cent. Strategically, the decision
marked a significant departure from
the “market share retention” strategy
adopted two years previously, when
a conscious decision was taken to
maintain output in a falling market.
Looking ahead, forecasted robust
demand growth in 2017 – driven
primarily from the Far East – is widely
expected to bring the market into a
supply deficit for the first time in several
years, assuming full OPEC compliance
to its proposed quotas. In China, the
liberalisation of the refining sector,
falling domestic production and
opportunistic crude purchasing for
strategic reserves proved supportive for
the oil prices in 2016 and require careful
monitoring going forward. The response
of US tight oil production to the OPEC
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT
decision could also prove an important
bellwether in 2017. A longer-term
price recovery will be predicated on
the ability of the supply shortfall to
significantly draw down still sharply
elevated global oil inventory levels.
The World Bank’s forecast for oil in
2017 is $55/bbl and $59.90/bbl in 2018.
GLOBAL DEMAND FOR OIL
mmboepd
98
97
96
95
94
11
91
89
88
92
93
90
Oil & Gas industry
The global oil and gas industry
remained subdued in 2016 due to the
oil price with limited expenditure in
oil exploration and relatively few
major discoveries. Wood Mackenzie
estimated in mid-2016 that lower oil
prices would see roughly $1 trillion
cut from planned spending
on exploration and development in
2015–2020 with a consequent effect on production growth.
The Super Majors appear to be focusing on gas with BP
purchasing gas assets in Senegal and Mauritania in December
2016 following the completion of Royal Dutch Shell’s acquisition
of BG Group in February 2016. By the end of 2016, the mood
within the global oil and gas industry appeared to be more
optimistic following OPEC’s decision to cut production, with
most analysts predicting a gradual and cautious increase in
investment across the sector as oil prices rise.
Source: Barclays Research
13
12
Equity markets
UK equity markets ended the year higher, with the FTSE 100
up 11 per cent and the FTSE 250 up 3 per cent. UK markets
had a weak start to the year resulting from global growth
concerns but they became increasingly volatile following the
‘Brexit’ vote in June. The immediate reaction to the vote saw
equities falling significantly lower, particularly those with
exposure to the UK economy as recession fears set in. However,
due to the significant devaluation of Sterling, UK equities
ultimately rose and managed to recover most of their losses
by October. Overall, given the FTSE 100’s exposure to US dollar
earning companies and large multi-nationals, the FTSE 100
outperformed the more domestically focused FTSE 250. In
absolute terms, whilst the FTSE 100 closed the year 11 per cent
higher, on a US dollar basis, the index actually ended lower.
Towards the end of the year, the
election of Donald Trump, whilst a
shock to financial markets, was a
positive catalyst as markets reacted
favourably to potential Trump policies
around growth and fiscal stimulus.
Bond markets fell sharply while the
US dollar rallied to 14-year highs,
amidst a surprisingly positive
outcome for equities driven by
investment into more cyclical stocks,
particularly in the Natural Resources,
Industrial and Financial sectors.
The FTSE 350 Oil & Gas sector
outperformed the wider market,
closing the year up 37 per cent.
Tullow shares added 87 per cent
and closed at 310p reflecting a
resurgence in sentiment after
14
15
16E
17E
a weak 2015 which came alongside the upward
trajectory of the oil price.
African economic and political outlook
Economic performance in Africa in 2016 was mixed with
non-resource-rich economies performing well and resource-
dependent economies like Nigeria and Angola struggling.
Overall, Africa faced some of its lowest growth over the past
20 years but cautious optimism about the world economy,
domestic political responses to low growth and recent rises
in the oil price see most commentators forecasting improved
growth in 2017. Growth remains highest in East and West
Africa and lowest in South and North Africa. In Ghana, the NPP
won the 2016 national elections and His Excellency Nana
Akufo-Addo took office as President on 7 January 2017.
In Kenya, national elections will take place in August 2017.
>>
Our strategy
Operations review
Governance & Risk Management
14
24
40
11
1www.tullowoil.com OUR BUSINESS MODEL
HOW WE RUN OUR BUSINESS
Tullow is a leading independent exploration and production company primarily focused
on Africa and South America. Our business model shows the parts of the Group that
work together to run our business and create value. The skills, experience and reputation
we call upon across the seven elements of our business model are what we believe
set Tullow apart from its peers.
How we create value
We create value in two simple ways: we find oil and we
sell oil. To achieve this we must execute exploration
campaigns, deliver selective development projects,
maintain our production and ensure we are
suitably financed through a mix of diverse
funding options and portfolio management.
These elements are the basis of our
exploration-led strategy which is
explained on page 26.
H O W W E CREATE VALUE
DEVELOPMENT
& PRODUCTION
EXPLORATION
& APPRAISAL
FINANCE &
PORTFOLIO
MANAGEMENT
SUSTAINABLE
VALUE GROWTH
SHARED
PROSPERITY
RESPONSIBLE
OPERATIONS
ORGANISATION
& CULTURE
GOVERNANCE
& RISK
MANAGEMENT
HOW WE RUN OUR B U S I N E S S
How we run our business
Our business model addresses the
fundamentals that we must have in place
to manage our risks and help us deliver our
strategy. These include: sustainable operations by
protecting our people, communities and environment;
high standards of governance coupled with strong and
effective risk management; an engaged, multi-disciplined,
diverse and entrepreneurial team; and making a positive and
lasting contribution where we operate.
12
Element of business model
Our key strengths and activities
WHAT
DIFFERENTIATES
TULLOW?
The skills, experience
and reputation we call
upon across the seven
elements of our business
model are what we
believe set Tullow
apart from its peers.
Exploration & Appraisal
Execute high-impact, near-field
E&A programmes
Development & Production
Safely deliver selective development
projects. All major projects and
production operations focus on
increasing cash flow and
commercial reserves
Finance & Portfolio Management
Continually manage financial and
business assets to enhance our
portfolio, replenish upside and
support funding needs
Responsible Operations
Achieve safe and sustainable
operations, minimise our adverse
environmental and social impacts,
and achieve high standards of
health and safety
Governance & Risk Management
Achieve strong governance across
all Tullow activities and maintain
an appropriate balance between
risk and reward
Organisation & Culture
Build a strong, unified team with
excellent commercial, technical
and financial skills and
entrepreneurial flair
Shared Prosperity
Create sustainable, transparent
and tangible benefits from the
development of oil in host countries
• Ninety per cent of Tullow’s 1.2 billion boe commercial reserves and contingent resources
are low-cost supply oil assets, which we discovered ourselves
• High-graded portfolio of highly prospective acreage, ready for when market returns
• Achieving more with less investment, limiting capital exposure through lower equities and
targeted carries from partners
2016 progress
52,937 SQ KM
of new acreage in Zambia
• Competitive industry operating costs, averaging $14/boe across the Group, with the ability
to achieve operating expenditure of around $8/boe in Ghana
• Ability to handle large-scale complex development projects on time and on budget
• Expertise to manage crisis situations with seamless transfer to manageable projects
71,700 BOEPD
net production*
• Free cash flow generative, with clear path to paying down debt
• Sufficient liquidity to protect us through further oil price downturns
• Ability to flex capital expenditure commitments
• Commercial attractiveness of Uganda asset proven through farm-down delivery
• Prudent hedging strategy, protecting us from oil price volatility
• Strong, long-term relationships with banks
• Top quartile industry occupational health and safety performance
• Committed to not exploring for or exploiting oil in World Heritage Sites
• Signatories of the Voluntary Principles of Security and Human Rights
• Committed to respectful and proactive engagement with affected communities
and the swift resolution of grievances
FARM-DOWN
of Ugandan assets to
Total under way
ZERO
Lost-Time Injuries
• Risk management process embedded in the business from Board to field operations
• Integrated Management System (IMS) ensuring one set of policies, standards and procedures
that all staff and contractors follow
PROGRESS
to embed IMS continues
• Zero tolerance of bribery and corruption across the business and supply chain
• Efficient team, with clear lines of responsibility and accountability across the business
• Strong focus on performance management, ensuring delivery of business plans and core strategy
• Technical expertise retained to deliver large-scale complex projects; and focused and highly
prospective exploration programme
40%
reduction in G&A
• Exceptional share award rewarding employees’ commitment and engagement
• Strong and deep relations with core African host nations based on respect and delivery
• Committed to building capacity among our host nascent oil industries
• Track record for delivering on local content and localisation commitments
$1BN
total socio-economic
contribution
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT
Exploration & Appraisal
Execute high-impact, near-field
E&A programmes
Development & Production
Safely deliver selective development
projects. All major projects and
production operations focus on
increasing cash flow and
commercial reserves
Finance & Portfolio Management
Continually manage financial and
business assets to enhance our
portfolio, replenish upside and
support funding needs
Responsible Operations
Achieve safe and sustainable
operations, minimise our adverse
environmental and social impacts,
and achieve high standards of
health and safety
Governance & Risk Management
Achieve strong governance across
all Tullow activities and maintain
an appropriate balance between
risk and reward
Organisation & Culture
Build a strong, unified team with
excellent commercial, technical
and financial skills and
entrepreneurial flair
Shared Prosperity
Create sustainable, transparent
and tangible benefits from the
development of oil in host countries
Element of business model
Our key strengths and activities
• Ninety per cent of Tullow’s 1.2 billion boe commercial reserves and contingent resources
are low-cost supply oil assets, which we discovered ourselves
• High-graded portfolio of highly prospective acreage, ready for when market returns
• Achieving more with less investment, limiting capital exposure through lower equities and
targeted carries from partners
2016 progress
52,937 SQ KM
of new acreage in Zambia
• Competitive industry operating costs, averaging $14/boe across the Group, with the ability
to achieve operating expenditure of around $8/boe in Ghana
• Ability to handle large-scale complex development projects on time and on budget
• Expertise to manage crisis situations with seamless transfer to manageable projects
71,700 BOEPD
net production*
• Free cash flow generative, with clear path to paying down debt
• Sufficient liquidity to protect us through further oil price downturns
• Ability to flex capital expenditure commitments
• Commercial attractiveness of Uganda asset proven through farm-down delivery
• Prudent hedging strategy, protecting us from oil price volatility
• Strong, long-term relationships with banks
• Top quartile industry occupational health and safety performance
• Committed to not exploring for or exploiting oil in World Heritage Sites
• Signatories of the Voluntary Principles of Security and Human Rights
• Committed to respectful and proactive engagement with affected communities
and the swift resolution of grievances
FARM-DOWN
of Ugandan assets to
Total under way
ZERO
Lost-Time Injuries
• Risk management process embedded in the business from Board to field operations
• Integrated Management System (IMS) ensuring one set of policies, standards and procedures
that all staff and contractors follow
PROGRESS
to embed IMS continues
• Zero tolerance of bribery and corruption across the business and supply chain
• Efficient team, with clear lines of responsibility and accountability across the business
• Strong focus on performance management, ensuring delivery of business plans and core strategy
• Technical expertise retained to deliver large-scale complex projects; and focused and highly
prospective exploration programme
40%
reduction in G&A
• Exceptional share award rewarding employees’ commitment and engagement
• Strong and deep relations with core African host nations based on respect and delivery
• Committed to building capacity among our host nascent oil industries
• Track record for delivering on local content and localisation commitments
$1BN
total socio-economic
contribution
* Includes 4,600 boepd insured barrels from the Jubilee field
13
1www.tullowoil.com OUR STRATEGY
STRATEGY RESILIENT TO
INDUSTRY FLUCTUATION
Our strategy has shown Tullow’s resilience during the recent industry downturn
and demonstrates our flexibility to oil price volatility.
EXPLORATION & APPRAISAL
Strategy in action: The fall in oil prices since
mid-2014 saw us reduce our exploration expenditure
but we have made this investment work harder,
focusing on targeted drilling, seismic acquisition in
key prospective areas and replenishing our prospect
inventory. In 2016, we continued low-cost exploration
activities in the South Lokichar Basin in Kenya and
management estimates that gross mean recoverable
resources increased to 750 mmbbls. Exploration
activity recommenced in December to further underpin
the discovered resource base and close the gap
towards the basin’s upside of 1 billion barrels.
Future plans: Exploration is fundamental to our
growth strategy. Lower industry costs, carries for
our share of costs by JV partners and appropriate
equity interests enable us to maximise a constrained
budget and maintain a meaningful exploration and
appraisal programme. In 2017, Tullow plans to drill
the exciting Araku prospect offshore Suriname and
conduct seismic campaigns in Mauritania, Kenya,
Ghana, Jamaica, Uruguay and Guyana.
HIGH-MARGIN PRODUCTION CASH FLOW
Strategy in action: Our production was enhanced in 2016 with
the addition of the TEN field, offshore Ghana. With the Jubilee
and TEN fields, we now have two young assets in Ghana which
have a low cost of supply compared to other fields globally.
These fields together with a prudent hedging policy will provide
a solid revenue base for our business, even if oil prices remain
low in the short to medium term.
Future plans: Through the assets we have onstream today,
our production profile has potential to reach in excess of
100,000 bopd net to Tullow from the early 2020s, delivering
substantial cash flow. We also plan to further reduce the
underlying operating cost of each barrel produced in Ghana
through the synergies in operating two offshore fields.
High Margin
Production Cash Flow
Exploration
& Appraisal
Costs
& Dividends
COSTS
Strategy in action: Tullow has a focus on continued
cost management, and the Group is on track to deliver
G&A cost savings in excess of its $500 million
target. While some budget reductions are a result
of lower industry costs, a large proportion of savings
can also be attributed to thinking innovatively and
adapting our processes to be more efficient.
Future plans: Tullow will remain disciplined in
terms of its budgeting, capital allocation and savings
realised from more efficient ways of working. The
Group is committed to retaining its cost-conscious
approach, even when oil prices recover.
14
Tullow Oil plc 2016 Annual Report and Accounts
STRATEGIC REPORT MONETISATION OPTIONS & PORTFOLIO MANAGEMENT
Strategy in action: In 2016, Tullow made good
progress to divest and exit/relinquish its Norwegian
assets and all deals are expected to complete by April
2017. In early 2017, Tullow agreed to farm-down to
Total a substantial portion of its Uganda assets for a
total consideration of $900 million, leaving Tullow with
an 11.76 per cent interest in the upstream, which we
expect to reduce to 10 per cent once the Government
of Uganda formally exercises its back-in right.
Future plans: In 2017, we will focus on completing
the farm-down of the interest in our Uganda
asset. Tullow’s high equity levels in parts of our
asset base also present further future portfolio
management opportunities.
Additional cash flow from new production
Monetisation Options
& Portfolio Management
Selective
Development
Surplus
Cash
Shareholder
value
SELECTIVE DEVELOPMENT
Strategy in action: We selectively develop the
oil we find, focusing on development projects that are
economically viable and will return sustainable future cash
flows. The TEN Project, a large complex development offshore
Ghana was delivered on time and on budget in August 2016.
Further progress on the Kenyan and Ugandan developments
was achieved in 2016 and significant steps have been taken in
both countries to progress the projects and commence Front
End Engineering Design (FEED) in 2017.
Future plans: The opportunity to develop the significant
resources discovered in Kenya and Uganda is a major part of
Tullow’s strategy. These low cost developments make them
very competitive and commercially viable, even at low oil prices.
SHAREHOLDER VALUE
Strategy in action: As and when surplus cash
is generated, cash is reinvested into additional
operational activities, used to pay down debt or
returned to shareholders. Following first oil from
the TEN fields, Tullow started generating positive
free cash flow in the fourth quarter of 2016.
Future plans: The Board’s main priority is to
deleverage the business and to achieve our policy
of having less than 2.5 times net debt to Adjusted
EBITDAX. We are pursuing multiple paths to achieve
this objective, including organic repayment of debt
from free cash flow; portfolio management; as well
as other financing levers available.
www.tullowoil.com
15
1 KEY PERFORMANCE INDICATORS
FOCUSED ON DELIVERY
The Group’s progress against its corporate scorecard is tracked to assess
our performance against our strategy.
The scorecard is made up of a collection of key performance
indicators (KPIs) which indicate the Group’s overall health
and performance across a range of operational, financial and
non-financial measures.
The scorecard is central to Tullow’s approach to performance
management and the 2016 indicators were agreed with the
Board. Each year, targets within the scorecard may change to
reflect the most material strategic objectives and
associated risks the Group faces, as well as
measures to deliver on the longer-term
strategy of the Company. Tullow’s
performance against the
scorecard is tracked and
reviewed at quarterly
performance management
meetings, which are
attended by Executive
Directors and Senior
Leaders. The Group’s
ongoing performance
is cascaded quarterly
to staff through
management
briefings and internal
communications.
The Group scorecard is
used to determine
Executive Directors’ and
employees’ performance-
related pay to ensure that
all areas of the business are
driving towards the same goals.
Executive Directors’ and Vice
Presidents' performance is judged
solely on the delivery of the targets set in
the Group scorecard, whereas the remainder
of the permanent employees’ bonuses are based on
a combination of individual and Group performance.
In April 2016, a decision was taken to increase the Company
performance element of the Employee Bonus Plan from
20 per cent to 30 per cent for all employees in this plan,
which is the majority of our employees. This change is
designed to encourage more collaborative and team-based
working, and reinforce that all employees contribute to the
Group’s overall performance.
Each objective measured has a percentage
weighting, and financial and production
indicators have trigger, base and
stretch performance targets.
As reflected in the adjoining
table, in 2016, Tullow’s overall
performance was 38.8 per
cent. Although Tullow was
the best performer in
our peer group by
some margin in 2016,
the ‘relative’ Total
Shareholder Return
(TSR) tracks our
performance over a
three-year period and
therefore we remain
below the median and
score nil of the possible
score of 50 per cent.
However, the delivery of
the majority of remaining
targets reflects strong
performance in maintaining
liquidity, sustaining cash flows,
operating safely, reducing our
costs and overall operational
delivery. More detailed discussion
on each KPI begins overleaf.
>>
Remuneration report
80
16
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT STRATEGIC FINANCING (13.5/15%)
Relevance to strategy
Ensuring appropriate
financing is in place to
support the Company’s
growth strategy by ensuring
we have sufficient liquidity
to meet our capital
commitments as well as
continuing to invest in
projects and assets that
will generate future value.
Target
Two key targets make up this
KPI: ensuring funding capacity
for 2016 and determining a
longer-term strategic solution
to deleverage and rebase our
balance sheet. The first target
includes maintaining liquidity
through the biannual
redetermination of our Senior
Reserves Based Lending (RBL)
debt facility; extending the
Rolling Corporate Facility by
one year; and amending the
gearing covenant. The second
target focuses on deleveraging
and rebasing our balance sheet.
2016 performance
Funding capacity was
achieved by securing a year’s
extension to our Corporate
Facility, amending the
financial covenant under the
RBL and Corporate Facility and
the issuance of $300 million
convertible bonds. Positive
free cash flow generation in
Q4 has begun the gradual
deleveraging process. The
farm-down of our Uganda
assets will fully fund our
future capital commitments
associated with this project,
once the deal is complete.
SAFE, SUSTAINABLE & EFFICIENT OPERATIONS
PRODUCTION (0/5%)
Relevance to strategy
Production generates
high-margin annual cash flow
helping us to invest in future
exploration and developments
and repay debt. Setting
production targets ensures
we maximise revenues and
achieve ongoing liquidity.
Target
Our trigger target of 77,300
boepd pays 0%; our base
target of 81,400 boepd pays
50%; and our stretch target
of 85,300 boepd pays 100%.
2016 performance
2016 production was 71,700
boepd, which includes the 2016
net lost production covered by
insurance, equating to 4,600
boepd. Our KPI for production
therefore achieved no payout,
due to the Jubilee turret issue
and the slower ramp up of
production at the TEN fields.
FACILITY HEADROOM &
FREE CASH AT YEAR END
$1 BN
WORKING INTEREST
PRODUCTION
71,700
BOEPD
0
0
2
,
4
8
0
0
2
,
9
7
0
0
2
,
5
7
0
0
4
,
3
7
0
0
7
,
1
7
12
13
14
15
16
17
1www.tullowoil.com KEY PERFORMANCE INDICATORS CONTINUED
SAFE, SUSTAINABLE & EFFICIENT OPERATIONS
OPERATING COSTS (1.25/1.25%)
Relevance to strategy
Underlying cash operating
costs represent the cost to
Tullow for each barrel of oil
produced. The lower the cost,
the higher the margin Tullow
receives when the oil is sold.
Underlying cash opex is
impacted by industry costs,
inflation, Tullow’s fixed costs
and production output.
Target
Our trigger target of $16.5
underlying cash opex/boe
pays 0%; our base target of
$15.7 opex/boe pays 50%; and
our stretch target of $14.9
pays 100%.
2016 performance
2016 operating costs were
$14.3 per boe (including
insurance payouts), achieving
the maximum payout
available. The expected
insurance payout for operating
costs relating to the Jubilee
turret issue is $31.8 million.
CASH OPERATING
COST PER BOE
$14.3
6
.
8
1
5
.
6
1
6
.
4
1
1
.
5
1
3
.
4
1
SAFE, SUSTAINABLE & EFFICIENT OPERATIONS
NET G&A (0.9/1.25%)
Target
The trigger target of $147
million pays 0%; our base
target of $127 million pays
50%; and our stretch target
of $100 million pays 100%.
2016 performance
2016 Net G&A was $116.4
million, achieving a 0.9%
payout of the 1.25% allocation
based on a sliding scale.
Relevance to strategy
Our general and
administrative costs are the
overall running costs of the
business that support our
operational activity. The Net
G&A represents Tullow’s
corporate costs. Throughout
the last two years we have
worked hard to streamline
these costs and achieve a fit
for purpose G&A budget.
SAFE, SUSTAINABLE & EFFICIENT OPERATIONS
CAPITAL EXPENDITURE (2.5/2.5%)
Target
The trigger target of
$1.1 billion pays 0%; and
the stretch target of
$942 million pays 100%.
2016 performance
2016 capex was $857 million
(net of the insurance payout),
overachieving the stretch
target of $942 million and
therefore receiving
100% payout.
Relevance to strategy
We must manage capital
investment efficiently to reflect
an oil price which may remain
low in the short to medium
term and provide the
investment required to grow
and sustain our business,
supporting development costs
for major projects, exploration
campaigns and infill
drilling programmes.
18
12
13
14
15
16
40%
REDUCTION IN NET G&A
CAPITAL EXPENDITURE
$857M
0
7
8
,
1
0
0
8
,
1
0
2
0
,
2
0
2
7
,
1
7
5
8
12
13
14
15
16
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT SAFE, SUSTAINABLE AND EFFICIENT OPERATIONS
SAFE & SUSTAINABLE OPERATIONS (4.1/5%)
LTI, TRI, MVC
12 MONTH TREND*
Relevance to strategy
Safe and sustainable
operations mean we protect
people and our facilities as
well as the communities and
environment that may be
affected by our activities.
It ensures Tullow operates
safely and efficiently while
maintaining a good
corporate reputation.
Target
Tullow’s safe and sustainable
operations are measured by
three targets: process safety,
focused on reducing process
safety events and making
improvements to our asset
integrity; occupational health
& safety focused on Lost Time
Injury Frequency (LTIF)
reduction and malaria
prevention; and sustainability,
including metrics focused
on environmental and
social performance.
2016 performance
In 2016 there were no Tier 1
or Tier 2 incidents. The Jubilee
Asset Integrity improvement
plan is on schedule. The LTIF
rate was zero, beating the
stretch target of 0.24. There
were no serious malaria cases
reported. There have been no
significant work disruptions
reported in 2016. Overall the
safe & sustainable KPI
achieved 4.1% out of a
maximum 5% allocation.
BUSINESS DEVELOPMENT & GROWTH
TEN (4.5/5%)
Relevance to strategy
The TEN Project represented
the majority of Tullow’s capital
expenditure for both 2015 and
2016 and completing it not only
demonstrates our capability to
deliver large scale, complex
projects but also increased
production revenues, enabling
the business to organically
deleverage through free
cash flow.
Target
This KPI was based on the
following targets: timing of
achieving first oil; ramp-up
of production; production
attainment; and operability.
These targets all reflected
an equal weighting of the
maximum score of 5%.
2016 performance
First oil was achieved in
August 2016; ramp up
production was 5.5mmbbls;
the capacity of the FPSO has
been successfully tested at
an average rate of over 80,000
bopd in 2017; systems are
operational and commissioning
is ongoing. The TEN project
ranks in the top 10% of global
projects for both schedule
delivery and capex budget (per
Independent Project Analysis
(IPA)). A score of 4.5% out
of the maximum 5% has
been given.
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
-0.20
Jan
2016
Dec
Motor Vehicle Collision Frequency
Lost Time Injury Frequency 12 Month
Total Recordable Injury Frequency 12 Month
Trend
* Incident frequency per million
manhours
TEN FIRST
OIL
ACHIEVED ON
TIME AND ON BUDGET
19
1www.tullowoil.com KEY PERFORMANCE INDICATORS CONTINUED
BUSINESS DEVELOPMENT & GROWTH
EAST AFRICA (4.5/5%)
Relevance to strategy
Tullow’s basin-opening
discoveries in Uganda and
Kenya have discovered a new
oil province which has the
potential of being a 2.45 billion
boe resource. Monetising these
discoveries through
development and/or portfolio
management is a fundamental
part of Tullow’s strategy.
Target
This KPI is comprised
of the following targets:
implementing a material
transaction on our East Africa
portfolio; maintaining East
Africa development for Final
Investment Decision by the
end of 2017; and presenting
Kenya Early Oil Pilot Scheme
Investment Proposal.
BUSINESS DEVELOPMENT & GROWTH
EXPLORATION (3.4/5%)
Relevance to strategy
Value creation from
converting discovered
resources into reserves
from material, low-cost,
high-return oil exploration
with clear routes to
commercialisation.
Target
This KPI is made up of
the following three targets:
accessing material acreage
positions; progressing quality
prospects; and discovering
predicted risked volumes
through exploration.
FARM-DOWN
OF UGANDAN ASSETS TO
TOTAL UNDERWAY
HIGH-
GRADED
EXPLORATION PORTFOLIO
2016 performance
The farm-down of our
Uganda assets to Total was
announced in early 2017.
Also in Uganda eight
production licences were
awarded; the pipeline is
progressing; upstream
and pipeline FEED are
commencing in 2017;
and upstream ESIA scoping
studies are approved. In
Kenya, our licences have been
extended; water injection
testing has commenced;
and the Kenya Early Oil Pilot
scheme has been approved
by the upstream partners.
Overall, this KPI achieved
4.5% out of the potential
5% allocation.
2016 performance
Two new licences in Guyana
and Zambia were signed.
Thirteen quality prospects
were progressed, across
Kenya, Namibia, Norway,
Suriname and Mauritania.
In Norway, the Cara discovery
and the Wisting appraisal
well added a combined
P50 resource estimate of
approximately 41mmboe net.
Overall, the exploration KPI
achieved 3.4% out of the
5% allocation.
20
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT 88%
OF WORKFORCE
RESPONDED TO SURVEY
MEASURING STAFF
FEEDBACK
ORGANISATION (4.1/5%)
Relevance to strategy
Delivering an organisational
strategy that results in efficient
ways of working and effective
governance is key to delivering
against our overall Company
strategy and maintaining
engaged employees.
Target
This target is made up of:
organisational efficiency and
effectiveness; diversity; and
ethics & compliance. The
targets include: fully
implementing the Integrated
Management System (IMS);
running an employee
feedback survey; ensuring key
risks are effectively managed
and monitored; improving
the effectiveness of SAP;
progressing the diversity
strategy; and demonstrating
delivery against a new Ethics
& Compliance scorecard.
2016 performance
Highlights from the progress
against this KPI include:
IMS implementation on track;
the employee survey ran with
high participation and action
plans were developed to address
feedback; all key risks have
controls in place to manage
them, and are monitored
quarterly; all recommendations
from an external audit on
SAP effectiveness have been
implemented; aspirational
diversity targets have been
agreed and senior leadership
engaged; and an Ethics &
Compliance e-learning module
has been rolled out. Overall,
this KPI scored 4.1% out of
a 5% allocation.
TOTAL SHAREHOLDER RETURN (0/50%)
Relevance to strategy
Our strategy is to build
long-term sustainable value
growth, leading to substantial
returns to our shareholders.
Target
If median TSR performance
is achieved, 25% of the 50%
award vests; if upper quintile
performance is achieved,
100% of the 50% award vests.
TSR is based on performance
over the 36 months ended
31 December 2016.
2016 performance
Tullow’s share price closed
97% up from 4 January when
the share price was 165.7p.
While this annual performance
puts Tullow in the upper
quintile of our peer group,
because TSR is measured
on a rolling three-year basis,
Tullow’s performance in this
timeframe was below the
median range, and therefore
this KPI has no payout. Over
the 36-month period, Tullow
experienced negative TSR of
68% compared to a median
negative of 26%.
250
200
150
100
50
0
TOTAL SHAREHOLDER
RETURN
Tullow
FTSE 100
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
2017 GROUP SCORECARD
Stretching financial, operational and organisation targets
are included in the 2017 scorecard, as well as measures to
deliver on the longer-term growth strategy of the Company.
• deliver business development and growth targets relating to
the West Africa production, East Africa development
projects and exploration progress; and
A summary of the targets is listed below, and the KPIs will
be disclosed in the 2017 Annual Report:
• ensuring funding capacity in a downside environment
and determining a long-term strategic solution to
deleverage and rebase the balance sheet;
• organisation and operational priorities including
production, operating costs, capex, net G&A, safety
and sustainability targets, improved efficiency and
effectiveness, and the progression of the
diversity agenda.
21
1www.tullowoil.com CREATING VALUE
CREATING VALUE ACROSS
THE OIL & GAS LIFE CYCLE
We aim to create sustainable value across the oil and gas life cycle. We do this by paying fair and
appropriate amounts of tax, being transparent in the payments we make to governments, creating
local employment and identifying opportunities for local businesses within our supply chain.
Exploration & Appraisal
Development of discovery
Production
FOREIGN DIRECT
INVESTMENT
Capital is invested by International Oil
Companies (IOCs) acquiring licences and
seismic data and the drilling of E&A wells.
An oil company will often carry the host
government’s share of costs through
to first oil.
In addition to drilling wells required for oil
production, this phase involves building the
infrastructure required to extract and develop
resources. For onshore projects, this includes
transport infrastructure, amenities, processing
facilities and pipelines. For offshore projects,
Floating Production Storage and Offloading (FPSO)
vessels and sub-sea equipment are fabricated.
Once a field is producing, investment will focus on sustaining and extending plateau
production. This involves general maintenance, steps to protect the integrity of the
field and additional infill or near-field exploration drilling.
PAYMENTS TO
GOVERNMENT
Tullow pays the host government land rentals and numerous taxes, including withholding tax on
goods and services imported into the country, PAYE and National Insurance on personnel employed,
licence fees, further infrastructure improvement payments, customs duties and training allowances.
The main economic value to host governments is from production revenues and
income taxes on Tullow’s profits.
IN-COUNTRY
VALUE
In the early stages of a project Tullow
creates benefits for local communities by
investing in social projects and employing
local sub-contractors in E&A programmes,
where possible. Other benefits can include
improved infrastructure and access to
amenities and social investment in
local communities.
This phase represents the greatest opportunities for
local businesses and individuals. Opportunities in
the supply chain range from providing engineering
expertise and manpower to logistics and catering.
Tullow undertakes capacity building programmes
including skills, knowledge and technology transfer
to maximise local business and workforce
participation in the industry.
TULLOW & OUR
SHAREHOLDERS
Capital invested in exploration is
derisked through extensive research and
analysis of the geology ahead of any
drilling commitments.
The IOC will look for the most commercially effective
way to develop the discoveries. Often additional
investment partners will be brought in at this
stage to share the capital investment.
Goods and services from local businesses and expertise from the local workforce
are required to run operations, maintain production and develop fields further.
Tullow continues to invest in capacity building and training to grow levels of local
employment and business participation in the supply chain.
An agreement between Tullow and the government determines how and when Tullow
and its Joint Venture (JV) partners can recover the significant investment that has
been made during the exploration, appraisal and development phases. Typically, the
67,100 BOPD
oil company’s share of production or revenue is higher in the earlier years of production
as costs are recovered in the form of allowable deductions against income tax or as an
allocation of production, commonly known as ‘cost oil’.
2016
$857M
invested
$438M
paid to governments
$337M
spent with local suppliers
2-10 YEAR PERIOD
3-10 YEAR PERIOD
22
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT
PAYMENTS THROUGH THE OIL LIFE CYCLE
Appraisal proves
commerciality of field
Exploration success
+
$MM
Seismic survey
-
1st Exploration well
Oil company cost
Government take
Oil company opex
Government
investment
Oil company take
Government
Net Cash Flow
First oil
Exploration
Appraisal
Development
Production
Decommissioning
Exploration & Appraisal
Development of discovery
Production
Once a field is producing, investment will focus on sustaining and extending plateau
production. This involves general maintenance, steps to protect the integrity of the
field and additional infill or near-field exploration drilling.
The main economic value to host governments is from production revenues and
income taxes on Tullow’s profits.
Goods and services from local businesses and expertise from the local workforce
are required to run operations, maintain production and develop fields further.
Tullow continues to invest in capacity building and training to grow levels of local
employment and business participation in the supply chain.
2016
$857M
invested
$438M
paid to governments
$337M
spent with local suppliers
An agreement between Tullow and the government determines how and when Tullow
and its Joint Venture (JV) partners can recover the significant investment that has
been made during the exploration, appraisal and development phases. Typically, the
oil company’s share of production or revenue is higher in the earlier years of production
as costs are recovered in the form of allowable deductions against income tax or as an
allocation of production, commonly known as ‘cost oil’.
67,100 BOPD
20-50 YEAR PERIOD
23
FOREIGN DIRECT
INVESTMENT
Capital is invested by International Oil
In addition to drilling wells required for oil
Companies (IOCs) acquiring licences and
production, this phase involves building the
seismic data and the drilling of E&A wells.
infrastructure required to extract and develop
An oil company will often carry the host
resources. For onshore projects, this includes
government’s share of costs through
transport infrastructure, amenities, processing
to first oil.
facilities and pipelines. For offshore projects,
Floating Production Storage and Offloading (FPSO)
vessels and sub-sea equipment are fabricated.
PAYMENTS TO
GOVERNMENT
Tullow pays the host government land rentals and numerous taxes, including withholding tax on
goods and services imported into the country, PAYE and National Insurance on personnel employed,
licence fees, further infrastructure improvement payments, customs duties and training allowances.
IN-COUNTRY
VALUE
In the early stages of a project Tullow
This phase represents the greatest opportunities for
creates benefits for local communities by
local businesses and individuals. Opportunities in
investing in social projects and employing
the supply chain range from providing engineering
local sub-contractors in E&A programmes,
expertise and manpower to logistics and catering.
where possible. Other benefits can include
Tullow undertakes capacity building programmes
improved infrastructure and access to
including skills, knowledge and technology transfer
amenities and social investment in
to maximise local business and workforce
local communities.
participation in the industry.
TULLOW & OUR
SHAREHOLDERS
Capital invested in exploration is
The IOC will look for the most commercially effective
derisked through extensive research and
way to develop the discoveries. Often additional
analysis of the geology ahead of any
investment partners will be brought in at this
drilling commitments.
stage to share the capital investment.
1www.tullowoil.com
OPERATIONS REVIEW
DEVELOPMENT & PRODUCTION Q&A
PROGRESS & RESILIENCE
2016 demonstrated that Tullow is a capable operator that can deliver
projects of material size and scale.
2016 was a busy year for Tullow
in terms of operational activity.
What do you consider were the
highlights and challenges?
2016 was a real test of the strength and
resilience of our operational and EHS
teams. This was most evident in Ghana
with the delivery of TEN first oil on time
and on budget and the Turret Remediation
Project, where a very significant incident
was safely and smoothly transitioned into
a remediation project. Both projects have
been executed incredibly well, against
clear milestones and deliverables and
with exceptional EHS records.
In Uganda, we are pleased with the
farm-down of our assets to Total, which
underlines our commitment to Uganda
for the long-term through our retained
11.76 per cent stake in the upstream,
which we expect to reduce to 10 per cent
when the government backs in. The
agreement of this deal followed significant
momentum in 2016 with the Government
of Uganda’s decision on the routing of
the export pipeline and issuance of
production licences, milestones which
serve to accelerate the Lake Albert
development project. All partners are
aligned on making rapid progress, for
both the upstream and pipeline FEED,
to commence in early 2017 with a target
of reaching FID by the end of 2017.
The extensive well database and work
completed to date provide significant
confidence in the discovered resources
allowing us to move forward at a time
when industry costs are at a historical low.
In Kenya, an Early Oil Pilot Scheme
(EOPS) proposal was sanctioned by JV
partners’ boards in order to provide the
technical, logistical, social and political
insights into what will be required for
24
the Full Field Development (FFD).
While the scheme will produce a modest
2,000 bopd, EOPS will mark Tullow’s first
oil production from our decade-long
presence in East Africa.
TEN first oil was clearly a major
achievement for Tullow and Ghana.
How does it benchmark to projects of
equivalent scale and size in the industry?
Projects of this scale are rarely
delivered on time and within budget.
It was a massive undertaking but the
team’s project delivery was seamless.
The Independent Project Analysis (IPA)
ranked the TEN Project in the top
10 per cent of global projects for both
schedule and capex budget.
It signified another historic moment for
Ghana, which now has a second field on
stream, and demonstrates real progress
for its oil and gas industry. For Tullow,
the successful execution of the TEN
Project has cemented our reputation and
track record for delivering large-scale,
complex projects. Projects such as
Jubilee and TEN are normally executed
by the industry majors, so this
achievement demonstrates to our host
governments that Tullow is a capable
operator that can deliver projects of
material size and scale.
The ramp-up from TEN has been more
challenging than initially envisaged.
Are there any long-term concerns
about operations or the reservoir?
The production ramp-up from TEN,
since first oil, was slower than initially
planned, after which production steadily
ramped up and in January, the FPSO was
tested above its capacity of 80,000 bopd.
Systems are now operational and
commissioning is nearing completion.
“2016 was a real test of the
strength and resilience of
our operational and EHS
teams. On the Turret
Remediation Project, I am
very proud of the teamwork,
adaptability and
professionalism shown
by all teams as they came
together to respond to
and manage this
unprecedented event.”
Paul McDade
Chief Operating Officer
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT Due to the drilling moratorium imposed as part of the ongoing
ITLOS maritime border dispute, drilling of the remaining
development wells cannot be completed, so 2017 production
will rely on the existing 11 wells which are expected to deliver
around 50,000 bopd. A judgment from ITLOS on the boundary
is expected to be handed to the Governments of Ghana and
Côte d’Ivoire at the end of 2017, and we hope that we will be
able to start drilling again in early 2018. While the ramp-up
of production has been slower, the data collected to date
underpins both the expected oil in place and reserves in the
Ntomme and Enyenra fields.
The issue with the Jubilee turret is now stable.
What are the biggest risks still associated with the project
and what positives or learnings can you draw from it?
While no one would have wanted this event to happen, I am very
proud of the teamwork, adaptability and professionalism shown
by all teams across Tullow as they came together to respond
to and manage this unprecedented event and transform it into
what we now refer to as the Turret Remediation Project. This
was a very significant and complex undertaking which has
again demonstrated the expertise and quality of our personnel
and the effective way in which they work to support each other.
When the interim spread mooring of the FPSO completes in
February 2017, the tugs will be removed, significantly reducing
the operational complexities that the team had to manage before.
The next phase of the project will involve modifications to
the turret systems for long-term spread moored operations.
The assessment of the optimum long-term heading continues,
to determine if a rotation of the FPSO is required. Detailed
planning for this continues with JV partners and the
Government, with final decisions and approvals expected
in the first half of 2017 and work expected to be carried
out in the second half of 2017.
What is involved in the Early Oil Pilot Scheme? Are these
common and what insights are you hoping to draw from it?
The Early Oil Pilot Scheme will produce around 2,000 bopd,
from five existing Ngamia and Amosing wells, which will be
transported 1,107 km from Turkana to Mombasa by road to
be stored in existing storage tank facilities. First exports are
being targeted for the second half of 2017.
Transportation of oil by road is not unique to Kenya. Oil trucking
is also widely practised in oil production projects in many locations
around the world such as the United States, India, Russia and
Kazakhstan. The most relevant project of equivalent scale and
terrain is arguably the Cairn India development of the Mangala
field in Rajasthan. This initially started by exporting oil by truck,
before moving to a 670 km-long pipeline.
EOPS has a clear strategic rationale, which is to unlock the
potential and de-risk the technical and non-technical aspects
of the Full Field Development (FFD). These include gaining
further insight into the subsurface allowing us to continue to
optimise our development plans and working together with
the Government of Kenya on the negotiation and delivery of
key agreements that are required for upstream development.
We will also have the opportunity to develop local content both
for upstream operations, including the required logistics services.
What challenges does the year ahead hold?
There will be many challenges ahead in 2017, as there were
in 2016. However, the hard work that we have done over the
last two years in reorganising the Company, making sure we
are more efficient in how we manage the business and in
making some difficult business decisions, leaves us in great
shape to face these challenges.
In Ghana, we must complete the work on the Jubilee FPSO and
progress the Greater Full Jubilee field development; at TEN we
will work to maximise production from our existing wells and
prepare to restart drilling post ITLOS. In Uganda, we will be
working to progress towards FID, whilst in Kenya we will be
progressing the Early Oil Pilot Scheme and integrating the new
well results in our full field development plans.
It will be a significant year for our non-operated business as we
continue to balance investment with production and cash flow.
This business is important because the 22,000 bopd comes
from over 500 wells across five countries so it provides our
production profile with resilience and helps spread risk. These
West African and our North Sea assets are mature fields and
are, in most cases, beyond plateau. We are working with our JV
partners to sustain the life of the fields and maintain production
through infill drilling programmes; however, this requires
ongoing investment.
We will continue to balance our investment plans with our
priority to deleverage the business and create financial
capacity, which will of course be affected by future oil prices.
Regardless of when we decide to ramp up investment across
the portfolio, we know that the barrels are still in the ground,
so production is deferred, not lost, and can be produced at
a potentially higher oil price in future.
What are you looking forward to in 2017?
In East Africa, Kenya’s Early Oil Pilot Scheme will be an
important project to progress, as will completing the deal on
the farm-down of our assets in Uganda, working alongside the
JV to progress Uganda to FID, after over ten years of hard work.
In Ghana, we are looking forward to demonstrating that our
team has the ability to move from ‘capital project’ mode to a
steady operating mode, delivering world-class performance
in both safety and cost.
As we deleverage our balance sheet and oil prices stabilise at
higher levels, I look forward to returning to exploration and
growth. The exciting Araku well in Suriname will be the first step
in again demonstrating the value that exploration can deliver.
Finally, it is an honour that I have been selected by the Board to
take over as CEO at the April AGM. Taking the helm of a company
that Aidan has built up over the last 31 years to be Africa’s
leading independent oil company is a responsibility that I am very
much looking forward to taking on. We have a great team,
world-class assets and a reputation for being focused on shared
prosperity, which is a strong foundation that I will build on.
25
1www.tullowoil.com OPERATIONS REVIEW CONTINUED
EXPLORATION & APPRAISAL Q&A
RETURNING TO EXPLORATION
Capital spend has significantly reduced across the industry, with exploration and appraisal
budgets delivering the biggest adjustments. Angus McCoss, Tullow’s Exploration Director,
explains how Tullow continues to create an effective and impactful E&A programme
with lower levels of investment.
Does Tullow still have an
exploration-led strategy?
Exploration continues to be Tullow’s
long-term way of investing to secure
new, valuable and material supplies of
monetisable oil, to sustain and grow our
Company far into the future. Exploration
and production are naturally cyclical, and
recently we have also been impacted by
external factors, particularly the weaker
oil price. We have lean years punctuated
by occasional wildcat breakthroughs
and higher-capex years when we have
busily and successfully drilled out and
appraised our new basins. In exploration
that means cycling between years of
prospecting at the seismic workstation
and years when drilling is a more
significant part of our plans. It is vitally
important to the Board that exploration
remains an integral and adaptive part
of our strategy.
How has this shift in activity
impacted the industry overall?
Recent Wood Mackenzie research has
shown that global upstream capital
spend from 2015 to 2020 has been
reduced by 30 per cent or c.$1 trillion,
including exploration spend. This
reduced investment has prompted
a debate on whether the downturn in
exploration investment will lead to a
renewed supply shortage and higher
prices in the long term or whether US
shale resources and slowing demand
growth will cause oil and gas prices
to remain weak.
At Tullow, we believe that exploration
is an essential value creation tool for
the industry, and that Tullow and our
peers will need to continue to find new
competitive supplies of low cost oil in
years to come.
26
How have you adapted your exploration
strategy to still achieve results
with lower capital investment?
Our exploration and appraisal spend
has come down from $800 million a few
years ago, to closer to c.$80 million for
exploration in 2016. That has led to a
renewed focus away from complex wells,
towards an emphasis on high-quality
seismic and more time to apply rigorous
geological methods to identify our best
prospects. This allows for a better
understanding of the geology and
prospectivity of a licence before
committing to drill, which should help
increase our chance of exploration
success. We continue to avoid complex
wells and we apply strict geological,
capital/risk and commercial filters so
that we remain focused on high-margin
oil plays in onshore rifts, simple offshore
geologies and settings, and our key areas
of production.
Going forward, with our reset and
refocused exploration strategy and our
experienced prospectors, we believe we
can continue to do more with less and
limit our capital exposure through
lower equities and targeted carries
from Partners.
What were the key areas of
E&A activity in 2016?
We have focused our activity in 2016
on four main areas: exploring in the
South Lokichar and Kerio Valley Basins
in Kenya, where management estimates
that gross mean recoverable resources
increased to 750 mmbbls; acquiring
and evaluating data across our South
America acreage, including 3D seismic
acquisition in Suriname; entering new
areas such as Zambia, adding to our
onshore rift basin acreage; and further
“At Tullow, we believe that
exploration is an essential
value creation tool for the
industry, and that Tullow
and our peers will need
to continue to find new
competitive supplies of
low-cost oil in years
to come.”
Angus McCoss
Exploration Director
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT right-sizing our portfolio through farm-downs in South America
and divestment of our Norwegian assets. A full review of our
2016 activity can be found on pages 28 to 31.
Tullow has significant acreage offshore South America which
has become an area of industry focus. What is Tullow’s
strategy for that area?
We remain very enthusiastic about the significant exploration
potential of this exciting area. We continue to watch the results
of the significant Liza and more recent Payara-1 discovery
in the Guyana-Suriname Basin with great interest because
of its close proximity to Tullow’s Kanuku and Orinduik licences.
The next step for both our blocks is the acquisition of 3D
seismic over this area in 2017, with a view to preparing
prospects for drilling in 2018/19.
We are more advanced in Suriname following the acquisition
of 3D seismic over Block 54 in 2016 where the most exciting
prospect identified to date on our 3D seismic is Araku. We are
preparing to drill in the second half of 2017 and it has been
significantly derisked through excellent seismic work
completed to date.
In both Guyana and Suriname, Tullow’s blocks are on the shelf
in c.100 m to 1,000 m of water, making drilling and possible
subsequent development much lower cost compared to
operations in deeper water. The Araku well, for example, is
forecast to cost around $14 million net to Tullow, as we take
advantage of significantly lower rig rates during the downturn
and simple well designs.
Is Africa still a key area for Tullow to explore?
Africa remains Tullow’s heartland and we have teams focused
on Tullow’s acreage across the continent, focusing on three key
areas. The first is near-field exploration to sustain production
and increase reserves in our main producing assets in
West Africa; the second is dedicated to increasing discovered
resources in Kenya; and our New Ventures team is working on
activity in new and existing frontier areas such as Mauritania,
Namibia and most recently Zambia.
In Kenya, we recommenced exploration in the fourth quarter
of 2016 with an initial programme of four wells in the South
Lokichar Basin with the potential to extend this by a further
four. These are low cost wells, costing around $4–6 million net
to Tullow per well. The team has identified significant upside in
the basin, particularly in the north around the Etom-2 discovery
and that area was tested with the successful Erut-1 well in
January 2017 which extended known hydrocarbons to the far
north of the Lokichar Basin. The next wells planned are those
in the Ngamia and Amosing fields, which will target undrilled
volumes, with an aim of extending the size of these existing
discoveries. After those are completed, we will continue
further exploration drilling in the northern part of the basin.
The programme in Kenya is aiming to increase management's
estimate of gross mean recoverable oil volumes from 750 million
barrels towards 1 billion barrels, as we prepare for our Kenya
development FID in 2018.
How is Tullow differentiated by its approach to exploration?
Tullow has a low-cost production portfolio ranging from $20 to
$40/bbl across its full life cycle which enables us to generate
strong margins, even at a low oil price. The high quality of our
portfolio of strongly oil-focused exploration assets backed up
by our talented team sets us apart from our peers. Of the oil we
currently produce, 90 per cent has been discovered by teams at
Tullow, working together across all disciplines. Looking ahead,
we have strategic options to discover more oil ourselves that
will further underpin Tullow’s value and provide growth
opportunities for our stakeholders.
Orinduik
Block 47
Liza
Araku
Kanuku
Atlantic Ocean
Block 54
Guyana
Tambaredjo
Tullow Operated
Tullow Non-operated
Oil Field/Discovery
Suriname
Drilling operations in the South Lokichar basin, Kenya
Map showing Tullow acreage position offshore Guyana and Suriname
27
1www.tullowoil.com OPERATIONS REVIEW CONTINUED
WEST AFRICA
Key offices
Regional information 2016
Countries
Licences
7
54
Acreage (sq km)
16,185
67,100BOEPD*
2016 net production
553.5MMBOE
Total net reserves & resources
$1,270M
2016 net sales revenue
$694M
2016 net investment
* Including the impact of insured barrels
from the Jubilee field, West Africa working
interest production was 71,700 boepd.
(net: 26,200 bopd). In addition, under
Tullow’s corporate Business Interruption
insurance the Group received insurance
payments which equates to 4,600 bopd
of net equivalent production. Tullow
expects 2017 production from the
Jubilee field to average 68,500 bopd
(net: 24,300 bopd), assuming 12 weeks
of shutdown associated with the next
phase of remediation works. Tullow’s
corporate Business Interruption
insurance policy is expected to
reimburse Tullow for
the equivalent of 12,000 bopd of
annualised net production for
this shutdown period, increasing
Tullow’s effective net production
to around 36,300 bopd in 2017.
In December 2015, Tullow submitted
the Greater Jubilee Full Field
Development Plan to the Government of
Ghana. This project, to extend field
production and increase commercial
reserves, was redesigned given the
current oil price environment to reduce
the overall capital requirement and
allow flexibility on the timing of
capital investment. Tullow has sought
to address comments made by the
Government of Ghana on the plan and,
in light of the current Turret Remediation
Project, approval of the plan by the
Government of Ghana is now
expected in mid-2017.
TEN
In May 2013, the Government of Ghana
approved the TEN Plan of Development,
Tullow’s second major operated
deep-water development project. The
project remained on schedule and on
budget throughout the development
phase with first oil delivered in August
2016. Net capital expenditure by Tullow
in 2016 was approximately $600 million,
in line with the Group’s forecast.
Following first oil, the oil production, gas
compression/injection and water injection
systems were commissioned and are
operational. In early January 2017, the
capacity of the FPSO was successfully
tested at an average rate in excess of the
design capacity of 80,000 bopd during
a 24-hour flow test. Gross annualised
working interest production in 2016
averaged 14,600 bopd (net: 6,900 bopd).
Production testing and initial results
from the 11 wells indicate reserves
estimates for both Ntomme and Enyenra
WEST AFRICA
Ghana
Jubilee
In February 2016, an issue with the
turret bearing of the Jubilee FPSO
Kwame Nkrumah was identified
resulting in the need to implement
new operating and offtake procedures,
utilising tugs, a dynamically positioned
shuttle tanker and a storage tanker.
After a period of planning, Tullow
and its JV Partners established that
the preferred long-term solution to
the turret issue is to convert the
FPSO to a permanently spread-
moored vessel, with offtake through
a new deep-water offloading buoy.
The first phase of this work,
involving the installation of a stern
anchoring system, is expected to be
completed in February 2017, after which
the tugs maintaining the FPSO on
heading control will no longer be
required.
The next phase of the project will involve
modifications to the turret systems for
long-term spread-moored operations. In
addition, the assessment of the optimum
long-term heading continues, in order
to determine if a rotation of the FPSO
is required. Detailed planning for these
works continues with the JV Partners
and the Ghanaian Government, with final
decisions and approvals being sought in
the first half of 2017. Work is expected to
be carried out in the second half of 2017,
with an anticipated facility shutdown of up
to 12 weeks, although work continues to
optimise and reduce the shutdown period.
The final phase of the project will
involve the installation of a deep water
offloading buoy which is planned to be
installed in the first half of 2018. This
will remove the need for the dynamically
positioned shuttle tanker and storage
tanker and the associated operating
costs. This phase of work also requires
approval of both the Government of
Ghana and the Jubilee JV Partners.
The capital costs associated with the
remediation works, the lost revenue
resulting from the shutdown period
and the increased operating costs are
expected to be covered by the Joint
Venture Hull and Machinery insurance
policy and Tullow’s corporate Business
Interruption insurance policy.
Full-year 2016 production from the
Jubilee field averaged 73,700 bopd
28
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT EAST AFRICA
Key offices
Regional information 2016
Countries
Licences
2
17
Acreage (sq km)
50,344
639.6MMBOE
Total net reserves & resources
$86M
2016 net investment
Ghana continued
to be in line with previously guided
expectations. However, due to some
issues with managing pressures in the
Enyenra reservoir and because no new
wells can be drilled until after the ITLOS
ruling, which is expected in late 2017,
Tullow is managing the existing wells
in a prudent and sustainable manner.
As a result, Tullow expects
production from TEN to be around
50,000 bopd (net: 23,600 bopd) in
2017, although work continues to
evaluate ways to increase
production.
Gas production from the TEN fields
is currently being re-injected.
The gas export line between the
TEN and Jubilee developments
is expected to be connected this month
with gas export expected to commence
later in 2017.
Proceedings at ITLOS with regard to the
maritime border dispute between Ghana
and Côte d’Ivoire continue, with oral
hearings scheduled for this month, and
a final ruling anticipated in the fourth
quarter of 2017. Drilling is expected to
resume in 2018 after the final ruling.
West Africa non-operated portfolio
West Africa non-operated production
was in-line with expectations in 2016
at 27,800 bopd net. Due to low oil
prices, capital expenditure was reduced
substantially across a number of these
fields in 2016. While this reduced
investment helps maximise near-term
cash flow it does impact the rate of
production decline, and as a result
2017 forecast production across the
West African non-operated portfolio is
expected to be around 22,000 bopd net.
There is flexibility to increase capital
investment in the medium term to offset
production decline in these mature
assets, as market conditions improve.
Europe production
Full year gas production from Europe
averaged 6,200 boepd net in 2016.
Decommissioning operations in the UK
Southern North Sea on the CMS assets
are continuing on schedule and are
expected to be completed in the first
quarter of 2017. 2017 average net
production is expected to be around
6,500 boepd.
EAST AFRICA
Kenya
Exploration & Appraisal
Exploration and appraisal of the South
Lokichar basin continued in 2016 and
the initial phase was completed in the
first half of the year. The success of this
programme and analysis of the discoveries
led management to upgrade the South
Lokichar mean resource estimate to 750
mmbo. Also in the first half of the year,
Tullow expanded its exploration drilling
programme in Kenya to the Kerio
Valley Basin in Block 12A where the
Cheptuket-1 well encountered oil
shows, seen in cuttings and rotary
sidewall cores. Post-well analysis is
still in progress. Further exploration
activities in Block 12A and Tullow’s other
remaining unexplored Kenyan acreage
continue to be evaluated.
After identifying a number of new
prospects and appraisal opportunities,
drilling re-commenced in the South
Lokichar Basin in mid-December 2016
with a four-well exploration and appraisal
programme. The first was Erut-1, an
exploration well located at the northern
limit of the basin, approximately 11 km
north of the Etom field. The well
discovered a gross oil interval of 55m
with 25m of net oil pay at a depth of 700m.
The overall oil column for the field is
estimated to be 100 to 125m. Pending lab
results, the oil recovered from Erut-1
appears to be a typical South Lokichar
waxy light crude. This well proves that oil
has migrated to the northern limit of the
South Lokichar Basin and has derisked
multiple prospects in this area. The rig
is now drilling the Amosing-6 well to
appraise undrilled volumes. It will then
move to drill the Ngamia-10 well, an
appraisal well to the south of the Ngamia
discovery well. The fourth well planned
in this programme will drill the Etete
prospect, a structure approximately 2 km
south of the Etom field. This programme
could be extended by up to four additional
wells depending upon the results from
these initial four wells. Tullow believes
that significant upside remains across the
South Lokichar Basin with the potential
to increase the resource estimate to over
1 billion barrels of recoverable oil.
Field development
Good progress was made during 2016 on
a standalone development in Kenya with
an export pipeline to Lamu; life-of-field
development costs (comprising operating
29
1www.tullowoil.com OPERATIONS REVIEW CONTINUED
Kenya continued
expenditure, capital expenditure and potential pipeline tariffs) are
expected to be in the region of $25 to $30 per barrel. Preparations
for the upstream development Front End Engineering Design
(FEED) are under way, with FEED expected to commence in the
second half of 2017. Other activity during the year included water
injection trials which were successfully completed on the Amosing
oil discovery in the South Lokichar Basin. Data from the trials
shows the viability of water injection for development planning and
a similar programme of water injection tests on the Ngamia oil
discovery is scheduled to commence later this month. The
Environmental and Social Impact Assessments (ESIA) scoping
report and terms of reference were approved and ESIA baseline
surveys are nearing completion.
Tullow and its JV Partners, Africa Oil and Maersk Oil, signed
a Memorandum of Understanding in July 2016 with the
Government of Kenya which confirms the intent of the parties
to jointly progress the development of a Kenya crude oil
pipeline. Subsequent to this, the JV Partners and the
Government of Kenya are also in the final stages of
negotiation of a Joint Development Agreement (JDA) which
sets out a structure for the Government of Kenya and the
JV Partners to progress the development of the export pipeline.
This agreement will ultimately enable important studies to
commence such as pipeline FEED and ESIA, as well as
studies on pipeline financing and ownership.
An Early Oil Pilot Scheme (EOPS), which involves the transportation
of early South Lokichar oil production to Mombasa by road, was
sanctioned by the JV Partners in the third quarter of 2016. The
various agreements are in the final stages of negotiations with the
Government of Kenya. The EOPS will use existing upstream wells
and oil storage tanks to initially produce approximately 2,000 bopd
gross in 2017. The EOPS will provide important information which
will assist in full field development planning.
Uganda
Field development
In April 2016, the Government of Uganda confirmed its decision
to route an oil export pipeline through Tanzania to the port of
Tanga, providing clarity on the development of Uganda’s oil
resources. In August 2016, the Government awarded eight
Production Licences in the Tullow and Total operated areas.
The Government of Uganda has also made significant progress
on the constitution of both the Petroleum Authority to regulate
the oil industry and the Uganda National Oil Company which will
be the Government representative in the Uganda Joint Venture.
The first phase of the upstream ESIA has also been completed;
the second phase is in progress. FEED for both the upstream
and pipeline are expected to commence this month. Overall, the
Government and JV Partners continue to aspire to achieve FID by
the end of 2017, with first oil expected to occur three years after FID.
Farm-down to Total
On 9 January 2017, Tullow announced that it had agreed
a substantial farm-down of its assets in Uganda to Total.
Under the Sale and Purchase Agreement, Tullow has agreed to
transfer 21.57% of its 33.33% Uganda interests to Total for a total
consideration of $900 million. Upon completion, the farm-down
will leave Tullow with an 11.76% interest in the upstream and
pipeline projects. This is expected to reduce to a 10% interest in
the upstream project when the Government of Uganda formally
exercises its back-in right. Although it has not yet been
determined what interests the Governments of Uganda and
Tanzania will take in the pipeline project, Tullow expects its
interests in the upstream and pipeline projects to be aligned.
The consideration is split into $200 million in cash, consisting of
$100 million payable on completion of the transaction, $50 million
payable at FID and $50 million payable at first oil. The remaining
$700 million is in deferred consideration and represents
reimbursement by Total in cash of a proportion of Tullow’s past
exploration and development costs. The deferred consideration is
payable to Tullow as the upstream and pipeline projects progress
and these payments will be used by Tullow to fund its share of the
development costs. Tullow expects the deferred consideration to
cover its share of upstream and pipeline development capex to
first oil and beyond. Completion of the transaction is subject to
certain conditions, including the approval of the Government of
Uganda, after which Tullow will cease to be an operator in Uganda.
The disposal is expected to complete in 2017.
Tullow believes this agreement will allow the Lake Albert
Development to move ahead and increases the likelihood
of FID around the end of 2017.
Drilling operations at Amosing field, South Lokichar Basin, Kenya
Early drilling at Jobi-Rii field, Lake Albert, Uganda
30
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT NEW VENTURES
Key offices
Tullow withdrew from Ethiopia,
French Guiana, Greenland, Guinea
and Madagascar in 2016/early 2017.
Regional information 2016
Countries
Licences
9
31
Acreage (sq km)
186,505
$77M
2016 net investment
NEW VENTURES
Tullow has continued to actively manage
its New Ventures portfolio throughout 2016
through both licence acquisitions and
farm-downs of existing acreage to
optimise the allocation of exploration
expenditure. Notwithstanding a lower
exploration budget, Tullow continues to
successfully replenish and high-grade
its exploration portfolio, and believes
that the portfolio should give the
Group significant low-cost
opportunities for the future.
New Ventures activity in 2016 also
involved the continued refinement
of the Group’s frontier exploration
portfolio and Tullow has taken the
decision not to pursue its interests
in Madagascar, Ethiopia, French
Guiana, Guinea, Norway and Greenland
and the Group has, with the exception of
Norway, now exited these countries.
Africa
In June 2016, Tullow extended its
East African rift play acreage through the
award of Petroleum Exploration Licence
28, onshore Zambia. The 53,000 sq km
block builds on Tullow’s existing low-cost,
core East African Tertiary rift basins,
giving the Group access to three further
unexplored basins. Tullow initially plans
to complete geological studies, acquire
a gravity survey and collect passive
seismic data. If the results are positive
the Group will then acquire a 2D seismic
survey in the block.
During the year, there was a focus on
interpreting previously acquired seismic
surveys to prepare prospects in advance
of making the decision on whether to
drill. Encouraging oil plays have been
identified in Blocks C-3 and C-10 in
Mauritania and in the PEL30 and PEL37
licences in Namibia. Tullow plans to
acquire a 3D seismic survey over its
Mauritanian acreage in June 2017.
South America
Tullow has continued to advance its
operations in South America and plans
are ongoing to drill the high impact
Araku prospect (Tullow: 30%), offshore
Suriname, in the second half of 2017.
This prospect is a large structural
trap which has a resource potential
estimated at over 500 mmbo. It has been
significantly de-risked by a 3D seismic
survey carried out in 2015 which identified
geophysical characteristics that are
consistent with potential oil or gas
effects in the target reservoirs. A rig
is currently being sourced for the well
which is expected to cost $14 million
net to drill.
In Guyana, the Group is planning
to acquire 3D seismic data over the
offshore Orinduik licence, awarded in
2016, and Kanuku licence which are
located up-dip of ExxonMobil’s Liza
oil discovery. These programmes
are expected to cover up to 6,000 sq
km and will enable evaluation of
attractive leads mapped on existing
2D seismic data.
Offshore Uruguay, a 2,500 sq km 3D
seismic programme commenced in
January 2017 to capture data over
high-quality leads identified in Block
15 in the Pelotas Basin.
In Jamaica, following the completion
of a drop core and seep study in the Walton
Morant blocks that identified a live oil
seep, Tullow will acquire a further 680 km
of 2D seismic data before considering the
acquisition of a 3D seismic survey.
Europe
The divestment of the Norway business
is progressing well with two deals
completed before year end and one in
January 2017. Four licences, including
the Wisting oil discovery, have been sold
to Statoil, eight licences, including the
Oda asset, have been sold to Aker BP
ASA and two further licences have been
sold to ConocoPhillips. A further two
sales were executed in December 2016
with two separate parties. These sales,
covering a further 13 licences, and
which include the 2016 Cara oil and gas
discovery, are expected to complete by
April 2017. In aggregate, the Norway
asset sales are expected to yield proceeds
of up to $0.2 billion. Once completed, the
Group will no longer hold any licences
on the Norwegian Continental Shelf.
Asia
In May 2016, Tullow agreed to sell a
20 per cent interest in and transfer
operatorship of the Bannu West licence
in Pakistan to Mari Petroleum. The
Government’s approval of the Bannu
West transfer is nearing completion. In
July 2016 Tullow received Government
approval of the transfer of operatorship
of Block 28 in Pakistan to OGDCL. The
Group’s position in Pakistan is now
entirely non-operated.
31
1www.tullowoil.com FINANCE & PORTFOLIO MANAGEMENT
MAINTAINING LIQUIDITY &
MAXIMISING CASH FLOW
We have continued to actively manage our financial position and end the year
with a number of major achievements.
As both Aidan and Simon discussed in
their statements, 2016 has been another
challenging year for the oil and gas
industry, including Tullow, but we have
continued to actively manage our financial
position and end the year with a number
of major achievements. The self-help,
cost reduction and efficiency programme
we started in 2014 and continued through
2015 has resulted in net admin expenses
being significantly lower year on year
at $116 million (2015: $194 million),
reflecting the ongoing improvements
we have delivered in the way we run our
business. At the end of 2014 we set a
target to generate over $500 million in
cash cost savings over three years, and
our 2016 results show we have achieved
nearly $300 million of that target and are
on track to deliver over $600 million in
savings overall.
We have also continued to drive down
our capital expenditure and during the
year we reduced our capex budget from
$1.1 billion initially guided to $0.9 billion
(2015: $1.7 billion). Moving forward we
expect to see capex reduce considerably
as committed spend on capital intensive
projects such as TEN are now effectively
complete. Looking ahead our capital
expenditure is expected to be $0.5 billion
across our portfolio in 2017, but this will
effectively be around $0.4 billion as our
Uganda spend will now be offset by the
deferred consideration agreed in the
farm-down to Total which we announced
in January 2017.
Successfully agreeing the farm-down of
a 21.57 per cent interest in the Uganda
project to Total for a total consideration
of $900 million is a significant achievement
for Tullow. The agreement will see Tullow
receive $100 million on completion,
32
another $50 million at FID and a further
$50 million at First Oil. The remaining
amount is a deferred consideration and
represents reimbursement by Total of
$700 million in cash for a proportion
of Tullow’s past costs. The deferred
consideration will be used by Tullow
to fund its share of the upstream and
pipeline development capex through
to first oil and beyond. The agreement
paves the way for this low-cost
development to progress, with Total
driving the project forward to a target
FID at the end of 2017. It also brings
important benefits to Tullow’s liquidity
position, through near-term cash
proceeds and by effectively removing
Uganda capex from our forecast spend.
We have also successfully executed
five transactions to dispose of our Norway
business, expected to yield proceeds of
up to $0.2 billion. The Norway exit was
accomplished by understanding the types
of potential buyers and repackaging our
assets to suit. We have already completed
three of five transactions and expect to
complete the remaining two transactions
in the first quarter of 2017.
Maximising our cash flow and
maintaining liquidity continues to be key
and our hedging programme continues to
support this. The programme contributed
some $363 million to the revenue of the
business in 2016, and with c.60 per cent
of our production hedged at around
$60 per barrel in 2017, we are in a good
position to protect future revenues and
cash flows from the ongoing volatility of
the oil price.
At year end, our net debt was $4.8 billion,
giving us a net debt to Adjusted EBITDAX
ratio of 5.1 times. With TEN now on
stream, we are generating free cash flow
“Looking ahead,
maintaining flexibility is
key to our investment
plans and in 2017 we are
forecasting that we will
invest around $0.5 billion
across our portfolio.”
Ian Springett
Chief Financial Officer
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT and this puts Tullow in a position to begin to organically deleverage.
Deleveraging remains our top priority and we will continue to
pursue portfolio management and consider other tactical
options to accelerate this process to take us back to within
our long-term policy of less than 2.5 times net debt to
Adjusted EBITDAX.
During the year we took prudent steps to manage our debt and
headroom, secure liquidity, and diversify our sources of funding.
We worked through two RBL redeterminations; extended the
maturity of our RCF into 2018; and issued convertible bonds of
$300 million. We also raised an additional $345 million through
our RBL accordion facility which will come into effect in April
2017 and will largely offset the next scheduled amortisation.
All these steps are decisive actions put in place to ensure Tullow
is in the best position ahead of refinancing its RBL in 2017.
The Jubilee turret issue and subsequent remediation was an
unforeseen event but I am incredibly proud of how the issue has
been dealt with both operationally and financially. The insurance we
have in place is an excellent reflection of Tullow’s prudent financial
management and, following affirmation of both Hull and Machinery
and Business Interruption cover, we can continue to resolve the
issue with confidence that Tullow will be expected to be made whole.
Despite these many achievements in the year, we have reported
a significant loss in 2016 of $0.6 billion. This is predominantly
due to exploration write-offs associated with the Norway
disposals and Uganda farm-down, goodwill impairment,
provision for onerous service contracts and impairments of
property, plant and equipment, triggered by lower for longer
oil prices. While these non-cash items impact the income
statement, our operating cash flow has remained strong and
we generated $0.8 billion of operating cash flow from our
low-cost production and the benefit of our hedging programme.
Looking ahead to 2017, at a $50/bbl oil price, we will be
generating positive free cash flow, giving us a solid base to
balance paying down debt but also investing in growth options
for the Group. We are at an inflection point with significant
committed spend behind us; we have worked hard to drive
down costs; we anticipated and resolved issues well ahead
of time; we protected our revenues through hedging; and
we have successfully agreed an important farm-down of our
Uganda assets, removing our exposure to future development
capex associated with this important project once this deal
completes. Having acted early and made significant
adjustments to our cost base, Tullow is now in an optimum
position for future growth.
Production and commodity prices
Working interest production averaged 67,100 boepd, a decrease
of 9 per cent for the year (2015: 73,400 boepd). Including the
impact of insured barrels from the Jubilee field, working interest
production averaged 71,700 boepd, a decrease of 2 per cent.
The impact of first oil from the TEN fields was offset by reduced
production from the Jubilee field as a result of the Turret
Remediation Project, declines in UK and Netherlands gas
production as well as reductions across the non-operated
West Africa portfolio. Sales volumes for West African oil and
European gas averaged 51,100 bopd and 8,800 boepd respectively.
On average, oil prices in 2016 were lower than in 2015. The
Group’s realised oil price after hedging in 2016 was $61.4/bbl
and $41.7/bbl before hedging (2015: $67.0/bbl and $50.4/bbl
respectively), a decrease of 8 per cent versus a 16 per cent
decrease in Brent oil prices over the period. European gas prices in
2016 were lower than in 2015. The Group’s realised European gas
price after hedging in 2016 was 33.9p/therm (2015: 41.8p/therm),
a decrease of 19%.
Financial results summary
Working interest production volume (boepd)1
Sales volume (boepd)
Realised oil price ($/bbl)
Realised gas price (p/therm)
Sales revenue ($m)2
Underlying cash operating costs per boe ($/boe)3
Exploration costs written off ($m)
Impairment of property, plant and equipment, net ($m)
Operating loss ($m)
Loss before tax ($m)
Loss after tax ($m)
Basic loss per share (cents)
Operating cash flow before working capital ($m)
Operating cash flow before working capital per boe ($/bbl)
Capital investment ($m)3
Net debt ($m)3
Gearing (times)3
Free cash flow ($m)3
2016
67,100
59,900
61.4
33.9
1,270
14.3
723
168
(755)
(908)
(597)
(65.8)
774
29.4
857
4,782
5.1
(792)
2015
73,400
67,600
67.0
41.8
1,607
15.1
749
406
(1,094)
(1,297)
(1,037)
(113.6)
967
35.9
1,720
4,019
3.8
(940)
Change
-9%
-11%
-8%
-19%
-21%
5%
3%
59%
31%
30%
42%
42%
-20%
-18%
-50%
19%
1.3
16%
1. Including the impact of insured barrels from the Jubilee field, Group working interest production was 71,700 boepd.
2. Sales revenue excludes $90 million of other operating income which represents accrued proceeds under Tullow’s corporate Business Interruption
insurance policy.
3. Underlying cash operating costs per boe, capital investment, net debt, gearing and free cash flow are non-IFRS measures and are explained later
in this section.
33
1www.tullowoil.com FINANCE & PORTFOLIO MANAGEMENT CONTINUED
Underlying cash operating costs, depreciation,
impairments and administrative expenses
Underlying cash operating costs amounted to $377 million;
$14.3/boe (2015: $406 million; $15.1/boe). Underlying cash
operating costs in 2016 includes $32 million of insurance
proceeds. The decrease of 5 per cent in underlying cash
operating costs per boe was principally due to the impact of
ongoing cost saving initiatives and the start-up of the TEN
fields which have a low operating cost per boe.
DD&A charges before impairment on production and
development assets amounted to $449 million; $17.0/boe
(2015: $551 million; $20.5/boe). The Group recognised an
impairment charge of $168 million (2015: $406 million) in
respect of lower forecasts of oil and gas prices and an increase in
estimated future decommissioning costs. The Group recognised
an impairment of goodwill of $164 million (2015: $54 million)
associated with the disposal of the Group’s Norwegian assets.
Administrative expenses of $116 million (2015: $194 million) include
an amount of $41 million (2015: $48 million) associated with a
share-based payment charge. The Major Simplification Project,
which was undertaken during 2015, is on track to generate savings
of approximately $600 million by mid-2018, ahead of the Company’s
initial target of $500 million, with savings of approximately $300
million having been achieved as at 31 December 2016.
During 2016, the Group recognised an income statement
charge for restructuring costs of $12 million (2015: $41 million)
relating to headcount reductions associated with the Major
Simplification Project and Norway country exit. This has been
presented separately from administrative expenses in the
income statement.
Exploration costs written off
Exploration costs written off
Associated deferred tax credit
Net exploration costs written off
2016
$m
(723)
299
(424)
2015
$m
(749)
277
(472)
During 2016, the Group spent $82 million, including Norway
exploration costs on a post-tax basis, on exploration and
appraisal activities and had written off $58 million in relation to
this expenditure. This included write-offs in Norway ($18 million)
and New Ventures costs ($18 million). In addition, the Group
has written off $366 million in relation to prior years’ expenditure
primarily as a result of the farm-down in Uganda ($248 million),
the disposals in Norway ($61 million) and country exit in
Madagascar ($22 million). The total exploration costs written
off net of tax is $424 million (2015: $472 million).
Provision for onerous service contracts
At the end of 2016, Tullow had provided $133 million
(2015: $186 million) for onerous service contracts due to the
reduction in planned future activity under those contracts. The
changes in estimates for the provision resulted in an income
statement charge in 2016 of $115 million (2015: $186 million).
Derivative financial instruments
Tullow undertakes hedging activities as part of the ongoing
management of its business risk to protect against volatility
and to ensure the availability of cash flow for reinvestment in
capital programmes that are driving business growth.
At 31 December 2016, the Group’s derivative instruments had a
net positive fair value of $91 million (2015: positive $623 million),
net of deferred premium. While all of the Group’s commodity
derivative instruments currently qualify for hedge accounting,
a pre-tax credit of $18 million (2015: charge of $59 million) in
relation to the change in time value of the Group’s commodity
derivative instruments has been recognised in the income
statement for 2016.
Hedge position at
31 December 2016
Oil hedges
Volume – bopd
Average floor price
protected ($/bbl)
2017
2018
2019
42,500
22,000
7,979
60.23
51.88
45.53
Net financing costs
Net financing costs for the year were $172 million
(2015: $145 million). The increase in financing costs is
associated with an increase in borrowing levels and a decrease
in capitalised interest on the TEN development due to first oil.
2016 net financing costs include interest incurred on the
Group’s debt facilities, foreign exchange gains and the
decommissioning finance charge, offset by interest earned
on cash deposits and borrowing costs capitalised principally
against the Ugandan assets and the TEN development.
Taxation
The net tax credit of $311 million in 2016 relates to a tax charge
in respect of hedging profits offset by credits in respect of
the Group’s North Sea, Gabon, Equatorial Guinea and Ghana
production activities, Norwegian exploration costs and
non-recurring deferred tax credits associated with exploration
write-offs and impairments.
The Group’s statutory effective tax rate for 2016 is 34.2 per cent
(2015: 20.1 per cent). The increase in the tax rate for 2016 is
mainly due to higher deferred tax credits on exploration costs
written off and other impairments in addition to lower prior year
tax charges relating to Uganda.
After adjusting for non-recurring amounts related to exploration
write-offs, disposals, impairments and onerous lease provisions
and their associated deferred tax benefit, the Group’s adjusted
tax rate for 2016 is 23.3 per cent (2015: 29 per cent). The
decrease in the adjusted tax rate is primarily a result of lower
profits from overseas production activities and an increase in
hedging profits taxed at the UK corporate tax rate of 20 per cent.
The Group’s future statutory effective tax rate is sensitive to the
geographic mix in which pre-tax profits and exploration costs
written off arise. It is however expected that the adjusted tax
rate should broadly follow the UK’s standard rate of corporation
tax over the short term as more of the Group’s profit is forecast
to arise in the UK.
Loss after tax from continuing activities and loss per share
The loss for the year from continuing activities amounted to
$597 million (2015: $1,037 million). Basic loss per share was
65.8 cents (2015: 113.6 cents).
34
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT Dividend per share
In view of the fall in the oil price, the Board suspended the
payment of dividends in early 2015. At a time when Tullow
is focusing on capital allocation, financial flexibility and cost
reductions, the Board believes that Tullow and its shareholders
are better served by retaining funds in the business.
pipeline projects. This is expected to reduce to a 10% interest in
the upstream project when the Government of Uganda formally
exercises its right to back-in. Although it has not yet been
determined what interests the Governments of Uganda and
Tanzania will take in the pipeline project, Tullow expects its
interests in the upstream and pipeline projects to be aligned.
Operating cash flow
Operating cash flow before working capital movements
decreased by 20% to $0.8 billion (2015: $1.0 billion) as a result
of reduced sales volumes and lower realised commodity prices,
partially offset by lower cash operating costs and revenue from
the TEN development. In 2016, this cash flow together with
increased debt facilities helped fund the Group’s $1.0 billion
of capital expenditure in exploration and development activities
and $284 million servicing the Group’s debt facilities.
Reconciliation of net debt
Year-end 2015 net debt
Sales revenue
Other operating income –
lost production insurance proceeds
Operating costs
Operating expenses
Cash flow from operations
Movement in working capital
Tax paid
Capital expenditure
Disposals
Other investing activities
Financing activities
Foreign exchange gain on cash and debt
Year-end 2016 net debt
$m
4,019
1,270
90
(377)
(209)
774
(177)
(85)
(1,031)
63
1
(319)
11
4,782
Capital investment
2016 capital investment amounted to $0.9 billion (2015: $1.7
billion) with $0.8 billion invested in development activities and
$0.1 billion invested in exploration and appraisal activities.
More than 80% of the total was invested in Kenya, Ghana and
Uganda and over 90%, more than $0.8 billion, was invested in
Africa. Capital expenditure will continue to be carefully
controlled during 2017. The Group’s capital expenditure
associated with operating activities is expected to reduce from
$0.9 billion in 2016 to $0.5 billion in 2017. The 2017 total
comprises Ghana capex of c.$90 million, West Africa non-
operated capex of c.$30 million, Kenya pre-development
expenditure of c.$100 million and exploration and appraisal
spend limited to c.$125 million. Uganda expenditure of c.$125
million will be offset by completion of the Uganda farm-down.
Portfolio management
On 9 January 2017, Tullow announced that it had agreed a
substantial farm-down of its assets in Uganda to Total. Under
the Sale and Purchase Agreement, Tullow has agreed to transfer
21.57% of its 33.33% Uganda interests to Total for a total
consideration of $900 million. Upon completion, the farm-down
will leave Tullow with an 11.76% interest in the upstream and
The consideration is split into $200 million in cash, consisting
of $100 million payable on completion of the transaction,
$50 million payable at FID and $50 million payable at first oil.
The remaining $700 million is in deferred consideration and
represents reimbursement by Total in cash of a proportion of
Tullow’s past exploration and development costs. The deferred
consideration is payable to Tullow as the upstream and pipeline
projects progress and these payments will be used by Tullow
to fund its share of the development costs. Tullow expects
the deferred consideration to cover its share of upstream and
pipeline development capex to first oil and beyond. Completion
of the transaction is subject to certain conditions, including the
approval of the Government of Uganda, after which Tullow will
cease to be an operator in Uganda. The disposal is expected
to complete in 2017.
The divestment of the Norway business is progressing well with
two deals completed before year-end and one in January 2017.
Four licences, including the Wisting oil discovery, have been
sold to Statoil, eight licences, including the Oda asset, have
been sold to Aker BP ASA and two further licences have been
sold to ConocoPhillips. A further two sales were executed
in December 2016 with two separate parties. These sales,
covering a further 13 licences, and which include the 2016
Cara oil and gas discovery, are on track to complete in the
first quarter of 2017. In aggregate, the Norway asset sales are
expected to yield proceeds of up to $0.2 billion. Once completed,
the Group will no longer hold any licences on the Norwegian
Continental Shelf.
Balance sheet
Following the scheduled amortisation of RBL facility
commitments in October 2016, the Group ended the year with
available credit under the RBL facility of $3.3 billion, $1.0 billion
under the Corporate Facility, $1.3 billion of corporate bonds,
$300 million of Convertible bonds and $116 million under the
Norwegian Exploration Finance Facility. At the end of 2016,
Tullow had total facility headroom and free cash of $1.0 billion,
in aggregate, and net debt of $4.8 billion.
In April 2016 the Corporate Facility was extended to April 2018
with commitments reducing to $800 million in April 2017 and to
$600 million in January 2018. On 7 February 2017, the Corporate
Facility was extended by a further year to April 2019 with
commitments of $500 million from April 2018 reducing to
$400 million in October 2018. In October 2016 Tullow also
secured $345 million of new commitments from its existing
lenders by exercising an accordion facility embedded in the RBL
which will take effect from 1 April 2017. The new commitments
will largely offset the impact of the scheduled RBL amortisation
in April 2017 and will ensure Tullow has appropriate headroom
throughout 2017 as it refinances its bank facilities.
35
1www.tullowoil.com FINANCE & PORTFOLIO MANAGEMENT CONTINUED
Liquidity risk management and going concern
The Group closely monitors and manages its liquidity risk.
Cash forecasts are regularly produced and sensitivities run
for different scenarios including, but not limited to, changes
in commodity prices and different production rates from the
Group’s producing assets. In the currently low commodity price
environment, the Group has taken appropriate action to reduce
its cost base and had $1.0 billion of debt liquidity headroom and
free cash at the end of 2016. The Group’s forecasts show that the
Group will be able to operate within its current debt facilities and
have sufficient financial headroom for the 12 months from the
date of approval of the 2016 Annual Report and Accounts.
Notwithstanding our forecasts of liquidity headroom throughout
the 12-month period, risk remains in relation to the volatility
of the oil price environment, operational performance of the
Group’s assets, their impact on operating cash flows and the
Group’s currently contracted debt maturity profiles, such that
the Group’s liquidity position may deteriorate within the
assessment period.
To mitigate these risks and to fulfil the Group’s objective to
reduce net debt, the Group continues to closely monitor cash
flow projections and will take mitigating actions in advance to
maintain our liquidity. Actions available to the Group include
additional funding options, further rationalisation of our cost
base including cuts to discretionary capital expenditure and
portfolio management.
Based on the analysis above and the level of mitigating actions
available, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational
existence for the foreseeable future. Thus they continue to
adopt the going concern basis of accounting in preparing the
annual Financial Statements.
2017 principal financial risks and uncertainties
The principal financial risks to performance identified for 2017 are:
• oil price and overall market volatility
• operational performance and project delivery
• maintaining capital and operating cost discipline
• execution of financial strategy to maintain appropriate liquidity
Events since year-end
On 5 January 2017, Tullow announced that Ian Springett, CFO,
has taken an extended leave of absence to undergo treatment
for a medical condition, with Les Wood, Vice President Finance
and Commercial, appointed Interim CFO.
On 9 January 2017, Tullow announced that it had agreed a
substantial farm-down of its assets in Uganda to Total. For
further details please see above.
On 11 January 2017, the Group announced that Paul McDade,
currently Chief Operating Officer, will be appointed Chief
Executive Officer following Tullow’s Annual General Meeting
on 26 April 2017. This follows an internal and external process
led by Tullow’s Nominations Committee. At the same time,
after six years on Tullow’s Board and five as Chairman,
Simon Thompson will step down from the Board. Aidan Heavey,
Chief Executive Officer and founder of Tullow Oil, will succeed
Mr. Thompson as Chairman of the Group for a transitional
period of up to but not exceeding two years. Ann Grant,
Senior Independent Director, will retire at the AGM after nine
years’ service on the Board. Jeremy Wilson, a non-executive
Director of Tullow and Chairman of the Remuneration
Committee, will succeed Ms Grant as Senior
Independent Director.
On 17 January 2017, the Group announced that the Erut-1
well in Block 13T, Northern Kenya, had discovered a gross oil
interval of 55 metres with 25 metres of net oil pay at a depth
of 700 metres. The overall oil column for the field is estimated
to be 100 to 125 metres.
On 7 February 2017, Tullow agreed a one year maturity extension
of its Corporate Facility to April 2019, with commitments
of $500 million from April 2018 reducing to $400 million
in October 2018. The extension has been significantly
oversubscribed, demonstrating the continued support
from Tullow’s relationship banks.
Non-IFRS measures
The Group uses certain measures of performance that are
not specifically defined under IFRS or other generally accepted
accounting principles. These non-IFRS measures include capital
investment, net debt, gearing, adjusted EBITDAX, underlying
cash operating costs and free cash flow.
Capital investment
Capital investment is a useful indicator of the Group’s organic
expenditure on exploration and appraisal assets and oil and gas
assets incurred during a period. Capital investment is defined
as additions to property, plant and equipment and intangible
exploration and evaluation assets less decommissioning asset
additions, capitalised share-based payment charge, capitalised
finance costs, additions to administrative assets, Norwegian tax
refund, and certain other non-cash capital expenditure.
Additions to property, plant
and equipment
Additions to intangible exploration
and evaluation assets
Less
2016
$m
2015
$m
818.5
1,258.2
291.4
626.3
Decommissioning asset additions
(57.1)
147.4
Capitalised share-based
payment charge
Capitalised finance costs
Additions to administrative assets
Norwegian tax refund
Other non-cash capital expenditure
Capital investment
Movement in working capital
Additions to administrative assets
Norwegian tax refund
Cash capital expenditure per the
cash flow statement
(2.7)
(138.8)
(1.6)
(50.5)
(2.2)
857.0
122.1
1.6
50.5
(18.6)
(160.1)
(23.1)
(50.4)
(59.7)
1,720.0
(53.9)
23.1
50.4
1,031.2
1,739.6
36
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT Underlying cash operating costs
Underlying cash operating costs is a useful indicator of the
Group’s underlying cash costs incurred to produce oil and gas.
Underlying cash operating costs eliminates certain non-cash
accounting adjustments to the Group’s cost of sales to produce
oil and gas. Underlying cash operating costs is defined as
cost of sales less operating lease expense, depletion and
amortisation of oil and gas assets, underlift, overlift and oil
stock movements, share-based payment charge included
in cost of sales, and certain other cost of sales.
Cost of sales
Less
2016
$m
2015
$m
813.1
1,015.3
Operating lease expense
21.0
–
Depletion and amortisation of oil
and gas assets
Underlift, overlift and oil stock
movements
Share-based payment charge
included in cost of sales
Other cost of sales
Underlying cash operating costs
448.5
551.2
(76.5)
(1.5)
2.7
40.2
377.2
0.8
58.5
406.3
Free cash flow
Free cash flow is a useful indicator of the Group’s ability to
generate organic cash flow to fund the business and strategic
acquisitions, reduce borrowings and available to return to
shareholders through dividends. Free cash flow is defined as
net cash from operating activities, net cash used in investing
activities, net cash generated by financing activities and foreign
exchange loss less repayment of bank loans, drawdown of bank
loans and issue of convertible bonds.
Net cash from operating activities
2016
$m
512.5
2015
$m
978.2
Net cash used in investing activities
(967.2)
(1,679.6)
Net cash generated by
financing activities
Foreign exchange loss
Repayment of bank loans
Drawdown of bank loans
Issue of convertible bonds
Free cash flow
399.3
(18.4)
769.1
745.5
(7.4)
191.8
(1,187.5)
(1,168.8)
(300.0)
(792.2)
–
(940.3)
Net debt
Net debt is a useful indicator of the Group’s indebtedness,
financial flexibility and capital structure because it indicates
the level of borrowings after taking account of cash and cash
equivalents within the Group’s business that could be utilised
to pay down the outstanding borrowings. Net debt is defined
as current and non-current borrowings plus unamortised
arrangement fees and the equity component of any compound
debt instrument less cash and cash equivalents.
Current borrowings
Non-current borrowings
Unamortised arrangement fees
Equity component of
convertible bonds
Less cash and cash equivalents
Net debt
2016
$m
591.5
4,388.4
35.5
48.4
(281.9)
4,781.9
2015
$m
73.8
4,262.4
38.8
–
(355.7)
4,019.3
Gearing and Adjusted EBITDAX
Gearing is a useful indicator of the Group’s indebtedness,
financial flexibility and capital structure and can assist securities
analysts, investors and other parties to evaluate the Group.
Gearing is defined as net debt divided by Adjusted EBITDAX.
Adjusted EBITDAX is defined as loss from continuing activities
less income tax credit, finance costs, finance revenue, (loss)/gain
on hedging instruments, depreciation, depletion, amortisation,
share-based payment charge, restructuring costs, gain/(loss)
on disposal, goodwill impairment, exploration costs written off,
impairment of property, plant and equipment net, provisions
for inventory and provision for onerous service contracts.
Loss from continuing activities
(597.3)
(1,036.9)
2016
$m
2015
$m
Less
Income tax credit
Finance costs
Finance revenue
(Gain)/loss on hedging instruments
Depreciation, depletion
and amortisation
Share-based payment charge
Restructuring costs
Loss on disposal
Goodwill impairment
Exploration costs written off
Impairment of property, plant and
equipment, net
Provisions for inventory
Provision for onerous service
contracts, net
Adjusted EBITDAX
Net debt
Gearing (times)
(311.0)
198.2
(26.4)
(18.2)
(260.4)
149.0
(4.2)
58.8
466.9
580.1
43.9
12.3
3.4
164.0
723.0
167.6
–
48.7
40.8
56.5
53.7
748.9
406.0
22.2
114.9
941.3
4,781.9
5.1
185.5
1,048.7
4,019.3
3.8
37
1www.tullowoil.com RESPONSIBLE OPERATIONS
SUSTAINING PERFORMANCE
IN NEW OPERATIONS
As a responsible operator, Tullow manages non-technical, or above ground,
risks with the same rigour and focus with which it manages the below-ground technical
challenges of exploring for and producing oil and gas.
Our commitment to safety and
sustainability has not been deterred in
2016 by the downward market pressures
driven by the fall in oil prices and the
impact that this has had on budgets. This
is most evident in our Lost Time Injury
Frequency rates moving to industry top
quartile performance. Additionally, our
performance and commitment to health,
safety and environmental performance
was the highest performing category in our
employee feedback survey. We manage
our operations responsibly through
mandatory policies and standards to which
we hold all employees and contractors
accountable. Our organisational
structure makes clear the accountabilities
within the business and the corporate
centre for delivery and structured and
independent assurance, respectively.
Our safety and sustainability
performance is incentivised through
Tullow’s Group scorecard. See pages
16 to 21 for more information.
Process Safety Management (PSM)
PSM involves managing a number of
technical (plant), managerial (processes)
and human factors (people) activities
which, if not managed effectively, could
lead to a major incident. PSM is
applicable to drilling and production
operations within Tullow. It applies to the
concept selection, design, construction
and commissioning, and operations,
including modifications.
2016 saw the addition of a second FPSO
in Ghana, installed at the TEN fields.
PSM was incorporated throughout the
project life cycle. The safety and
environmentally critical element
performance standards were agreed and
independently verified at both the design
38
“We are very proud of our
achievement of moving to
top quartile industry
performance on health
and safety management.”
Aidan Heavey
Chief Executive Officer
4.1%
score achieved out of a 5% allocation
for safe and sustainable operations
in the Group scorecard
ZERO
LTIs in the last 12 months; top
quartile LTIF performance
REDUCED
lost man-hours from community
related operations stoppages as
a result of improved stakeholder
engagement in Kenya
and commissioning phases. The
Company also made progress against
an Asset Integrity Improvement Plan
on Jubilee, an FPSO which achieved five
years of production in 2016. A key element
of the plan was to clarify and simplify
the documented management system
and provide easy access to controlled
documents. This progressed and was
verified as part of the 2016 PSM audit.
The Kenya Early Oil Pilot Scheme (EOPS)
has taken PSM into account during the
concept select phase. The likelihood of
major accident events is low because
of the simple nature of the facilities.
However, PSM continues to be considered
as part of the design and operational
phases of both the EOPS and Full Field
Development (FFD). Transport safety for
EOPS will be a priority in 2017.
Challenges that emerged in 2016 included
clarifying, simplifying and better defining
accountabilities within the Tullow Ghana
and MODEC personnel and management
systems. Targeted improvements are
being worked into 2017 planning.
Environment
Environmental management covers
Environmental and Social Impact
Assessments (ESIAs) and Management
Plans (ESMPs), resource use
minimisation, waste management,
protected areas and biodiversity,
GreenHouse Gases (GHGs) and
emissions management, and close-out/
decommissioning/remediation.
Tullow’s Group total scope 1 emissions,
which in 2016 included gas and diesel
from our offices as well as emissions
from our operations, were 754,338 tonnes
of CO²e (2015: 752,539 tonnes CO²e) and
142 tonnes of CO²e per 1,000 tonnes of
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT CONSOLIDATED LOST MANHOURS
LOST TIME INJURY FREQUENCY (LTIF) RATES
10
8
6
4
2
0
5
1
y
a
M
5
1
n
u
J
5
1
l
u
J
5
1
g
u
A
5
1
p
e
S
5
1
t
c
O
5
1
v
o
N
5
1
c
e
D
6
1
n
a
J
6
1
b
e
F
6
1
r
a
M
6
1
r
p
A
6
1
y
a
M
6
1
n
u
J
6
1
l
u
J
6
1
g
u
A
6
1
p
e
S
6
1
t
c
O
6
1
v
o
N
6
1
c
e
D
7
1
n
a
J
hydrocarbon produced (2015: 122.07 tonnes of CO²e per 1,000
tonnes of hydrocarbon produced). Total scope 2 emissions were
4,763 tonnes of CO²e (2015: 4,631 tonnes of CO²e. Full details of
our Basis of Reporting can be found online.
ESIA commitments are being met within Tullow businesses.
Within the New Ventures team, ESIA close-out reports are
documented when operations are completed. Additionally,
the IFC, an equity partner in our Kenya project, has reviewed
current operations and planning and found the work to date to
be compliant with IFC Performance Standards. Progress has
been made in remediating legacy drilling waste in Uganda,
and the work is expected to be complete by the end of the year.
Tullow has formally announced its ‘no go’ commitment for
World Heritage Sites, and this commitment was accepted
by UNESCO in 2016. The associated Protected Area Procedure
has been operationalised in all decision making.
There are challenges that remain. We need to continue to raise
the profile of environmental management in business decision
making. In an operational environment, we will expand Safety
Critical Elements to include Environmentally Critical Elements.
As we develop the Kenya business, we need to factor water
use minimisation into development planning and execution.
The use of the Turkwel Dam is our current preferred source
for operational use, and this will require more planning and
dialogue with stakeholders in 2017.
Security, crisis management and the Voluntary Principles
The Group Emergency Preparedness Standard has been
updated to better describe the minimum training requirements
for the three tiers – Field, Incident and Crisis Management
Teams – as well as to provide clear definitions on the different
types of exercises to be conducted annually. TEN has been
covered in the Tullow Ghana Offshore Security Plan at an early
stage, and security lessons learnt from Jubilee, particularly
those pertaining to the no-go zone around the FPSO, have
been incorporated into the TEN Project.
There has been significant progress in the delivery of training
on Human Rights and Voluntary Principles on Security and
Human Rights (VPSHRs) to private and public security
supporting our operations in Kenya and Ghana. In late 2016,
the Government of Kenya and Tullow agreed a structure for
an important Memorandum of Understanding (MOU) to cover
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
12
12
13
13
14
14
15
15
16
16
Tullow LTIF
OPG average LTIF
VPSHR compliance, which will be executed in 2017. This was
an important milestone in continuing to improve performance
and align fully to the aspirations of the Voluntary Principles.
Additionally and based on recommendations from an external
review, the Tullow grievance management processes have
been enhanced to better manage any allegations of human
rights abuse by public/private security forces. There have
been no allegations reported.
Occupational safety and health
After a challenging health and safety performance in 2014/15,
the Company has achieved top quartile performance for the
LTIF measure. In 2016, Tullow reduced its LTIF from 0.3 to zero
Improved performance in our drilling and completions activities
contributed to this outcome.
Given a malaria-related fatality in late 2015, the Group put a
lot of energy into refocusing its prevention-related activities.
Senior leadership was very visible in this effort.
Social performance
Social performance covers all our interactions with communities,
including stakeholder engagement and management, grievance
management, land access and compensation, impact mitigation
and community consent and agreements.
Performance associated with the management of grievances
and work disruptions saw improvement in 2016. The Company
developed a Master Plan for Kenya that considers the holistic
management of non-technical risks from a ‘landscape’
perspective. The Company developed a growing understanding
of traditional Turkana this year and will use this to embark on
a process to reach agreement with all stakeholders for FFD.
The Company’s Human Rights Policy articulates our aim to
obtain ‘agreement’ of project-affected communities where we
operate, and guides us toward Free Prior Informed Consent
(FPIC) where land and livelihoods are affected by our operations.
Challenges remain in fully operationalising the Human Rights
Policy, including how we assess compliance in our supply chain.
39
1www.tullowoil.com
GOVERNANCE & RISK MANAGEMENT
CHAIRMAN’S INTRODUCTION
MANAGING RISKS &
UPHOLDING ETHICS
Good governance is incentivised through KPIs in our Group Scorecard affecting
Executive Directors’ and employees’ variable, performance-related pay.
DEAR SHAREHOLDER
Our approach to corporate governance and risk management
sets the tone, direction and policies that result in actions and
behaviour across our business, which in turn form the core
of our corporate reputation. Our approach includes creating a
culture of ethical behaviour aligned to our values and a robust
Integrated Management System (IMS) to govern how the
business is run. This includes the management of inherent
opportunities and risks and responsiveness to the concerns
of our shareholders and broader stakeholders.
Good governance and risk management is incentivised by
Key Performance Indicators (KPIs) in our Group scorecard
affecting Executive Directors’ and employees’ variable,
performance-related pay. See pages 16 to 21 for more information.
The IMS, risk and assurance management
Tullow saw a major overhaul of its risk, assurance and
performance management processes in 2015 as part of the Major
Simplification Project (MSP). This effort clarified accountabilities
for decision making and identified roles for business delivery,
risk management and independent assurance. In late 2015, the
Company launched an IMS to set out all mandatory policies,
standards and the controls necessary to ensure that our activities
and associated risks are effectively managed. In 2016, we began
the process of embedding the IMS resulting in it becoming fully
operationalised by the year end.
One key change in approach that the IMS introduced was
an effective and ‘joined up’ Life Cycle Value Chain (LCVC)
process that combined multiple legacy stage gate processes.
This enables our three Business Delivery Teams to progress
business opportunities, with relevant corporate centre
functional involvement in independent assurance
reviews and key decision points at each gate.
The risk management process is consistent across the Group,
with management and oversight from the field to the Board
of Directors. The Board of Directors carried out a robust
assessment of the principal risks facing the Company,
including those that would threaten our business model,
future performance, solvency and liquidity. Principal risks are
overseen by the Tullow Board of Directors. A full report of
these strategic, financial, operational and compliance risks,
including potential impacts and controls, mitigation actions
and assurance, are summarised on pages 44 to 53.
Assurance processes are now connected and consistent
across the Group. There is clarity on what needs to occur at
each of the four tiers and annual planning is done in a way
that minimises duplication and burden on the business,
while providing independent assessments where needed.
Performance scorecards are now fully implemented. These give
Senior Management a line of sight of performance on a regular
basis. A subset of the KPIs are both monitored regularly by Executive
Management and have targets which are tied to remuneration.
While significant progress has been made to embed the
IMS within the organisation in 2016, there is further work to be
done to reap its full benefits. In 2017, the Executive team will
require the Corporate Centre functional heads to fully own their
standards and ensure full understanding and compliance in all
parts of the business. There are opportunities to further align
Business Delivery Team and functional performance scorecards
to be more efficient. Additionally, a challenge remains within the
assurance process to demonstrate that activities conducted
in the businesses without Group oversight are fully effective
across all parts of the business.
Company culture and ethical behaviour
As part of our commitment to managing the way we work ethically
and legally, we continually look for ways to engage both internal
and external stakeholders on our compliance standards as well
as our Code of Ethical Conduct (the “Code”). During 2016, we
introduced an e-learning module covering the key areas of our
Code, including anti-corruption, which all Tullow staff including
contractors and Board members were required to complete.
The course raised awareness of our Code and generated good
discussions among our teams. By the end of the year, 97 per cent
of the workforce had completed this programme. In addition,
all Tullow staff completed their annual compliance certification
with the Code of Ethical Conduct and its related standards,
procedures and guidelines. The certifications were assured by
our Group Ethics & Compliance function and it was signed off
by Ian Springett, our Chief Financial Officer, who has executive
responsibility for ethics and compliance.
We are committed to upholding and maintaining our zero
tolerance of bribery. A key component of our anti-corruption
programme is the internal control on managing expenditures
related to public officials where such expenditures are related to
Tullow business. Any such expenditure must be reviewed by our
40
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT Ethics & Compliance group prior to any
engagement. In 2016, we introduced an
electronic register to automate this process
and improve compliance monitoring
and assurance.
SPEAKING UP
The Board, via our Ethics & Compliance
Committee, oversees the development
and monitors the implementation and
effectiveness of the Code and other
Company standards in relation to good ethical
behaviour. Our Audit Committee also reviews
the adequacy and security of the Company’s
arrangements for staff to raise concerns, in
confidence, about possible improprieties in
financial reporting or other matters. In 2016,
we recorded 91 ‘speaking up’ cases (2015:
103), of which 18 were submitted via our
confidential, external and independent
reporting option provided by Safecall. We investigated all reported
possible or actual breaches of our Code, following which three
members of our workforce left the Group and had their contracts
terminated. This is necessary to uphold good corporate
governance and ensure that we safeguard the integrity of our
Code and that of the Company.
Supply chain
Corruption
Speaking up cases
Fraud
HR
Stakeholder engagement
Tullow works to maintain interactions with all stakeholders,
such as governments at all levels, advocacy NGOs,
multilaterals and communities. There are genuine, inherent
risks in failing to understand and respond to what is important
to our stakeholders. These can translate into real business
and opportunity costs and impact our reputation.
We communicate factual information about our operations and
ambitions to ensure our stakeholders understand our business
and can ask questions and make decisions in an informed way.
INTEGRATED GOVERNANCE FRAMEWORK
We also engage to solicit input and ideas on
different policy and performance issues,
informing our business plans, practices and
processes to help identify and assess risks
to business delivery and to address
problems early on when they arise.
For example, in 2016 we engaged with a
number of organisations, including the
World Bank Group, Millennium Water
Alliance, World Resources Institute and
Human Rights Watch, to gain their
perspective on water management issues.
Such discussions facilitate the development
of key Company policies and processes,
which in turn support internal discussions
on desired performance and allow a
considered and timely response to
stakeholder expectations on critical issues.
5
19
46
21
91
Within the IMS, we have new standards and guidelines to support
stakeholder engagement activities. These are aimed at ensuring
the business is suitably prepared for and resourced to build and
manage effective relations with all external stakeholders, and that
we carry out this engagement in a systematic way as part of risk
identification and management. This has led to the development of
a structured framework and approach to managing engagement
with national Government in Ghana, and to improvements in the
cross-functional sharing of engagement outcomes in Kenya and
Uganda. Challenges remain in navigating through Kenya’s
devolved government structure, with forthcoming national
elections, and in fully embedding the use of new stakeholder
management tools and processes across the business.
Simon R Thompson
Chairman
7 February 2017
Board of Directors
11 members – Four Executive Directors – Seven non-executive Directors – Five Board Committees
Executive Directors
Four Executive Directors run the business and are held accountable for its performance
Operating Committee
Includes the Chief Operating Officer, Business Delivery Team VPs, VP
Commercial & Finance and VP Organisation Strategy & Effectiveness
Frequency
Seven times per year
Weekly
Weekly operations
meeting
Monthly
performance
management
Business Delivery Teams
and Business Units
Corporate
functions
Agreed Group
shared services
Day-to-day business
delivery
41
1www.tullowoil.com
GOVERNANCE & RISK MANAGEMENT CONTINUED
BOARD OF DIRECTORS
1
2
3
4
11
5
1. SIMON THOMPSON
CHAIRMAN
Simon Thompson (age 57, British) was appointed
as a non-executive Director in 2011 and as
non-executive Chairman in January 2012.
Simon worked for investment banks N M
Rothschild and S. G. Warburg before joining
the Anglo American group in 1995, where
he held a number of senior positions and
became an Executive Director in 2005. Since
leaving Anglo American, he has served as
a non-executive Director of Amec Foster
Wheeler plc, AngloGold Ashanti Ltd,
Newmont Mining Corporation and Sandvik AB.
Simon will step down from the Board following
the Annual General Meeting on 26 April 2017.
Other directorships and offices
Simon is Chairman of 3i Group plc and a
non-executive Director of Rio Tinto plc. He
is also a member of the Advisory Council
at the Institute of Business Ethics and a
member of the Advisory Panel on Business
and Sustainability at the International
Finance Corporation.
N*, R, EHS
2. AIDAN HEAVEY
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN DESIGNATE
Aidan Heavey (age 63, Irish) is the founder
of Tullow Oil and has been Chief Executive
Officer since 1985. He has played a key role
in Tullow’s development as a leading
independent oil and gas exploration and
production group. Aidan will be appointed
as non-executive Chairman on 26 April 2017
following Tullow’s Annual General Meeting.
3. IAN SPRINGETT
CHIEF FINANCIAL OFFICER
Ian Springett (age 59, British) is a Chartered
Accountant and was appointed to the Board of
Directors in 2008. Prior to joining Tullow, Ian
worked at BP for 23 years where he gained
extensive international oil and gas experience.
Ian has held a number of senior positions at
BP, including vice president of BP Finance
and CFO for the United States, and also
served as a business unit leader in Alaska.
Other directorships and offices
Ian was appointed a non-executive director
of G4S plc with effect from 1 January 2017.
E&C
4. PAUL McDADE
CHIEF OPERATING OFFICER
AND CHIEF EXECUTIVE
OFFICER DESIGNATE
Paul McDade (age 53, British) was appointed
to the Board of Directors in March 2006,
having joined Tullow in 2001. Paul was
appointed Chief Operating Officer following
the Energy Africa acquisition in 2004, having
previously managed Tullow’s UK gas business.
Paul will be appointed Chief Executive Officer
on 26 April 2017, following Tullow’s Annual
General Meeting. An engineer with over
25 years’ experience, Paul has worked
in various operational, commercial and
management roles with Conoco, Lasmo
and ERC. He has broad international
experience having worked in the UK North
Sea, Latin America, Africa and South East
Asia. Paul holds degrees in civil engineering
and petroleum engineering.
EHS
5. ANGUS McCOSS
EXPLORATION DIRECTOR
Angus McCoss (age 55, British) was appointed
to the Board of Directors in December 2006
following 21 years of wide-ranging exploration
experience, working primarily with Shell in
Africa, Europe, China, South America and the
Middle East. Angus held a number of senior
positions at Shell, including Regional Vice
President of Exploration for the Americas and
General Manager of exploration in Nigeria.
He holds a PhD in structural geology.
Other directorships and offices
Angus is a non-executive Director of Ikon
Science Limited and a member of the
advisory board of the industry-backed
Energy and Geoscience Institute of the
University of Utah.
6. ANN GRANT
SENIOR INDEPENDENT DIRECTOR
Ann Grant (age 68, British) was appointed as a
non-executive Director in May 2008 and Senior
Independent Director in April 2014. Ann was Vice
Chairman (Africa) at Standard Chartered Bank
from 2005 to 2014. Her earlier career was as a
British Diplomat, from 1971 to 2005. From 1998,
she worked at the Foreign and Commonwealth
Office in London as Director for Africa and the
Commonwealth. From 2000 to 2005, Ann was
the British High Commissioner to South Africa.
After nine years’ service, Ann will retire from
the Board following Tullow’s Annual General
Meeting on 26 April 2017.
Other directorships and offices
Ann is a trustee of the Overseas Development
Institute and a council member of the London
School of Hygiene and Tropical Medicine. Ann
is also a trustee of the Rift Valley Institute and
chairs the Serious Music Trust.
E&C*, A, N
42
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT 10
7
6
8
9
7. TUTU AGYARE
NON-EXECUTIVE DIRECTOR
Tutu Agyare (age 54, Ghanaian) was appointed
as a non-executive Director in August 2010.
He is currently a Managing Partner at Nubuke
Investments, an asset management firm
focused solely on Africa, which he founded in
2007. Previously, he had a 21-year career with
UBS Investment Bank, holding a number of
senior positions, most recently as the head
of European emerging markets, and served
on the Board of Directors.
Other directorships and offices
Tutu is a director of the Nubuke Foundation,
a Ghanaian-based cultural and educational
foundation. Tutu is also a senior adviser to
Power Africa, an initiative launched by the
Obama administration to increase access
to electricity in Africa.
A, N, R
8. STEVE LUCAS
NON-EXECUTIVE DIRECTOR
Steve Lucas (age 62, British) was appointed
as a non-executive Director in March 2012.
A Chartered Accountant, Steve was Finance
Director at National Grid plc from 2002 to
2010 and previously worked for 11 years at
Royal Dutch Shell and for six years at BG
Group, latterly as Group Treasurer.
Other directorships and offices
Steve is a non-executive Director of Acacia
Mining plc and Chairman of Ferrexpo plc.
Steve is also a Director of Mauser Group BV.
9. ANNE DRINKWATER
NON-EXECUTIVE DIRECTOR
Anne Drinkwater (age 61, British) was
appointed as a non-executive Director in
July 2012. Anne’s appointment followed a
long career at BP, where she held a number
of senior business and operations positions,
including President and Chief Executive
Officer of BP Canada Energy Company,
President of BP Indonesia and Managing
Director of BP Norway.
Other directorships and offices
Anne is a non-executive Director and the
non-executive Deputy Chairman of Aker
Solutions ASA (Norway) and is an oil and
gas adviser to the Government of the
Falkland Islands.
EHS*, A, R, N
10. JEREMY WILSON
NON-EXECUTIVE DIRECTOR
AND SENIOR INDEPENDENT
DIRECTOR DESIGNATE
Jeremy Wilson (age 52, British) was
appointed as a non-executive Director in
October 2013 following a 26-year career
at J.P. Morgan where he held a number
of senior positions, most recently Vice
Chairman of the Energy Group.
Other directorships and offices
Jeremy is a non-executive Director of
John Wood Group PLC (UK) and a director
of The Lakeland Climbing Centre Ltd and
the Lakeland Climbing Foundation.
A*, N, R, E&C
R*, N, A
11. MIKE DALY
NON-EXECUTIVE DIRECTOR
Mike Daly (age 63, British) was appointed
as a non-executive Director in June 2014
following a 28-year career at BP where he
held a number of senior roles. Most recently,
he was Executive Vice President Exploration,
and a member of BP’s Group executive team
until January 2014.
Other directorships and offices
Mike is a visiting Professor at the University
of Oxford and a Senior Director at Macro
Advisory Partners. Mike is also a non-executive
Director of CGG, an integrated geoscience
company based in France, which is listed on
the Euronext and New York Stock Exchanges.
A, N, EHS
KEVIN MASSIE
COMPANY SECRETARY
Kevin Massie was appointed Company
Secretary on 1 January 2016. Kevin was
previously Corporate Counsel and Deputy
Company Secretary at Tullow.
KEY
*
A
Committee Chair
Audit Committee
EHS EHS Committee
E&C Ethics and Compliance Committee
Nominations Committee
Remuneration Committee
N
R
>>
Audit Committee
Nominations Committee
EHS Committee
Remuneration Committee
69
74
76
80
43
1www.tullowoil.com PRINCIPAL RISKS
STRENGTHENING HOW
WE MANAGE RISKS
We recognise that effective risk management is fundamental to helping us achieve our strategic objectives.
Risk management is embedded in our critical business activities, functions and processes.
Materiality and our tolerance for risk are key considerations in our decision-making process.
Risk management is integral to Tullow’s strategy and to the
achievement of our long-term goals. Our success as an
organisation depends on our ability to identify, assess and
successfully manage our risks. Our approach to risk
management is designed to provide reasonable, but not
absolute assurance that our assets are safeguarded and the
risks facing the business are being mitigated. We believe that
an effective and joined-up risk management approach
enhances Tullow’s ability to achieve its strategic objectives,
and helps protect our business, people and reputation.
The Board, as part of its role in providing strategic oversight
and stewardship of the Company, is responsible for maintaining
an effective risk management and internal control system. The
Executive team, Group functional heads and Business Delivery
Teams (BDTs) are responsible and accountable for monitoring
and managing the risks that fall under their remit. It is then
every leader and manager’s job to manage the day-to-day risks
the Group may face. They are responsible for identifying the
risks, assessing them and establishing appropriate actions to
either manage, terminate or transfer the risk to an acceptable
level as defined by the Board.
Risk management process
The risk register continues to be the core element of the
risk management process. Each layer of the organisation is
responsible for maintaining a risk register at its business level,
which is reviewed formally on a quarterly basis at its business
performance reviews. The risk register identifies risks facing the
Group, which are assessed at both an inherent and residual level
against two scales: a) according to their likelihood; and b)
according to their potential consequence to the Group, not only
financially, but also in terms of safety, reputation, legal and
regulatory. This assessment enables the risk owners to determine
the strength of existing controls and mitigating actions and to
identify the additional treatment required to reduce the risk to
the agreed tolerance level. Tullow recognises that risk cannot
be totally eliminated and that there are some risks the Board will
choose to accept. These decisions will come down to experience
after consideration of the Group’s defined risk appetite.
The risk registers are consolidated upwards to the Group who
prepare a risk register, called the Enterprise Risk Register.
These enterprise risks are formally reviewed twice a year.
RISK HIERARCHY
Who is responsible?
Executive
Directors
Business and
Functional VPs
Business
Delivery Team
Project
Teams
44
Principal
risks
Enterprise risks
Business delivery risks
Project risks
Who is accountable?
Board, Audit
Committee,
Sub-Committees
Board,
Sub-Committees,
Executive Directors
Business
Delivery
Team VPs
BU Leadership,
BU Functional
Leads
Top-down
Accountability,
monitoring,
assurance and
evaluation of
actions
Bottom-up
Identification of
risks and
mitigating actions
for projects and
Business Delivery
Teams
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT The principal risks, which are the key risks facing the Company,
are a subset of the Enterprise risks. The risk register, its
method of preparation and the operation of key controls are
periodically reported to the Executive and the Audit
Committee. The Board has delegated responsibility for the
risk management process to the Audit Committee, and Group
Internal Audit is responsible for coordinating this process.
The risk management process is also an integral part of
the annual business planning process and ongoing business
performance management. A key component of the process
is not just risk identification, but also the ‘top-down’ and
‘bottom-up’ discussions that occur to agree mitigation plans
and evaluate actions and to understand compound risk and
risk interdependencies.
Our inherent risk universe
In order to ensure both complete and systematic identification
of risks and commonality of risk definitions, the Group maintains
a ‘risk universe’, which lists an extensive collection of potential
risks that could impact the Company’s performance. These
risks are separated into four classes: Strategic, Financial,
Operational and Compliance, which are further broken down in
to eleven risk categories. Executive Directors are assigned
responsibility for these categories and assurance and oversight
responsibilities are assigned to the
Board and respective Board Committees. A summary of
our risk universe is detailed below.
Risk appetite
The Board is responsible for setting the Group’s risk appetite
and acceptable risk tolerance levels and putting in place a
mechanism to monitor compliance with these agreed tolerances.
Risk workshops attended by the Executive Directors,
BDT VPs and Group Functional VPs were undertaken during
2016, to agree the principal risks, understand the risk
interdependencies and define tolerances for each risk.
In considering the Group’s risk appetite, the Board has
reviewed the risk process, the assessment of principal risks
and the existing controls and mitigating actions that drive
towards residual risk. The risk appetite has been adopted by
the Board of Directors and is kept under regular review (at least
annually) to reflect the current external and market conditions.
Principal risks
On pages 46 to 53 we have identified the principal risks that we
see as most relevant to Tullow at this time. There may be other
risks that could emerge in the future. If these risks are not
successfully managed, our cash flow, operating results,
financial position, business and reputation could be
materially adversely affected.
TULLOW’S RISK UNIVERSE
1
8
5
2
Strategic
4
3
About these risks
Internal risks associated with
inadequate strategy and external
risks associated with external
competitive, political and social
business environment
Oversight
Board
1. Strategy not fully achievable
in a sustained low oil price
environment
2. Inability to progress major
portfolio options
3. Failure to realise expected
value from Project TEN
due to ITLOS or Project
sub-performance
4. Disruption to business
due to political/regulatory
influence
5. Disruption to business
due to community and
political influence
11
Operational
9
6
Financial
7
10
12
Compliance
About these risks
Financial risks arising
from oil price volatility, cost
& capital discipline and
inaccurate financial reporting
Oversight
Board & Audit Committees
6. Insufficient liquidity and
funding capability
7. Failure to manage single
commodity price risk
About these risks
Operational risks arising from
health & safety, information
systems, development,
exploration and other
technical operational
process activities
Oversight
Board, Audit and
EHS Committees
8. Major process safety/
equipment/EHS failure
9. Inability to replenish
exploration portfolio
10. Major cyber or
information security
incident
11. Failure to have a
balanced, diverse
workforce & attractive
employee proposition
About these risks
Legal and compliance
risks arising from
unethical behaviour or
violation of applicable
laws and regulations
Oversight
Ethics & Compliance
Committee
12. Major breach of
business or ethical
conduct standards
45
1www.tullowoil.com PRINCIPAL RISKS
STRATEGIC
Principal Risks
1. Strategy not fully achievable in
sustained low oil price environment
Executive responsibility
Aidan Heavey
Chief Executive Officer
Link to business model
Sustainable long-term value growth
2. Inability to progress major
portfolio options
Executive responsibility
Ian Springett
Chief Financial Officer
Link to business model
Finance & Portfolio Management
3. Failure to realise expected value
from TEN due to ITLOS
Executive responsibility
Paul McDade
Chief Operating Officer
Link to business model
Development & Production
Causes
Potential Impact
Risk Mitigation and Assurance
2016 outcomes and ongoing actions
• Low oil price environment due to
• Business not robust to oil price downside
• Robust planning of strategy
• Improved Group capital allocation process
global supply/demand balances and
shift to alternative energy sources as a
result of climate change
• Inability to monetise chosen assets
• Inability to deleverage the business
• Capital committed to sub-optimal projects
• Overheads (i.e. G&A spend) not matched
to asset base
• Portfolio not optimised to sustain
long-term strategy
• Business plan reviewed and approved annually by the Board includes
options/alternatives for lower oil prices
• Significant reduction in 2017 planned
• Strict capital allocation process in line with business plan and gate
reviews for all new investments
• Detailed portfolio review
• Track delivery through rigorous regular performance management
• Tested and retained options for increased
and reporting
capital spend
EBITDA delivery
and reporting
• Regular investor meetings with Executive to gain feedback and challenge
• Focused on deleveraging options
• Board Strategy Day portfolio reviews
• Reduction in market appetite for
• Inability to monetise chosen assets
• Maintain a highly competent transaction capability
• Improved portfolio analysis
E&P assets
and deleverage balance sheet
• Write-downs on acquired assets
• Over investing in mature assets
for low returns
• Capital commitments requiring scarce
investment best spent elsewhere in
the portfolio
• Failure to exit mature assets at
appropriate time
• Exposure to decommissioning costs
• Regular portfolio assessments by the Board in the annual strategy review
• Bi-annual portfolio reviews with Business
• Meet relevant commercial and investment appraisal standards and
Delivery Teams
review all major acquisition or divestment proposals
• Portfolio review on Board agenda
• Major decisions and new country entry follow Executive Director/Board
• Executing current strategic portfolio plan
approval process
• Conduct post-transaction reviews, whether completed or aborted
current operations
• Focus on securing maximum value in
• Clear identification of level of commitments
in new licenses
• Successful farm down of Uganda and
disposal of Norway
• Freezing of new drilling activity in TEN
• Loss of some or all of TEN reserves/
• Regularly monitor the ITLOS case, analysing claims with expert
• Case progressed in line with schedule
as a result of ITLOS ruling
• ITLOS rules against Ghana in border
dispute with Côte d’Ivoire resulting in
movement of the maritime border and
TEN reserves/facilities into CDI waters
and suspension of drilling activities
facilities due to ITLOS decision putting
part of field in CDI waters
• Delay in resumption of development
drilling plans and production ramp-up
counsel assistance
defined by ITLOS
• Work closely with the Government of Ghana to understand fully
• Scenario analysis undertaken
the potential impact and encourage continued dialogue between
both countries
4. Disruption to business due
to political/regulatory influence
Executive responsibility
Paul McDade
Chief Operating Officer
Link to business model
Responsible Operations and
Shared Prosperity
• Fiscal pressures on governments as a
result of reduced revenues due to low
oil price and local currency exchange
rate challenges
• Uncertainty arising from changes in
government leadership
• Pace of national content requirements
• Significant variance to plans due to delayed
regulatory approvals/lack of support
• Regulatory and tax changes
affecting profitability and viability of
projects/operations
• Non-Technical Risk Standard sets minimum requirements
• Fully embedded Non-Technical Risk Standard
for stakeholder management
• Mapped and set out integrated solutions for
• Country Strategy Papers and stakeholder engagement plans,
complex risks
supported by experienced staff to manage developments
• Negotiated TEN gas sales /delivery
• Safety, Sustainability and External Affairs (SSEA) scorecard
agreements and delivered TEN successfully
monitors effectiveness
• Negotiated settlement of tax disputes
46
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT STRATEGIC
Principal Risks
1. Strategy not fully achievable in
• Low oil price environment due to
• Business not robust to oil price downside
• Robust planning of strategy
• Improved Group capital allocation process
Causes
Potential Impact
Risk Mitigation and Assurance
2016 outcomes and ongoing actions
sustained low oil price environment
global supply/demand balances and
shift to alternative energy sources as a
result of climate change
Executive responsibility
Aidan Heavey
Chief Executive Officer
Link to business model
Sustainable long-term value growth
• Inability to monetise chosen assets
• Inability to deleverage the business
• Capital committed to sub-optimal projects
• Overheads (i.e. G&A spend) not matched
to asset base
• Portfolio not optimised to sustain
long-term strategy
• Business plan reviewed and approved annually by the Board includes
and reporting
options/alternatives for lower oil prices
• Significant reduction in 2017 planned
• Strict capital allocation process in line with business plan and gate
reviews for all new investments
capital spend
• Detailed portfolio review
• Track delivery through rigorous regular performance management
• Tested and retained options for increased
and reporting
EBITDA delivery
• Regular investor meetings with Executive to gain feedback and challenge
• Focused on deleveraging options
• Board Strategy Day portfolio reviews
2. Inability to progress major
• Reduction in market appetite for
• Inability to monetise chosen assets
• Maintain a highly competent transaction capability
• Improved portfolio analysis
E&P assets
portfolio options
Executive responsibility
Ian Springett
Chief Financial Officer
Link to business model
Finance & Portfolio Management
and deleverage balance sheet
• Write-downs on acquired assets
• Over investing in mature assets
for low returns
• Capital commitments requiring scarce
investment best spent elsewhere in
the portfolio
• Failure to exit mature assets at
appropriate time
• Exposure to decommissioning costs
• Regular portfolio assessments by the Board in the annual strategy review
• Bi-annual portfolio reviews with Business
• Meet relevant commercial and investment appraisal standards and
Delivery Teams
review all major acquisition or divestment proposals
• Portfolio review on Board agenda
• Major decisions and new country entry follow Executive Director/Board
• Executing current strategic portfolio plan
approval process
• Focus on securing maximum value in
• Conduct post-transaction reviews, whether completed or aborted
current operations
• Clear identification of level of commitments
in new licenses
• Successful farm down of Uganda and
disposal of Norway
3. Failure to realise expected value
• Freezing of new drilling activity in TEN
• Loss of some or all of TEN reserves/
• Regularly monitor the ITLOS case, analysing claims with expert
• Case progressed in line with schedule
as a result of ITLOS ruling
facilities due to ITLOS decision putting
counsel assistance
defined by ITLOS
• Work closely with the Government of Ghana to understand fully
• Scenario analysis undertaken
the potential impact and encourage continued dialogue between
both countries
from TEN due to ITLOS
Executive responsibility
Paul McDade
Chief Operating Officer
Link to business model
Development & Production
• ITLOS rules against Ghana in border
part of field in CDI waters
dispute with Côte d’Ivoire resulting in
• Delay in resumption of development
movement of the maritime border and
drilling plans and production ramp-up
TEN reserves/facilities into CDI waters
and suspension of drilling activities
4. Disruption to business due
• Fiscal pressures on governments as a
• Significant variance to plans due to delayed
• Non-Technical Risk Standard sets minimum requirements
• Fully embedded Non-Technical Risk Standard
to political/regulatory influence
result of reduced revenues due to low
regulatory approvals/lack of support
for stakeholder management
• Mapped and set out integrated solutions for
• Country Strategy Papers and stakeholder engagement plans,
complex risks
supported by experienced staff to manage developments
• Negotiated TEN gas sales /delivery
• Safety, Sustainability and External Affairs (SSEA) scorecard
agreements and delivered TEN successfully
monitors effectiveness
• Negotiated settlement of tax disputes
oil price and local currency exchange
rate challenges
• Regulatory and tax changes
affecting profitability and viability of
• Uncertainty arising from changes in
projects/operations
government leadership
Responsible Operations and
• Pace of national content requirements
Executive responsibility
Paul McDade
Chief Operating Officer
Link to business model
Shared Prosperity
47
1www.tullowoil.com PRINCIPAL RISKS CONTINUED
STRATEGIC CONTINUED
Principal Risks
Causes
Potential Impact
Risk Mitigation and Assurance
2016 outcomes and ongoing actions
5. Disruption to business due to
community and political influence
Executive responsibility
Paul McDade
Chief Operating Officer
Link to business model
Responsible Operations and
Shared Prosperity
• Conflicting interests between the
country government and traditional
leadership models
• Government inability to deliver
infrastructure on time for
projects and provide security
for critical infrastructure
• Inability to achieve community support
for new projects due to opposition/loss
of licence to operate leading to delays
in project delivery
• Unplanned costs due to community
unrest/opposition
• Inability to gain land lease extensions
• Significant security risk to Tullow
employees and contractors
• Implementation of country strategies and action plans
• Improved stakeholder strategy
• Group Non Technical Risk Standard in place requiring stakeholder
• Developed an approach and plan to obtain
engagement strategy/plan and ESIA for each project
• Adequately staffed and competent SSEA staff
• Social Investments projects mapped to business development plans
• Plans to increase local content incorporated into contracting strategy
agreements with communities
• Landscape level approach to
development adopted
FINANCIAL
Principal Risks
6. Insufficient liquidity and
funding capability
Executive responsibility
Ian Springett
Chief Financial Officer
Link to business model
Finance and Portfolio Management
Causes
Potential Impact
Risk Mitigation and Assurance
2016 outcomes and ongoing actions
• Lack of capital discipline and
• Inability to finance strategic objectives
unsuccessful portfolio management
• Reduced asset quality limiting ability
to raise debt
• Reduced bank/DCM appetite for
E&P sector as a result of capital
markets uncertainty
• Significant unplanned cash outflows
and elevated leverage
• Liquidity headroom squeezed
• Ability to raise further debt constrained
• Inability to fund capital investment /projects
• Prudent approach to diversified debt and equity, with
a balance maintained through business planning and
performance management processes
• Board-approved funding policy targets in place
• Optimisation of debt capital structure
• Good relationships with banks and capital markets investors
• Regular funding and liquidity projections reported to management
and periodic financing strategy review carried out
• Financing standard in place to ensure optimal funding
• $300 million additional bank commitments
secured in 2016
• Strength of assets retained debt capacity
despite fall in oil prices
• 2016 year-end facility headroom and free cash
of $1 billion; net debt of $4.8 billion
• Mark-to-market value of hedging instruments
$91 million at end of 2016
• 2017 financing initiatives in progress
• Capital allocation process to meet funding targets
• Oil price decline
7. Failure to manage commodity
price risk
Executive responsibility
Ian Springett
Chief Financial Officer
Link to business model
Finance and Portfolio Management
• Commodity price volatility reduces
cash flow and asset value
• Reduced revenues, EBITDA, debt
capacity and funding to support
investment programme
• Board-approved hedge programme to protect against low oil prices
• Mark-to-market value of oil hedges at the end
• Programme monitored regularly and communicated to the Board
of 2016 was $91 million
• Hedging programme executed and approved in accordance with the policy
• Regular review of hedge strategy, position and effectiveness
• Approximately 60 per cent of 2017 entitlement
oil production hedged at an average floor price
of $60/bbl
48
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT STRATEGIC CONTINUED
5. Disruption to business due to
• Conflicting interests between the
• Inability to achieve community support
community and political influence
country government and traditional
for new projects due to opposition/loss
leadership models
of licence to operate leading to delays
Executive responsibility
Paul McDade
Chief Operating Officer
Link to business model
Responsible Operations and
Shared Prosperity
• Government inability to deliver
infrastructure on time for
projects and provide security
for critical infrastructure
in project delivery
• Unplanned costs due to community
unrest/opposition
• Inability to gain land lease extensions
• Significant security risk to Tullow
employees and contractors
FINANCIAL
Principal Risks
funding capability
Executive responsibility
Ian Springett
Chief Financial Officer
Link to business model
6. Insufficient liquidity and
• Lack of capital discipline and
• Inability to finance strategic objectives
Finance and Portfolio Management
markets uncertainty
unsuccessful portfolio management
• Reduced asset quality limiting ability
to raise debt
• Reduced bank/DCM appetite for
E&P sector as a result of capital
• Significant unplanned cash outflows
and elevated leverage
• Liquidity headroom squeezed
• Ability to raise further debt constrained
• Inability to fund capital investment /projects
Principal Risks
Causes
Potential Impact
Risk Mitigation and Assurance
2016 outcomes and ongoing actions
• Implementation of country strategies and action plans
• Improved stakeholder strategy
• Group Non Technical Risk Standard in place requiring stakeholder
• Developed an approach and plan to obtain
engagement strategy/plan and ESIA for each project
• Adequately staffed and competent SSEA staff
• Social Investments projects mapped to business development plans
• Plans to increase local content incorporated into contracting strategy
agreements with communities
• Landscape level approach to
development adopted
Causes
Potential Impact
Risk Mitigation and Assurance
2016 outcomes and ongoing actions
• Prudent approach to diversified debt and equity, with
a balance maintained through business planning and
performance management processes
• Board-approved funding policy targets in place
• Optimisation of debt capital structure
• Good relationships with banks and capital markets investors
• Regular funding and liquidity projections reported to management
and periodic financing strategy review carried out
• Financing standard in place to ensure optimal funding
• $300 million additional bank commitments
secured in 2016
• Strength of assets retained debt capacity
despite fall in oil prices
• 2016 year-end facility headroom and free cash
of $1 billion; net debt of $4.8 billion
• Mark-to-market value of hedging instruments
$91 million at end of 2016
• 2017 financing initiatives in progress
• Capital allocation process to meet funding targets
7. Failure to manage commodity
• Oil price decline
price risk
Executive responsibility
Ian Springett
Chief Financial Officer
Link to business model
Finance and Portfolio Management
• Commodity price volatility reduces
cash flow and asset value
• Reduced revenues, EBITDA, debt
capacity and funding to support
investment programme
• Board-approved hedge programme to protect against low oil prices
• Mark-to-market value of oil hedges at the end
• Programme monitored regularly and communicated to the Board
of 2016 was $91 million
• Hedging programme executed and approved in accordance with the policy
• Regular review of hedge strategy, position and effectiveness
• Approximately 60 per cent of 2017 entitlement
oil production hedged at an average floor price
of $60/bbl
49
1www.tullowoil.com PRINCIPAL RISKS CONTINUED
OPERATIONAL
Principal Risks
8. Major process safety/
equipment/EHS failure
Executive responsibility
Paul McDade
Chief Operating Officer
Link to business model
Development & Production
Causes
Potential Impact
Risk Mitigation and Assurance
2016 outcomes and ongoing actions
• Inadequate maintenance of safety
• Multiple fatalities
• Independently verified safety cases to demonstrate risks reduced
• Safety case verification by industry experts
critical equipment onboard Jubilee/
TEN FPSOs Loss of wells, subsea
equipment or FPSOs systems
• Error in well design, equipment
selection or programme
• Ineffective standards and procedures
or improper work practices
• Loss of rig position
• Serious environmental or asset damage
• Serious reputational damage
• Significant financial consequences
• Significant loss of production, injection
or export capacity
to ALARP and EHS management system in place and risk
insurance provided
• Minimum Asset Integrity, maintenance and planning
requirements mandated
• Effective controls within Jubilee Turret Case to Operate
• Analysis of key FPSO systems (power, gas, water etc.) to support
top quartile reliability and computerised maintenance management
system (CMMS) to manage asset integrity
• Standard processes in place for major topside upgrades and to
manage equipment corrosion and well integrity
• Competency training assessment programmes, regular emergency
response exercise and oil spill contingency plans in place
• Skilled and well trained people to ensure safe operations
• All wells designed, constructed and operated in accordance
with appropriate standards and procedures
• Third party well examination, internal audit and assurance
processes carried out
• Competency gaps/losses identified
• Assurance against production
operations standards
• Assurance against Production Well
Integrity Procedure
• Original turret manufacturer and JV partners
input to CtO, with external assurance
• Asset Integrity and Reliability Plan in place
• Well integrity Management System and FPSO
Performance Standards and Assurance and
verification criteria implemented
• Insurance process in place
• Frequent review of Well Engineering
Management System to ensure well control
risk effectively addressed
• Rig HSE Case and third-party equipment
audits carried out
• Training and competency matrix and asset
integrity and reliability plan in place
9. Inability to replenish
exploration portfolio
Executive responsibility
Angus McCoss
Exploration Director
Link to business model
Exploration and Appraisal
• Lack of/under investment in portfolio
• Failure to replenish exploration acreage
• New opportunities are considered against existing portfolio to maintain
• New licence granted in Namibia
high grading activities
or fund new ventures
diversity of prospects and the exploration portfolio is reviewed annually
• Farm-down of licences in Pakistan, Norway,
• Lack of dedicated resources to identify
• Loss of reputation and exploration value
• An Exploration and Appraisal Values Controls Standard in place
Mauritania and Uganda
new business activities
from share price
• Failure to encourage entrepreneurial/
creative exploration innovation or
de-motivation of key staff
• Sustained exploration failure results
in poor or no drill-ready prospects
• Exploration and Development Geosciences Executive team work across
• Review of New Ventures strategy
the business on portfolio planning
• Seismic interpretation used to decipher
• A review of exploration prospect inventory and tracking of net prospective
best prospects
risked resources takes place twice a year
• Ongoing farm-downs to reduce Tullow equity
earlier in licence cycle
10. Major cyber or information
security incident
Executive responsibility
Angus McCoss
Exploration Director
Link to business model
Governance and Risk Management
• External cyber-attack resulting in
network compromise or disruptive/
destructive impact to Industrial
Control Systems
• Deliberate or accidental internal theft/
loss of confidential information
• Disruption to or halt of critical business
systems resulting in stopped production,
explosion or loss of life
• Loss or theft of confidential information
• Loss of competitive advantage and
intellectual property
• Reputational damage
• Tullow culture and values not embedded
• Loss of key personnel/lack of succession
• Biannual performance and development cycle
• Staff do not support our current
and increased staff turnover
• Succession planning, localisation and diversity objectives are set
operating model
• Lack of in-house skills and requirement
and key targets monitored
• Lack of staff confidence in strategy
and senior leadership
• Diversity and localisation plans not
effectively implemented
• Ineffective staff development and
reward programmes
to buy-in short-term contractors
increases costs
• Negative relations with the government due
to failure to implement localisation plans
• Reputational damage
11. Failure to have a balanced,
diverse workforce and attractive
employee proposition
Executive responsibility
Aidan Heavey
Chief Executive Officer
Link to business model
Organisation & Culture
50
• Advanced Security Operations Centre (ASOC) provides global monitoring,
• Ongoing enterprise-wide awareness training,
analysis, alerting and incident response
with additional bespoke training for higher
• Bespoke advanced security equipment used at key operations sites
• Active member of Cyber Information Sharing Partnership (CISP)
• Third-party specialists analyse vulnerabilities and provide network
assurance activities
• Enterprise-wide information security awareness training, aligned with
Information Security Standards
risk areas
• Ongoing improvement of network
infrastructure resilience
• Specialist external assurance of TEN and
Jubilee Industrial Control Systems
• Nominations Committee focus on diversity plan
• Periodic reporting to Executives of HR data
• Staff engagement plan is agreed with HR, Communications and
• Review and revision of reward packages
Executives, with key actions
• Diversity plan defined with actions
• Annual Employee Engagement Survey and annual review of reward package
implemented for 2016
• Revised organisation design with
clear accountabilities
• Embedded performance management framework
• Implementation of employee engagement plan
• Restructured HR delivery and reward team
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT OPERATIONAL
Principal Risks
8. Major process safety/
equipment/EHS failure
Executive responsibility
Paul McDade
Chief Operating Officer
Link to business model
Development & Production
critical equipment onboard Jubilee/
TEN FPSOs Loss of wells, subsea
equipment or FPSOs systems
• Error in well design, equipment
selection or programme
• Ineffective standards and procedures
or improper work practices
• Loss of rig position
• Serious environmental or asset damage
• Serious reputational damage
• Significant financial consequences
• Significant loss of production, injection
or export capacity
Causes
Potential Impact
Risk Mitigation and Assurance
2016 outcomes and ongoing actions
• Inadequate maintenance of safety
• Multiple fatalities
• Independently verified safety cases to demonstrate risks reduced
• Safety case verification by industry experts
to ALARP and EHS management system in place and risk
insurance provided
• Minimum Asset Integrity, maintenance and planning
requirements mandated
• Effective controls within Jubilee Turret Case to Operate
• Analysis of key FPSO systems (power, gas, water etc.) to support
top quartile reliability and computerised maintenance management
system (CMMS) to manage asset integrity
• Standard processes in place for major topside upgrades and to
manage equipment corrosion and well integrity
• Competency training assessment programmes, regular emergency
response exercise and oil spill contingency plans in place
• Skilled and well trained people to ensure safe operations
• All wells designed, constructed and operated in accordance
with appropriate standards and procedures
• Third party well examination, internal audit and assurance
processes carried out
• Competency gaps/losses identified
• Assurance against production
operations standards
• Assurance against Production Well
Integrity Procedure
• Original turret manufacturer and JV partners
input to CtO, with external assurance
• Asset Integrity and Reliability Plan in place
• Well integrity Management System and FPSO
Performance Standards and Assurance and
verification criteria implemented
• Insurance process in place
• Frequent review of Well Engineering
Management System to ensure well control
risk effectively addressed
• Rig HSE Case and third-party equipment
audits carried out
• Training and competency matrix and asset
integrity and reliability plan in place
exploration portfolio
Executive responsibility
Angus McCoss
Exploration Director
Link to business model
Exploration and Appraisal
new business activities
from share price
• Failure to encourage entrepreneurial/
• Sustained exploration failure results
creative exploration innovation or
in poor or no drill-ready prospects
de-motivation of key staff
security incident
Executive responsibility
Angus McCoss
Exploration Director
Link to business model
Governance and Risk Management
destructive impact to Industrial
explosion or loss of life
Control Systems
• Deliberate or accidental internal theft/
loss of confidential information
• Loss or theft of confidential information
• Loss of competitive advantage and
intellectual property
• Reputational damage
diverse workforce and attractive
employee proposition
Executive responsibility
Aidan Heavey
Chief Executive Officer
Link to business model
Organisation & Culture
• Staff do not support our current
operating model
• Lack of staff confidence in strategy
and senior leadership
• Diversity and localisation plans not
effectively implemented
• Ineffective staff development and
reward programmes
and increased staff turnover
• Lack of in-house skills and requirement
to buy-in short-term contractors
increases costs
• Negative relations with the government due
to failure to implement localisation plans
• Reputational damage
9. Inability to replenish
• Lack of/under investment in portfolio
• Failure to replenish exploration acreage
high grading activities
or fund new ventures
• New opportunities are considered against existing portfolio to maintain
diversity of prospects and the exploration portfolio is reviewed annually
• New licence granted in Namibia
• Farm-down of licences in Pakistan, Norway,
• Lack of dedicated resources to identify
• Loss of reputation and exploration value
• An Exploration and Appraisal Values Controls Standard in place
Mauritania and Uganda
• Exploration and Development Geosciences Executive team work across
• Review of New Ventures strategy
the business on portfolio planning
• Seismic interpretation used to decipher
• A review of exploration prospect inventory and tracking of net prospective
best prospects
10. Major cyber or information
• External cyber-attack resulting in
• Disruption to or halt of critical business
• Advanced Security Operations Centre (ASOC) provides global monitoring,
network compromise or disruptive/
systems resulting in stopped production,
analysis, alerting and incident response
risked resources takes place twice a year
• Bespoke advanced security equipment used at key operations sites
• Active member of Cyber Information Sharing Partnership (CISP)
• Third-party specialists analyse vulnerabilities and provide network
assurance activities
• Enterprise-wide information security awareness training, aligned with
Information Security Standards
11. Failure to have a balanced,
• Tullow culture and values not embedded
• Loss of key personnel/lack of succession
• Biannual performance and development cycle
• Succession planning, localisation and diversity objectives are set
and key targets monitored
• Nominations Committee focus on diversity plan
• Periodic reporting to Executives of HR data
• Ongoing farm-downs to reduce Tullow equity
earlier in licence cycle
• Ongoing enterprise-wide awareness training,
with additional bespoke training for higher
risk areas
• Ongoing improvement of network
infrastructure resilience
• Specialist external assurance of TEN and
Jubilee Industrial Control Systems
• Revised organisation design with
clear accountabilities
• Embedded performance management framework
• Implementation of employee engagement plan
• Restructured HR delivery and reward team
• Staff engagement plan is agreed with HR, Communications and
• Review and revision of reward packages
Executives, with key actions
• Diversity plan defined with actions
• Annual Employee Engagement Survey and annual review of reward package
implemented for 2016
51
1www.tullowoil.com PRINCIPAL RISKS CONTINUED
COMPLIANCE
Principal Risks
12. Major breach of business
or ethical conduct standards
Executive responsibility
Aidan Heavey
Chief Executive Officer
Link to business model
Governance and Risk Management
Causes
Potential Impact
Risk Mitigation and Assurance
2016 outcomes and on-going actions
• Insufficient staff understanding
• Unethical behaviour
• Oversight and leadership from the Ethics & Compliance Committee
• Improved engagement of Ethics & Compliance
of compliance
• Breaches anti-corruption laws
• Implementation of the Tullow Code of Ethical Conduct, with annual
• Poor leadership behaviour
• Insufficient ‘speaking up’ culture
• Investigations result in
reputational damage
• Lack of compliance monitoring
in business units and failure to
adequately respond to non-compliance
• Cost of investigations and fines
• Senior officers liable under
UK Bribery Act
certification process carried out with all staff
• Gifts and Hospitality (G&H) Standard maintained and assured, with online
G&H register available to all staff
• Other relevant Ethics & Compliance standards, policies and procedures
in place, adhered to and maintained
• Leadership leading by example and advocating good behaviour
• Dedicated Ethics & Compliance Advisers in key Business Units
• Appropriate due diligence carried out in relation to service providers,
contractors and other counter-parties
• Appropriate anti-bribery and corruption provisions in agreements with
service providers, contractors and other counter-parties
in the business
• Developed and launched E-Learning
module to continue to promote the
Code of Ethical Conduct
• Consolidation of monitoring and assurance
plan to be used by Business Units
• Revised and implemented key standard to
manage Expenditure relating to Public Officials
• Achieved 97 per cent completion of the
self-certification of compliance with the
Code of Ethical Conduct
• Received and investigated 91 speak up cases
• Continued local fraud awareness training
VIABILITY STATEMENT
In accordance with provision C2.2. of the 2014 revision of the
UK Corporate Governance Code, the Board has assessed the
prospects and the viability of the Group over a longer period
than the 12 months required by the ‘Going Concern’ provision.
The Board conducted this review for a period of three years
taking into account the Group’s current position and
potential impact of its principal risks. The three-year period
was selected for the following reasons:
i. the Group’s strategic plan, which considers the Group’s
facility and free cash headroom, debt:equity mix, and other
financial ratios, is undertaken over a three-year rolling
period; and
ii. all of Tullow’s material exploration licence commitments
fall within the next three years.
Based on these factors, the Directors consider that a
three-year assessment period appropriately reflects the
underlying prospects and viability of the Group, and the
period over which the principal risks are reviewed.
In order to make an assessment on the Group’s viability, the
Directors have made a detailed assessment of the Group’s
principal risks, and the potential implications these risks
would have on the Group’s liquidity and its business model
over the assessment period. This assessment included,
where appropriate, detailed cash flow analysis, and the
Directors also considered a number of reasonably plausible
downside scenarios, and combinations thereof, together with
associated summaries/documents provided by the Group’s
Finance and Treasury teams. The assessment has assumed
that capital markets continue to operate under normal
market conditions.
The Directors have also identified mitigating actions
which the Group already has in place, such as hedging
and insurance, and additional mitigating actions that are
available to the Group, such as additional funding options,
further rationalisation of our cost base including cuts to
discretionary capital expenditure and portfolio management.
Based on the results of the analysis the Board of Directors
has a reasonable expectation that the Company will be able
to continue in operation and meet its liabilities as they fall
due over the three-year period of their assessment.
Notwithstanding our forecasts of liquidity headroom
throughout the assessment period, risk remains in relation
to the volatility of the oil price environment, operational
performance of the Group’s assets, their impact on operating
cash flows and the Group’s currently contracted debt
maturity profiles, such that the Group’s liquidity position may
deteriorate within the assessment period and the Group may
become non-compliant with one of its financial covenants
during the assessment period. To mitigate these risks and to
fulfil the Group’s objective to reduce net debt, the Group
continues to closely monitor cash flow projections and will
take mitigating actions in advance to maintain our liquidity.
52
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT COMPLIANCE
Principal Risks
12. Major breach of business
or ethical conduct standards
Executive responsibility
Aidan Heavey
Chief Executive Officer
Link to business model
Governance and Risk Management
of compliance
• Poor leadership behaviour
• Insufficient ‘speaking up’ culture
• Lack of compliance monitoring
in business units and failure to
• Breaches anti-corruption laws
• Investigations result in
reputational damage
• Cost of investigations and fines
• Senior officers liable under
adequately respond to non-compliance
UK Bribery Act
Causes
Potential Impact
Risk Mitigation and Assurance
2016 outcomes and on-going actions
• Insufficient staff understanding
• Unethical behaviour
• Oversight and leadership from the Ethics & Compliance Committee
• Improved engagement of Ethics & Compliance
• Implementation of the Tullow Code of Ethical Conduct, with annual
certification process carried out with all staff
• Gifts and Hospitality (G&H) Standard maintained and assured, with online
G&H register available to all staff
in the business
• Developed and launched E-Learning
module to continue to promote the
Code of Ethical Conduct
• Other relevant Ethics & Compliance standards, policies and procedures
in place, adhered to and maintained
• Leadership leading by example and advocating good behaviour
• Dedicated Ethics & Compliance Advisers in key Business Units
• Appropriate due diligence carried out in relation to service providers,
contractors and other counter-parties
• Appropriate anti-bribery and corruption provisions in agreements with
service providers, contractors and other counter-parties
• Consolidation of monitoring and assurance
plan to be used by Business Units
• Revised and implemented key standard to
manage Expenditure relating to Public Officials
• Achieved 97 per cent completion of the
self-certification of compliance with the
Code of Ethical Conduct
• Received and investigated 91 speak up cases
• Continued local fraud awareness training
GOING CONCERN
The Group closely monitors and manages its liquidity risk.
Cash forecasts are regularly produced and sensitivities run
for different scenarios including, but not limited to, changes
in commodity prices and different production rates from the
Group’s producing assets. In the currently low commodity
price environment, the Group has taken appropriate action
to reduce its cost base and had $1.0 billion of debt liquidity
headroom and free cash at the end of 2016. The Group’s
forecasts show that the Group will be able to operate
within its current debt facilities and have sufficient financial
headroom for the 12 months from the date of approval of
the 2016 Annual Report and Accounts.
Notwithstanding our forecasts of liquidity headroom
throughout the 12-month period, risk remains in relation
to the volatility of the oil price environment, operational
performance of the Group’s assets, their impact on operating
cash flows and the Group’s currently contracted debt maturity
profiles, such that the Group’s liquidity position may
deteriorate within the assessment period.
To mitigate these risks and to fulfil the Group’s objective to
reduce net debt, the Group continues to closely monitor cash
flow projections and will take mitigating actions in advance to
maintain our liquidity. Actions available to the Group include
additional funding options, further rationalisation of our cost
base including cuts to discretionary capital expenditure and
portfolio management.
Based on the analysis above and the level of mitigating actions
available, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational
existence for the foreseeable future. Thus they continue to
adopt the going concern basis of accounting in preparing
the annual Financial Statements.
53
1www.tullowoil.com ORGANISATION & CULTURE
A LEAN & EFFICIENT
ORGANISATION
Despite the challenges of the downturn for Tullow and the industry, we ended 2015
with a new organisation structure that makes us more efficient, providing clearer
lines of responsibility and accountability inside the business.
CELEBRATING
OUR 30TH
ANNIVERSARY
Last year Tullow reached its
30-year anniversary, which
presented a company-wide
opportunity to celebrate the
company’s history, heritage
and values and reiterate its
vision and strategy.
Each major office planned various
activities and celebrations to mark
the day and provide opportunities
for informal staff meetings.
Staff in London networked
at a poster fair, which was
focused on sharing best practice
between functions, demonstrating
progress against the corporate
scorecard and cost cutting/
efficiency initiatives.
Employees from all over the group
contributed to a video montage of
Tullow people stories to showcase
the Company’s diversity. We also
ran a Tullow history quiz and a
timeline poster with the future left
blank for people to write their
thoughts on what Tullow’s future
could look like.
on career and personal development and
trust. We are now working to understand
the detailed reasons behind these
responses and will implement action
plans during 2017.
Reward
In order to attract and retain the best
talent available at all levels of the
organisation, our total reward package is
designed to be competitive in the oil and
gas sector and across all locations in
which Tullow operates. Our approach of
‘paying for performance’ ensures that
our employees are engaged and
motivated through an appropriate mix of
fixed (base salary, pension and benefits)
and variable (cash bonus and share
awards) rewards.
This year, we made changes to our
Employee Bonus Plan (EBP) and annual
performance management process to
better reflect our new structure and the
challenging business circumstances in
which we continue to operate.
The EBP has been changed to pay
30 per cent (up from 20 per cent)
of bonus to reflect Company
performance, while the remaining
70 per cent is dependent on an
employee’s individual performance.
Annual share awards, made under the
Employee Share Award Plan (ESAP),
will then match the value of the
employee’s annual bonus for the year.
The new EBP and ESAP are more
transparent to our employees and more
in line with the Tullow Incentive Plan (TIP)
offered at senior levels. We also believe
that the changes provide better employee
alignment with our overall Company
scorecard objectives and reflect our
collaborative approach and team spirit.
Introduction
A year on from the implementation of
Tullow’s Major Simplification Project (MSP),
which saw a headcount reduction of
around 40 per cent, and with further
headwinds and uncertainty generated
by lower and more volatile oil prices,
the teams across Tullow focused
on what we could control: project
execution, cost and efficiency.
From an organisational and cultural
perspective, we made progress in
embedding a more performance-
focused culture across our business.
Our organisational performance is
incentivised through Tullow’s Group
scorecard, related to Executive
Directors’ and employees’ variable pay.
See pages 16 to 21 for more
information.
Employee engagement
During the year, we carried out an
employee survey, Tullow Pulse, to ask
for employee feedback and views about
our organisation following our 2014 MSP.
Eighty-eight per cent of employees and
contractors took part in the survey, which
was the highest ever response rate. This
high level of engagement, with rich and
honest feedback, has paved the way to
put in place plans to build on the positive
feedback received and concentrate on
areas of concern. The survey showed
clear support for improvements in
financial governance and organisational
structure, which were two main features
of the MSP. There were also positive views
about our EHS performance, and the
performance of line managers, which
employees felt continued to improve
year on year. Areas which received less
favourable comments included certain
feedback for Senior Management, views
54
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT Around 1,100 Tullow employees across 12 countries benefited
from the first half of an exceptional ESAP award vesting in
December – the first time in six years that shares have vested
for current employees of the Company. This acknowledges
the collective effort in implementing the reorganisation of
the business through the MSP.
of the benefits of a diverse workforce through diversity and
inclusion workshops and held some sessions on unconscious
bias with the Executive and senior managers. In addition, we
conducted several focus groups to access employees’ views
and opinions on diversity and we have incorporated that
feedback into our plan.
Performance management, under the annual appraisal
process, has been simplified and now ranks performance
in three categories: outstanding, successful and developing.
These categories assist in providing more clarity to employees
on their performance and recognise the desired high-
performing nature of our organisation.
To ensure we have a broad perspective on these challenges
we carried out extensive external networking in our own sector
and beyond. We then undertook a benchmarking exercise to
gain a better understanding of the particular challenges of
increasing the number of technically skilled female and
African staff in the workforce.
Further work in this area included a regulatory requirements
review of employment law in all our countries of operations to
ensure we are compliant. At the end of the year we launched a
taskforce to assess our in-house recruitment and promotions
policies and procedures, the results of which will be reported
next year. Our scorecard this year also included the
development of a sustainable diversity plan.
Training and development
In 2016, we launched two major employee development
programmes across the organisation to prepare talented
people for future leadership roles. 24 high-potential employees
were selected to attend a development centre as part of the
Senior Leadership Programme where they were assessed
against a model of potential options for future roles and
were allocated targeted support from the leadership team.
A bespoke development plan was then designed for
each participant.
The Executive Development Programme identified eight
individuals in Tullow who have the potential to move into
an Executive level role within an agreed timeframe.
Participants were provided with a one-to-one assessment
to create a detailed profile outlining their strengths and
development needs.
In Ghana, we held a career development week. The event was
successful and will be run annually and used in other locations
to build capacity and remind employees of the leadership and
development tools and systems available.
We have implemented and applied a 70:20:10 development
Framework that provides 70 per cent on the job training and
experience, 20 per cent mentoring and 10 per cent formal
training. We also ran short focused courses to help leaders and
managers support the growth of their teams and improve
performance. Over 150 employees attended and more topics
will be introduced next year.
The employee survey showed clearly that career and personal
development is one of the most important areas for our
employees and we will address the issues raised through
a dedicated work stream and action plan in 2017.
People plan
During 2016, we completed work to ensure we have the right
size of organisation to meet Tullow’s business needs. While
there was a marked reduction in recruitment across the
Company, our offices in Ghana, Kenya and Uganda continued
to evolve, increasing the representation of local nationals in
their workforces, in line with the respective governments’
localisation objectives.
Tullow continues to focus on fair and equal representation
of African nationals and female employees across the group.
While we have strong diversity in nationality with 46 countries
represented, there is an under representation of Africans
in leadership roles. Our largest business in Ghana has over
65 per cent of employees from the African continent; over
a quarter of the workforce is British and the rest are from
other nations. However, the challenges in increasing African
participation are significant as the oil and gas sector is only
just developing in our countries of operations and so there
are currently fewer people with sector-specific skills.
Women made up 29 per cent (336/1,152) of our total workforce
(2015: 28 per cent; 396/1,403), 13 per cent (9/68) of senior
managers (2015: 12 per cent; 14/115); and 18 per cent
(2/11) of our Board of Directors.
While there is gender parity in many of our functions, there
are imbalances in Development & Operations and Information
Systems, reflecting the lower participation of women in these
industries in the UK. There are also more women in clerical
and administrative roles than in professional or senior
leadership levels. The Board is addressing these issues
through long-term planning and management of a sustainable
people plan and has endorsed a set of aspirational targets.
Diversity and inclusion
Our diversity and inclusion plan reinforces our policy of
not tolerating discrimination and recognising that our rich
diversity, skills, capabilities and cultural backgrounds can
add huge value to our business and enhance the employee
value proposition, staff engagement and retention.
Our focus in 2016 was to secure senior leadership
commitment to the diversity and inclusion agenda and to
raise awareness about the benefits of a diverse workforce.
One of the first actions we took was to scrutinise our whole
population data with the Executive team and those who report
to them so they fully understand our challenges and can start
to document progress. We also took steps to raise awareness
55
1www.tullowoil.com SHARED PROSPERITY
CREATING A POSITIVE
LONG-TERM LEGACY
Tullow has a role to play in creating shared prosperity and leaving a legacy of sustainable
social and economic benefits. We aim to do this by paying fair and appropriate amounts of tax,
being transparent in the payments we make to governments, creating local employment,
and building capacity to enable local businesses to compete as prospective suppliers to Tullow.
Tullow prides itself on its strong licence to
operate and deep relationships with host
governments in Africa, which are based
on a history of respect and delivery. These
relationships are underpinned by our
alignment to host governments’ national
priorities. Tullow’s successful exploration
has initiated nascent oil industries in
all three of our key operating countries.
There is therefore clearly a role for us
to play in supporting the development
of institutional and industry capacity
to meet our needs and to allow
governments and the national economies
to optimise the socio-economic benefits
that a growing oil industry can bring.
We do this by paying fair and appropriate
amounts of tax to our host governments,
being transparent about the taxes we
pay, creating local employment within
Tullow and across our supplier base, and
helping to build capacity to enable local
businesses to participate in our supply
chain and in the broader economy.
Tullow’s Group scorecard includes KPIs
that track the progress we make in the
area of Shared Prosperity, which account
for part of Executive Directors’ and
employees’ variable, performance-
related pay. See pages 16 to 21 for
more information.
Tax transparency
Our payments to governments, including
payments in kind, amounted to $438 million
in 2016 (2015: $391 million). Total payments
to all major stakeholder groups including
employees, suppliers and communities,
as well as governments, brought our total
socio-economic contribution to $1 billion
(2015: $1.1 billion). This included $337 million
spent with local suppliers, $227.4 million
56
“There is a role for us to
play in supporting the
development of institutional
and industry capacity to
meet our needs and to allow
governments and the
national economies to
optimise the socio-economic
benefits that a growing oil
industry can bring.”
Aidan Heavey
Chief Executive Officer
PAYMENTS TO GOVERNMENT
$438 M
Including payments in kind
TOTAL SOCIO-ECONOMIC
CONTRIBUTION
$1 BN
Including tax payments, local
supplier expenditure, Tullow
employee payroll and social
investment
LOCAL SUPPLIER SPEND
$337 M
Spent with indigenous companies
in our host countries
in payroll globally and $3.3 million in
discretionary spend on social projects.
Our total payments made to the
Ghanaian Government in 2016 amounted
to $236 million (2015: $237 million).
The increase in income taxes and Value
Added Tax was partially offset by a
reduction in our carried interest payments
of approximately $33 million.
Opportunities for local business
Activity on Ghana’s TEN Project and, more
recently, the Jubilee Turret Remediation
Project have created opportunities for
Tullow to meet our commitment to
increasing the participation of local
companies in our supply chain. Our strong
engagement with the Ghana Petroleum
Commission (PC) has been integral to
ensuring our efforts are aligned to
Local Content and Local Participation
Regulations (LI 2204). As a result of
initiatives such as unbundling large
scopes of work to identify opportunities
for participation of local businesses and
early recognition of contracts which can
be tendered exclusively in country, our
spend with local companies has increased
as a proportion of total supplier spend and
is up 5 per cent from 2015 to 17 per cent.
On selected contracts we continue to
mandate minimum local content
expectations within contracts with our
international suppliers. Contracts with
in-country capability in 2016 included:
construction, information services,
socio-economic investment projects, civil
engineering, training and consultancy
services, aviation and marine transport.
During the year in Ghana, there was a
notable shift in spend away from purely
international companies to Joint Ventures
between Ghanaian and international
Tullow Oil plc 2016 Annual Report and AccountsSTRATEGIC REPORT companies. Joint Ventures registered in-country meet the
requirements of LI2204, bring further foreign direct investment
to build capacity to meet the requirements of the industry,
and develop a competitive supplier base for Tullow to engage.
Tullow in Ghana continues to support local businesses to
develop their capacity to meet the high technical standards
and requirements of the oil and gas industry. Together with
the PC, we delivered three pre-tender seminars, bringing
the total number of local business development seminars
provided since 2013 to over 20, reaching 1,300 participants.
Outside the traditional oil and gas scope of work, Tullow
Ghana also carried out a six-month pilot programme where
25 per cent of our foreign exchange business was tendered
through indigenous banks. This initiative, supported by a
capacity-building seminar, received a commendation from
the PC. Our ongoing efforts were also recognised at the 2016
Offshore Oil and Gas Awards, where Tullow Ghana received
the Best Ghana/Local Content Initiative Award.
In Kenya, the trend of increasing the proportion of Tullow
capital expenditure targeting local suppliers continued. In
2016, 31 per cent of overall supplier spend was with Kenyan
businesses, up from 25 per cent in 2015. However, lower oil
prices in 2016 led to lower capital spending and a significant
reduction in operational activity, reducing the overall amount
spent with both local and international companies.
The increased participation of Kenyan businesses in Tullow’s
supply chain has been achieved as a result of a number of
initiatives included in our Local Content and Capacity Building
framework. These include supporting training in business
skills such as project management, record keeping, business
planning, accounting and marketing. This training targeted
small and medium-sized businesses which may benefit in
general from the presence of our industry, even if not directly
engaged in our supply chain. For potential suppliers, we also
provided training on the process and requirements for
participating in tenders, as well as mentorship programmes,
supplier on-boarding and quarterly supplier forums. This
approach is expected to help increase participation of local
suppliers across our activities.
SPEND WITH SUPPLIERS ($ MILLION)
$2,511
1,008
$2,044
719
$1,932
752
1,194
1,100
225
14
309
15
843
337
16
Internationals
International/JV
Local businesses
Local job creation
In Ghana, we have built a strong relationship with the regulator
to improve the number of nationals in the Ghana operations.
There have been a number of joint initiatives between the PC
and Tullow Ghana to support localisation through weekly
meetings, resulting in the joint review and signing off of
Tullow Ghana’s localisation plans. Ghana has also initiated
a localisation programme with five streams – Development,
Resourcing, Localisation Strategy, Localisation Performance
Management, and Employee Value Proposition – led by the
leadership team to address localisation challenges holistically.
The Ghana business introduced its RISERS Programme
which is focusing on developing high-potential employees into
management roles and enhancing localisation at the senior
levels. The programme is for two years with two development
streams: Future Managers Programme and Technical Experts
Programme. Eighteen employees, spread across various
functions, at mid-career level who have demonstrated
consistent strong performance and high potential have
been selected and are being developed in line with the
Tullow development framework on the programme.
Socio-economic investment
2016 was a year of transition for Tullow. Flagship
programmes, including our international scholarship
programme which saw 426 African students complete
master’s programmes in the UK and Ireland over the course
of six years, were completed. We completed our commitment
to the Jubilee Technical Training Centre (JTTC) in Takoradi,
Ghana, and that facility is now a part of Takoradi Polytechnic.
Finally, we opened both the Essikado Maternity Hospital and
Asuansi Science Laboratory and transferred the management
of both to the local authorities.
Tullow’s approach to socio-economic investment has been
reviewed and improved with a focus now on: 1) building
capacity through education STEM subjects – science, technology,
engineering and mathematics; 2) projects which strengthen
local and national economies; and 3) developing shared
infrastructure by adapting and leveraging Tullow’s
infrastructure plans and projects to benefit host communities.
Tullow will look for funding from other businesses, multilaterals
and foundations to better leverage our investments. To improve
delivery, we will commission partners with expertise in
implementing projects. Putting this new approach into
operation will be a priority in 2017.
This Strategic Report and the information referred to herein
have been approved by the Board and signed on its behalf by:
Kevin Massie
Corporate Counsel and Company Secretary
57
K_Org_Culture_Shared_Prosp_TLW_AR16_SR.indd 4
23/02/2017 14:42:57
1www.tullowoil.com Operatives onboard the TEN FPSO,
Prof. John Evans Atta Mills,
offshore Ghana
58
Tullow Oil plc 2016 Annual Report and Accounts 2 CORPORATE
GOVERNANCE
Directors’ report
Audit Committee report
Nominations Committee report
EHS Committee report
Ethics & Compliance Committee report
Remuneration report
Other statutory information
60
69
74
76
78
80
101
59
www.tullowoil.com DIRECTORS’ REPORT
APPLYING THE UK CORPORATE
GOVERNANCE CODE
The UK Corporate Governance Code
As a UK premium listed Company, Tullow Oil plc’s governance
policies and procedures are based on the principles of the UK
Corporate Governance Code (2014) (‘the Code’). A copy of the
Code is available at www.frc.org.uk. Notwithstanding the fact
that the reporting period to which this document relates began
before 17 June 2016, the Company considered it beneficial to
adopt the provisions of the April 2016 edition of the Code for the
year ended 31 December 2016 earlier than required by the UK
Listing Rules.
This corporate governance report describes how the Company
has applied the principles and standards set out in the Code
during the year and sets out our activities relating to the main
sections of the Code: leadership, effectiveness, accountability,
remuneration and relations with shareholders.
The Company is also required to disclose whether it has
complied with the more detailed provisions of the Code during
the year and, to the extent it has not done so, to explain any
deviations from them. It is the Board’s view that the Company
has fully complied with all of the provisions of the Code during
the year ended 31 December 2016. While the Board believes
that the Company has been fully compliant with the Code
during the year ended 31 December 2016, Tullow’s recent
announcement of proposed Board changes, specifically the
appointment of Aidan Heavey as non-executive Chairman from
the conclusion of the 2017 Annual General Meeting subject to
shareholder approval, contravenes section A.3.1. of the Code.
The Board believes that this is a necessary and temporary
deviation from the principles of the Code in order to ensure an
orderly transition of key stakeholder relationships held by Aidan
as the Company’s founder and long-serving Chief Executive
Officer as he moves into retirement. A full explanation of the
Board’s decision is set out on page 75 of the Nominations
Committee report.
Leadership
The long-term success of the Company is the collective
responsibility of the Board.
The role of the Board
The Board is accountable to shareholders for the creation
and delivery of strong, sustainable financial performance and
long-term shareholder value. It meets these aims through setting
the Group’s strategy and ensuring that the necessary resources
are available to achieve the agreed strategic goals. The Board also
sets the Company’s key policies and reviews management and
financial performance. The Board operates within a framework
of controls and these clear procedures, lines of responsibility and
delegated authorities allow risk to be assessed and managed
effectively. These are underpinned by the Board’s work to set
the Group’s core values and standards of business conduct and
ensure that these, together with the Group’s obligations to its
stakeholders, are widely understood across all its activities.
Board meetings and visits
The Board and its Committees deal with its core activities in
planned meetings throughout the year. Matters which require
decisions outside the scheduled meetings are dealt with
through additional ad hoc meetings and conference calls.
During 2016, the Board met seven times. A programme of
strategy presentations covering a wide number of operational
and other issues is made to the Board in June each year.
During the year, each of the Business Delivery Team heads and
other heads of functions presented a strategic overview of their
respective area to the Board for endorsement. In addition, the
Board reviewed and approved the implementation of Tullow’s
Integrated Management System designed to centralise and
simplify Tullow’s policies and processes and more clearly map
accountabilities within the business. The Board also regularly
reviews the Enterprise Risk Management System and the risks
facing the Company in conjunction with the Audit Committee.
The Board normally holds one Board meeting at a principal
overseas office of the Group. These meetings ensure that the Board
has a clear knowledge of the Company’s overseas operations.
During the trip, Senior Management from across the Group present
to the Board and have an opportunity to meet its members
informally. In addition, the Board meets a broad cross-section of
staff, assesses Senior Managers and reviews in-depth operational
matters and, in particular, matters relating to non-technical risks.
In October 2016, the Board travelled to Cape Town.
The Chairman and the Chief Executive Officer maintain frequent
contact with the other Directors in addition to the regular Board
meetings. This ensures that all members of the Board have
an opportunity to discuss any issues of concern and to be fully
briefed on the Group’s operations.
60
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Matters reserved
The Board has a formal schedule of matters reserved that can
only be decided by the Board. This schedule is reviewed by the
Board each year. The key matters reserved are the
consideration and approval of:
• the Group’s overall strategy;
• Financial Statements and dividend policy;
• borrowings and treasury policy;
• material acquisitions and disposals, changes to the Group’s
capital structure, material contracts, major capital
expenditure projects and budgets;
• entry into new countries;
• risk management and internal controls (supported by the
Audit Committee);
• succession planning and appointments (supported by the
Nominations Committee);
• the Group’s corporate governance and compliance
arrangements; and
• key corporate policies.
Summary of the Board’s work in the year
During 2016, the Board considered all relevant matters within
its remit, with a particular focus on the following issues:
• strategy and resource allocation;
• non-technical risks in major areas of operation;
• portfolio management;
• finance and treasury;
• governance and compliance;
• assurance, risk and internal audit; and
• organisational design and diversity, capacity and
succession planning.
Attendance at meetings
The attendance of Directors at the seven scheduled meetings
of the Board held during 2016 was as follows:
Director
Tutu Agyare
Mike Daly
Anne Drinkwater
Ann Grant
Aidan Heavey
Steve Lucas
Graham Martin
Angus McCoss
Paul McDade
Ian Springett
Simon Thompson
Jeremy Wilson
No. of meetings attended
(out of a total possible)
7/7
7/7
7/7
7/7
7/7
7/7
2/2
7/7
7/7
6/7
7/7
7/7
In addition to the Board members, a number of Senior Managers
attend relevant sections of Board meetings by invitation.
Division of responsibilities
The Chairman is primarily responsible for the effective working
of the Board, whilst the Chief Executive Officer is responsible
for the operational management of the business, for developing
strategy in consultation with the Board and for implementation
of the strategy. This separation of responsibilities is clearly
defined and agreed by the Board.
The Chairman
The Chairman leads the Board, setting the agenda and
ensuring that the meetings provide adequate time for
discussion. From the time of his appointment as Chairman on
1 January 2012, and throughout his tenure of office, including
for the year ended 31 December 2016, Simon Thompson met
the independence criteria set out in the Code.
61
2www.tullowoil.com DIRECTORS’ REPORT CONTINUED
The UK Corporate Governance Code continued
Non-executive Directors
The non-executive Directors have a broad range of business
and commercial experience. They provide independent and
constructive challenge to the Executive Management and
monitor the performance of the management team in
delivering the agreed objectives and targets. At the end of
every scheduled Board meeting, the Chairman holds a
discussion with the non-executive Directors without the
Executive Directors. These are supplemented by informal
meetings between the Chairman, the Chief Executive Officer
and the non-executive Directors.
The non-executive Directors receive regular briefings on
the more technical and operational aspects of the Group’s
activities. These include major offshore projects (e.g. TEN,
the Jubilee Turret Remediation Project and the Kenya Early Oil
Pilot Scheme). Non-executive Directors with particular expertise
in these areas also meet the Chief Operating Officer and the
Exploration Director to discuss operations in more detail.
Non-executive Directors are initially appointed for a term of three
years, subject to annual re-election. This may, subject to
satisfactory performance and re-election by shareholders,
be extended by mutual agreement.
Senior Independent Director
The Senior Independent Director is available to meet
shareholders if they have concerns that cannot be resolved
through discussion with the Chairman, the Chief Executive
Officer or the Chief Financial Officer or for matters where such
contact would be inappropriate. During the year, she met with
the other non-executive Directors without the Chairman to
discuss the Chairman’s performance.
Delegated authorities
Board Committees
The Board has delegated matters to five Committees: the Audit
Committee, the EHS Committee, the Ethics & Compliance
Committee, the Nominations Committee and the Remuneration
Committee and the Board is satisfied that the Committees have
sufficient resources to carry out their duties effectively. Their
terms of reference are reviewed and approved annually by the
Board and the respective Committee Chairs report on their
activities at the next Board meeting. Details of Committee
membership, roles and work are set out later in this report:
the Audit Committee on page 69, the EHS Committee on
page 76, the Ethics & Compliance Committee on page 78,
the Nominations Committee on page 74, and the
Remuneration Committee on page 80.
Individual delegations
In addition to delegating certain matters to Board Committees,
the Board has also delegated certain operational and
management matters to the Executive Directors. In line
with ICSA guidance, the Board approved formal terms
of reference for the Executive Directors’ Committee in
December 2014 and reviewed and reaffirmed these
terms of reference in December 2016.
Effectiveness
Composition of the Board
During the year ended 31 December 2016, the Board comprised
the Chairman, the Chief Executive Officer, three other Executive
Directors and six independent non-executive Directors. Their
biographical details are set out on pages 42 and 43.
The Directors believe that the Board and its Committees consist
of Directors with an appropriate balance of skills, experience,
independence and diversity of background to enable them to
discharge their duties and responsibilities effectively. The
composition of the Board reduced by one with the retirement
of Executive Director Graham Martin at the 2016 AGM.
Independence
The Board considers each of the non-executive Directors to be
independent in character and judgement. The Board is fully
satisfied that Ann Grant demonstrates complete independence
and robustness of character and judgement in her capacity as
Senior Independent Director. The Board is of the view that no
individual or group of individuals dominates decision making.
NON-EXECUTIVE DIRECTOR TENURE
BOARD TIME
1-3 yrs
3-6 yrs
6 yrs
1
5
1
Strategy & stakeholder management
Financial management
Safety, sustainability &
external affairs (SSEA)
Development & Operations (D&O)
Exploration & Appraisal (E&A)
Governance & risk management
30%
29%
7%
11%
7%
16%
62
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Appointments to the Board
The Nominations Committee reviews the structure, size and
composition of the Board and makes recommendations to the
Board about any changes required. As part of the appointments
process, candidates disclose any other significant time
commitments they may have and are required to inform the
Board of any subsequent changes to such commitments.
Commitment
All Directors have disclosed their other significant
commitments and confirmed that they have sufficient
time to discharge their duties effectively.
Training and development needs
Induction
All new Directors receive an induction programme when they
join the Board. This reflects their background, experience and
knowledge and their understanding of the upstream oil industry
and Tullow in particular. The programme includes one-to-one
meetings with Senior Management, functional and Business
Unit heads and, where appropriate, visits to the Group’s
principal offices and operations. New Directors also receive
an overview of their duties, corporate governance policies
and Board processes.
Familiarisation and development
All members of the Board have access to appropriate
professional development courses to support them in meeting
their obligations and duties. During the year, Directors attended
external seminars on relevant topics relating to the business.
They also receive ongoing briefings on current developments,
including updates on governance and regulatory issues.
Information and support
Independent advice
Directors have access to independent professional advice,
at the Company’s expense, on any matter relating to
their responsibilities.
The Company Secretary
The Company Secretary is Kevin Massie, who is also the
Company’s Corporate Counsel. He is responsible for ensuring
compliance with all Board procedures and for providing advice
to Directors when required. The Company Secretary provides
company secretarial services to the Board and the Group.
He acts as secretary to the Audit, Ethics & Compliance,
Nominations and Remuneration Committees and has direct
access to the Chairs of these Committees.
Board evaluation
In accordance with the requirements of the UK Governance
Code, listed companies are required to undertake an external
evaluation of the performance of the Board every three years,
and accordingly, the Board engaged Lintstock Ltd. Lintstock
has no other connection to the Company.
The first stage of the review involved Lintstock engaging with
the Chairman and the Company Secretary to set the context
for the evaluation and to tailor questionnaires to the specific
circumstances of the Company. All respondents were then
requested to complete an online questionnaire addressing
Board, Board Committees, Chairman and individual
performance. Interviews were then conducted with members
of the Board by two partners from Lintstock to expand upon the
issues raised in the questionnaires. The anonymity of all
respondents was ensured throughout the process in order to
promote the open and frank exchange of views. Lintstock
subsequently produced a report which addressed the
following areas:
• The composition and diversity of the Board was reviewed,
and the dynamics between the Board members and
between the Board and Senior Management were
evaluated, as was the atmosphere in the Boardroom;
• The management of time at the Board and the Board’s
annual cycle of work were considered, and the support
afforded to the Board was assessed;
• The Board’s oversight of strategy was reviewed, and the
Board members’ views of the top strategic issues facing
the Company were identified;
• The Board’s management of risk was reviewed, and
Board members’ views as to the key risks facing the
Company were identified;
• The structure of the Company at senior levels, and the
succession planning for the Executive Directors and for
management beneath the Board, were assessed; and
• The composition and performance of the Committees
of the Board were considered in the review, as was the
performance of the Chairman and individual Directors.
The Board objectives for 2017, set out on page 65, reflect
the action plan and priorities agreed by all the Directors
as part of the evaluation.
Board objectives
We remain confident that the Board and the wider leadership
team have the experience and track record to meet the
Company’s aims of delivering long-term growth and
successfully managing the challenges of an expanding
international company. The Board sets its specific future
objectives at the end of each year and they reflect the
particular focus of the Company in the year ahead.
Progress against each objective is tracked by the
Company Secretary and reviewed with the Chairman
at the mid-year point.
The following table shows how the Board performed against
the 2016 objectives and also details the priorities and rolling
agenda items the Board will focus on in 2017.
Re-election
All Directors seek re-election every year and accordingly
all Directors will stand for re-election in 2017 with the
exception of Simon Thompson and Ann Grant who have
already announced their resignations from the Board
at the conclusion of the 2017 Annual General Meeting.
The Board will set out in the Notice of AGM its reasons
for supporting the re-election of each of the Directors
at the forthcoming AGM. The Notice of AGM will be
mailed to shareholders separately.
63
2www.tullowoil.com DIRECTORS’ REPORT CONTINUED
2016 Board Objectives
2016 Board Performance
2017 Board Objectives
Strategy and
execution
Test Tullow’s strategy against evolving market and socio-political conditions to ensure that we:
• reduce costs, maximise cash flow from operations and manage the business to deleverage the balance sheet;
• pursue portfolio management options;
• deliver the TEN Project on time and on budget;
• create options for future growth, and continue to high-grade prospects, while minimising exploration
expenditure; and
• eliminate non-core activities and focus on core value creation opportunities.
Risk
management
Ensure the effective implementation of the revised enterprise risk management process. Maintain focus on:
• A revised enterprise risk management process was implemented,
• Continue to assess our risk appetite and identify and
• liquidity management;
• operational and project risk;
• safety, health and environment;
• community relations and social performance;
• reserves and resources management; and
• government relations.
Governance
and values
• Maintain and enhance Tullow’s culture and values under challenging market conditions.
• Ensure the new Code of Ethical Conduct is embedded and encourage all levels of management to champion
the new Code.
• Ensure that the Integrated Management System (IMS) is embedded and that Tullow’s policies, standards and
procedures are consistently followed and result in efficient, safe and responsible operations.
Organisational
capacity
• Monitor and assess the new organisational design. Continue to look for ways to improve efficiency,
• Following the completion of the Major Simplification Project,
• Work with the new CEO and Executive team to ensure
effectiveness and accountability.
• Continue to develop effective succession planning for the Executive Directors and Senior Management.
• Develop detailed plans to enhance the diversity of the leadership pipeline.
Stakeholder
engagement
• Ensure that shareholders, staff and other major stakeholders understand and are aligned with the Tullow strategy.
• Engage with shareholders and other key stakeholders to develop an appropriate remuneration policy for approval
• Both Executive and non-executive Directors engaged with
shareholders, staff, CSOs and other major stakeholders
• Work with the new CEO to ensure a smooth transition
of high-level stakeholder relationships.
by shareholders in 2017.
• Further enhance engagement with governments and Civil Society Organisations (CSOs) in our principal countries
of operation.
throughout the year.
• Internal communications continued to be improved with the
roll-out of new E-learning modules and more targeted
employee communications.
64
• The strategy was debated at the Board’s annual strategy offsite in June
• Review Tullow’s strategy in light of the changed
and regularly reviewed throughout the year, as market conditions evolved.
external environment.
• The Board received regular updates on the TEN Project, which achieved
• Ensure West Africa is managed to maximise cashflow,
first oil in August 2016, on time and on budget.
• Cost reduction campaigns throughout the business resulted in a
reduction of $82 million in net G&A.
• The exploration budget was reduced to $116.4 million resulting in a reduction
in Group capex while still creating significant opportunities for future growth.
• Significant progress was made towards the EOPS project in Kenya and the
Board welcomed the return to exploration drilling in Turkana commencing
through safe and efficient operations and the efficient
use of capital, whilst extending the period of
production plateau.
• Clarify the plan for commercialisation of East Africa
resources and support its execution.
• Articulate Tullow’s risk appetite and encourage active
portfolio management to balance risk and reward.
in December 2016. In Uganda, significant progress was achieved around
• Deleverage balance sheet, manage financial structure
the proposed pipeline route and settlement of legacy issues.
and employ capital to maximise returns.
• A number of non-core assets were successfully sold including the
• Refocus the Company on value growth through a combination
majority of Norwegian licence areas.
of exploration and new investment opportunities.
which maps Tullow’s key risks, potential impacts, mitigation strategies
mitigate key risks in our business.
and assurance processes.
• Ensure, through the Board Committee structure,
• A new integrated risk management system has been launched across
an active overview of and interaction with the Company’s
the Tullow Group to centralise and simplify corporate policies and
Enterprise Wide Risk process.
standards. The Board receives regular reporting of project-specific
technical and non-technical risks.
• The Board receives quarterly political risk reports highlighting
emerging issues in the countries and regions where Tullow is active.
• Performance management has been added as a key component of the
strategic people plan and is subject to regular Board review.
• Ensure there is an ongoing consideration of the
Company’s top risks, that these are identified in the EWR
process and are being actively managed by the Executive.
• The new Code of Ethical Conduct was successfully launched across
• Maintain and enhance Tullow’s culture and values as
Tullow with E-learning modules and self-certification against the Code
market conditions continue to improve.
approaching a 97 per cent response rate.
• The new Ethics & Compliance Committee of the Board met
periodically to review the Company’s performance, including
• Ensure that the Code of Ethical Conduct is actively followed
throughout all levels of the Company and maintain a
culture of accountability for ethics and compliance in both
performance against a specific Ethics & Compliance KPI in the
the Business Units and the corporate centre.
• The IMS was launched and is targeting full compliance by the end
the IMS is continuously improved as the business evolves.
• Monitor compliance against the new IMS and ensure that
Group scorecard.
of 2016.
• Ensure that Tullow’s policies, standards and procedures, as
set out in the IMS, are consistently followed ensuring efficient,
safe and responsible operations.
considerable focus was placed on retaining cost consciousness,
a smooth executive transition.
performance management and accountability in the business.
• Review Board structure for current environment and
• The Nominations Committee met frequently throughout the year to
changed management.
advance succession planning at executive director level and below.
• A new Senior Leadership programme was launched to identify and
develop future leaders with an emphasis on ensuring a diverse and
deep pipeline of talent.
• Review effectiveness of each Committee.
• Continue to assess the post MSP organisational design
and ensure that the Executive and OSE are actively
improving the organisational efficiency, effectiveness
• Succession planning, diversity and talent management were discussed
and accountability.
periodically at the Board meetings and were reviewed in depth at the
Board’s strategy offsite meeting.
• Continue to develop effective succession planning
for the Executive and Non-Executive Directors and
senior management.
• Ensure that the diversity programme, initiated in 2016,
to improve diversity across the whole organisation
remains an area of focus for the Executive team.
• Ensure that shareholders, staff and other major
stakeholders understand and are aligned with the
Tullow strategy.
• Ensure that the organisation fully understands the
importance of stakeholder relationships in Tullow’s
strategy of shared prosperity.
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Strategy and
execution
Test Tullow’s strategy against evolving market and socio-political conditions to ensure that we:
• reduce costs, maximise cash flow from operations and manage the business to deleverage the balance sheet;
• pursue portfolio management options;
• deliver the TEN Project on time and on budget;
• create options for future growth, and continue to high-grade prospects, while minimising exploration
expenditure; and
• eliminate non-core activities and focus on core value creation opportunities.
Risk
management
• liquidity management;
• operational and project risk;
• safety, health and environment;
• community relations and social performance;
• reserves and resources management; and
• government relations.
Governance
and values
the new Code.
• Ensure the new Code of Ethical Conduct is embedded and encourage all levels of management to champion
• Ensure that the Integrated Management System (IMS) is embedded and that Tullow’s policies, standards and
procedures are consistently followed and result in efficient, safe and responsible operations.
Organisational
capacity
effectiveness and accountability.
• Continue to develop effective succession planning for the Executive Directors and Senior Management.
• Develop detailed plans to enhance the diversity of the leadership pipeline.
2016 Board Objectives
2016 Board Performance
2017 Board Objectives
• The strategy was debated at the Board’s annual strategy offsite in June
• Review Tullow’s strategy in light of the changed
and regularly reviewed throughout the year, as market conditions evolved.
external environment.
• The Board received regular updates on the TEN Project, which achieved
first oil in August 2016, on time and on budget.
• Cost reduction campaigns throughout the business resulted in a
reduction of $82 million in net G&A.
• The exploration budget was reduced to $116.4 million resulting in a reduction
in Group capex while still creating significant opportunities for future growth.
• Significant progress was made towards the EOPS project in Kenya and the
Board welcomed the return to exploration drilling in Turkana commencing
in December 2016. In Uganda, significant progress was achieved around
the proposed pipeline route and settlement of legacy issues.
• Ensure West Africa is managed to maximise cashflow,
through safe and efficient operations and the efficient
use of capital, whilst extending the period of
production plateau.
• Clarify the plan for commercialisation of East Africa
resources and support its execution.
• Articulate Tullow’s risk appetite and encourage active
portfolio management to balance risk and reward.
• Deleverage balance sheet, manage financial structure
and employ capital to maximise returns.
• A number of non-core assets were successfully sold including the
• Refocus the Company on value growth through a combination
majority of Norwegian licence areas.
of exploration and new investment opportunities.
Ensure the effective implementation of the revised enterprise risk management process. Maintain focus on:
• A revised enterprise risk management process was implemented,
• Continue to assess our risk appetite and identify and
which maps Tullow’s key risks, potential impacts, mitigation strategies
and assurance processes.
• A new integrated risk management system has been launched across
the Tullow Group to centralise and simplify corporate policies and
standards. The Board receives regular reporting of project-specific
technical and non-technical risks.
• The Board receives quarterly political risk reports highlighting
emerging issues in the countries and regions where Tullow is active.
• Performance management has been added as a key component of the
strategic people plan and is subject to regular Board review.
mitigate key risks in our business.
• Ensure, through the Board Committee structure,
an active overview of and interaction with the Company’s
Enterprise Wide Risk process.
• Ensure there is an ongoing consideration of the
Company’s top risks, that these are identified in the EWR
process and are being actively managed by the Executive.
• Maintain and enhance Tullow’s culture and values under challenging market conditions.
• The new Code of Ethical Conduct was successfully launched across
• Maintain and enhance Tullow’s culture and values as
Tullow with E-learning modules and self-certification against the Code
approaching a 97 per cent response rate.
• The new Ethics & Compliance Committee of the Board met
periodically to review the Company’s performance, including
performance against a specific Ethics & Compliance KPI in the
Group scorecard.
• The IMS was launched and is targeting full compliance by the end
of 2016.
market conditions continue to improve.
• Ensure that the Code of Ethical Conduct is actively followed
throughout all levels of the Company and maintain a
culture of accountability for ethics and compliance in both
the Business Units and the corporate centre.
• Monitor compliance against the new IMS and ensure that
the IMS is continuously improved as the business evolves.
• Ensure that Tullow’s policies, standards and procedures, as
set out in the IMS, are consistently followed ensuring efficient,
safe and responsible operations.
• Monitor and assess the new organisational design. Continue to look for ways to improve efficiency,
• Following the completion of the Major Simplification Project,
• Work with the new CEO and Executive team to ensure
considerable focus was placed on retaining cost consciousness,
performance management and accountability in the business.
• The Nominations Committee met frequently throughout the year to
advance succession planning at executive director level and below.
• A new Senior Leadership programme was launched to identify and
develop future leaders with an emphasis on ensuring a diverse and
deep pipeline of talent.
• Succession planning, diversity and talent management were discussed
periodically at the Board meetings and were reviewed in depth at the
Board’s strategy offsite meeting.
Stakeholder
engagement
• Ensure that shareholders, staff and other major stakeholders understand and are aligned with the Tullow strategy.
• Engage with shareholders and other key stakeholders to develop an appropriate remuneration policy for approval
by shareholders in 2017.
of operation.
• Further enhance engagement with governments and Civil Society Organisations (CSOs) in our principal countries
• Both Executive and non-executive Directors engaged with
shareholders, staff, CSOs and other major stakeholders
throughout the year.
• Internal communications continued to be improved with the
roll-out of new E-learning modules and more targeted
employee communications.
a smooth executive transition.
• Review Board structure for current environment and
changed management.
• Review effectiveness of each Committee.
• Continue to assess the post MSP organisational design
and ensure that the Executive and OSE are actively
improving the organisational efficiency, effectiveness
and accountability.
• Continue to develop effective succession planning
for the Executive and Non-Executive Directors and
senior management.
• Ensure that the diversity programme, initiated in 2016,
to improve diversity across the whole organisation
remains an area of focus for the Executive team.
• Work with the new CEO to ensure a smooth transition
of high-level stakeholder relationships.
• Ensure that shareholders, staff and other major
stakeholders understand and are aligned with the
Tullow strategy.
• Ensure that the organisation fully understands the
importance of stakeholder relationships in Tullow’s
strategy of shared prosperity.
65
2www.tullowoil.com DIRECTORS’ REPORT CONTINUED
RELATIONS WITH SHAREHOLDERS
Communication and dialogue
Exploration and production companies have faced yet another
challenging year in 2016 with oil prices falling to record lows
in the first half of the year, impacting both companies and
investors. The sector did, however, see some recovery in the
second half of the year, with oil prices reaching over $50/bbl,
positively impacting stocks across the sector. Tullow’s share
price increased just short of 100 per cent during the year,
exceeding the performance of our peer companies.
Tullow’s outperformance is not purely down to the oil price,
as this year we saw the Company deliver against market
expectations and deal with the various challenges the Group
faced, such as TEN first oil; work to resolve the Jubilee turret
issue and affirmation of insurance cover; significant progress
in East Africa; and prudent management of our balance sheet.
Regular communication of these achievements and challenges
is a key part of our dialogue with shareholders and the Investor
Relations (IR) team and Executives have maintained open and
transparent channels throughout the year.
This has been achieved through regulatory announcements,
regular meetings, presentations, investor conferences and ad
hoc events with institutional investors and sell-side analysts.
Over the year, the IR team and Senior Management met
some 330 institutions and the Group participated in over
30 roadshows and investor conferences around the world.
Executive Directors and Senior Management met institutional
investors in the UK, Europe, Ghana, South Africa and
North America.
Tullow also proactively organised two roadshows for
governance analysts led by the Chairman, who was joined by
the Senior Independent Director, the Chair of the Remuneration
Committee and the Company Secretary. One of these roadshows
was specifically to gain feedback on Tullow’s revised remuneration
policy. Institutional shareholders are offered the opportunity
to meet the Chairman to discuss any issues and concerns in
relation to the Group’s governance and strategy. Non-executive
Directors are also available to attend meetings with major
shareholders if requested to do so.
Tullow also proactively offered conference calls with Socially
Responsible Investors to discuss topics including health and
safety, the environment, corporate governance, bribery and
corruption, country and political risk and other operational
matters. These meetings were hosted by our Vice President
of SSEA and the IR team.
Tullow’s fifth Ghana Investor Forum took place in May 2016 in
Accra. The event gave key institutional shareholders the chance
to hear presentations and question the Executive Directors and
Senior Managers from the Ghana Business Unit.
SHAREHOLDER ANALYSIS
BY INVESTMENT STYLE
SHAREHOLDER ANALYSIS
BY GEOGRAPHY
SHAREHOLDER ANALYSIS
BY CATEGORY
40+
Value & Growth
Retail
Value
Growth
Hybrid
Other
40
15
11
10
7
17
54
21
18
7
G38+
54+
38
UK
Mutual Fund Manager
Pension Fund Manager
Insurance Fund Manager
Asset Manager
Private Banking
Other
North America
Europe
ROW
20
12
11
8
11
66
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE21
+
18
+
7
+
20
+
12
+
11
+
8
+
11
+
G
15
+
11
+
10
+
7
+
17
+
G
Keeping shareholders informed
We ensure shareholders can access details of the Group’s
results and other news releases through the London Stock
Exchange’s Regulatory News Service. In addition, these news
releases are published on the Media section of the Group’s
website: www.tullowoil.com. Shareholders and other interested
parties can subscribe to email news updates by registering
online on the website. The Group continually looks for ways to
improve how we use online channels to communicate with our
stakeholders through our corporate website, webcasting and
social media channels.
Another important way we keep shareholders informed is
through regular formal reporting and Tullow’s reports are
available on the corporate website.
Communicating with bond holders
The IR and Group Finance teams have continued their
engagement with our bond investors through a number
of high-yield conferences and one-on-one meetings
throughout the year.
2017 KEY SHAREHOLDER
ENGAGEMENTS
January
Trading Statement and Operational Update
February
Full-year Results
April
Annual General Meeting
Annual General Meeting Trading Update
July
Trading Statement and Operational Update
Half-year Results
November
November Trading Update
WWW.TULLOWOIL.COM
Financial results, events, corporate reports, webcasts and fact books are all stored in the
Investor Relations section of our website www.tullowoil.com/investors.
2016 Annual Report and Accounts www.tullowoil.com/reports.
67
2www.tullowoil.com CORPORATE GOVERNANCE
DIRECTORS’ REPORT CONTINUED
Remuneration
The Board has delegated responsibility for agreeing the
remuneration policy for the Chairman, the Chief Executive
Officer, the Executive Directors and the Senior Executives with
the Remuneration Committee. Its role and activities are set
out in the Directors’ Remuneration Report on page 80.
Constructive use of the AGM
At the AGM held on 28 April 2016, shareholders received
presentations setting out the key developments in the
business and put questions to the Chairman, the Chairmen of
the Audit, Nominations and Remuneration Committees and
other members of the Board.
A poll was used to vote for all resolutions at the 2016 AGM,
and the final results (which included all votes cast for and
against and those withheld) were announced via the London
Stock Exchange and on the Company’s corporate website.
Notice of the AGM is sent to shareholders at least 20 working
days before the meeting.
On behalf of the Board
Simon R Thompson
Chairman
7 February 2017
Accountability
This report provides shareholders with a clear assessment
of the Group’s position and prospects supplemented, as
required, by other periodic financial and trading statements.
The Board’s arrangements for the application of risk
management and internal control principles are detailed below.
The Board has delegated oversight of the relationship with the
Group’s external auditor to the Audit Committee. Its work
is outlined in the Audit Committee report on page 69.
Internal controls
The Directors acknowledge their responsibility for the Group’s
systems of internal control, which are designed to safeguard
the assets of the Group and to ensure the reliability of
financial information for both internal use and external
publication and to comply with the requirements of the
UK Corporate Governance Code.
Overall control is ensured by a regular detailed reporting
system covering both technical progress of projects and the
state of the Group’s financial affairs. The Board has put in
place procedures for identifying, evaluating and managing
principal risks that face the Group. Principal risks are
regularly reported to the Board.
Tullow recognises that any system of internal control can
provide only reasonable, and not absolute, assurance that
material financial irregularities will be detected or that the
risk of failure to achieve business objectives is eliminated.
However, the Board’s objective is to ensure that Tullow has
appropriate systems in place for the identification and
management of risks.
In accordance with the requirements of the UK Corporate
Governance Code, the Board of Directors is required to
monitor the Company’s risk management and internal control
systems and, at least annually, carry out a review of their
effectiveness, and report on that review in the Annual Report.
At Tullow, the Board has delegated responsibility for this
assessment to the Audit Committee, and results of the
assessment are described on page 73.
>>
Risk management
Long-term viability statement
44
52
68
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE CORPORATE GOVERNANCE
AUDIT COMMITTEE REPORT
“The Board’s objective is
to ensure that Tullow has
appropriate systems in
place for the identification
and management of risks.”
Steve Lucas
Chairman of the Audit Committee
Committee members
Meetings
attended
Steve Lucas
Tutu Agyare
Anne Drinkwater
Ann Grant
Jeremy Wilson
Mike Daly
2016 highlights
4/4
4/4
4/4
4/4
4/4
4/4
• Approval of half-year and full-
year Financial Statements
• Review of the effectiveness of
the external audit process
• Review of the effectiveness of
Internal Audit
• Review of the work of the
independent reserves auditor
• Assessment of the remit and
results of Internal Audit
• Review of Senior Accounting
Officer sign-off process
• Review of finance and treasury
activities
• Review of hedging and
insurance arrangements
• Review of legal exposures and
provisions
• Review of tax and formulation of
the tax strategy disclosure
DEAR SHAREHOLDER
Maintaining a strong corporate governance and risk
management practice is a key part of Tullow’s business
model and the Board and Audit Committee continue to
be focused on maintaining high standards of governance
and risk management across the Group. The Audit
Committee oversees the financial reporting process
in order to make sure that the information provided to
the shareholders is fair, balanced and understandable
and allows assessment of the Company’s position,
performance, business model and strategy.
During 2016, the Financial Reporting Council (FRC)
reviewed Tullow’s Annual Report and Accounts for
2015. We are pleased with the outcome of the review
as no material findings were reported by the FRC.
They did however, suggest some improvement around
Tullow’s disclosure on discount rates, which Tullow
has addressed in our 2016 report and accounts.1
The Audit Committee continued to oversee the risk
management and internal control systems in 2016,
which were particularly tested as the Company adjusted
to a low oil price and reacted quickly to reduced
production from the Jubilee field caused by an issue
with the FPSO turret. In 2016, the focus of the Audit
Committee was to ensure that the enhancements made
to the risk management practices were sustainable
and embedded as part of ongoing business performance
management. We were pleased with greater integration
of the risk management process with assurance planning
which ensures greater alignment with strategic risks,
while keeping ongoing focus on the material financial,
operational and compliance controls. The Audit
Committee plays an active role in that process by
making sure it meets business needs and remains fit
for purpose.
The internal control environment has also seen
improvements during the year, predominantly due
to the roll-out of a common Integrated Management
System, which provided clarity around the control
requirements, successful launch of the revised Code
of Ethical Conduct, as well as a reduction in fraud risk
by implementation of a formalised segregation of duties
framework and an automated GRC solution to manage
SAP system access risks.
The Audit Committee has also worked on adapting to
the changes brought in 2016 to the regulatory framework
regarding auditor independence and the requirements
for the Audit Committee performance introduced by
publication of the revisions of the Financial Reporting
Council’s UK Corporate Governance Code, Guidance
on Audit Committees and the Ethical Standard.
Steve Lucas
Chairman of the Audit Committee
7 February 2017
1
We have been requested by the FRC to include their
following statement regarding inherent limitations of
their review: “Our review is based on your annual report
and accounts and does not benefit from detailed knowledge
of your business or an understanding of the underlying
transactions entered into. It is, however, conducted by
staff of the FRC who have an understanding of the relevant
legal and accounting framework. FRC supports continuous
improvement in the quality of corporate reporting and
recognise that those with more detailed knowledge of
your business, including your audit committee and auditors,
may have recommendations or future improvement,
consideration of which we would encourage. Our letters
provide no assurance that your report and accounts are
correct in all material respects; the FRC’s role is not to
verify the information provided but to consider compliance
with reporting requirements. Our letters are written on
the basis that the FRC (which includes FRC’s officers,
employees and agents) accepts no liability for reliance
on them by the company or any third party, including
but not limited to investors or shareholders.”
Governance
Steve Lucas has been Audit Committee
Chairman since May 2012. Steve, who
is a Chartered Accountant, was finance
director at National Grid plc from 2002
to 2010. It is a requirement of the UK
Corporate Governance Code that at least
one Committee member has recent and
relevant financial experience and Steve
Lucas therefore meets this requirement.
The other members of the Audit
Committee are Ann Grant, Tutu Agyare,
Anne Drinkwater, Jeremy Wilson and
Mike Daly. Biographies of the Committee
members are given on pages 42 and 43.
Together the members of the Committee
demonstrate competence in the oil and gas
industry with Mike Daly, Anne Drinkwater
and Steve Lucas having significant prior
experience in oil and gas companies,
while also bringing a wider range of
industry, commercial and financial
experience, which is vital in supporting
effective governance. The Company
Secretary serves as the secretary to
the Committee.
The Chief Financial Officer, the
Group Internal Audit Manager, the Vice
President – Commercial & Finance and
representatives of the external auditor
are invited to attend each meeting of the
Committee and participated in all of the
meetings during 2016. The Chairman of
the Board also attends meetings of the
Committee by invitation and was present
at all of the meetings in 2016. The
external auditor and the Group Internal
Audit Manager have unrestricted access
to the Committee Chairman.
ALLOCATION OF AUDIT COMMITTEE TIME
42+
Financial Results
Internal audit matters
Risk and controls
Governance
42%
12%
32%
14%
69
2www.tullowoil.com
12
+
32
+
14
+
G
AUDIT COMMITTEE REPORT CONTINUED
Governance continued
In 2016, the Audit Committee met on four occasions. Meetings
are scheduled to allow sufficient time for full discussion of key
topics and to enable early identification and resolution of risks
and issues. Meetings are aligned with the Group’s financial
reporting calendar.
The Committee reviewed and updated its terms of reference
during the year. These are in line with best practice and reflect
the requirements of the 2016 revision of the UK Corporate
Governance Code, the FRC’s 2016 Guidance on Audit
Committees, the FRC’s 2014 Guidance on Risk Management
and Internal Control, the FRC’s 2016 Ethical Standards, and the
Competition and Markets Authority’s The Statutory Audit
Services for Large Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014. The Audit Committee’s terms of
reference can be accessed via the corporate website. The Board
approved the terms of reference on 6 December 2016.
Summary of responsibilities
The Committee’s detailed responsibilities are described in its
terms of reference and include:
• monitor the integrity of the Financial Statements of the
Group, reviewing and reporting to the Board on significant
financial reporting issues and judgements, among others
including going concern and viability assessments;
• review and, where necessary, challenge the consistency of
significant accounting policies, and whether appropriate
accounting standards have been used;
• review the content of the Annual Report and Accounts and
advise the Board on whether it is fair, balanced and
understandable and provides the information necessary for
shareholders to assess Tullow’s position, performance,
business model and strategy;
• monitor and review the adequacy and effectiveness of the
Company’s internal financial controls and internal control
and risk management systems;
• review the adequacy of the whistle-blowing system, and the
Company’s procedures for detecting fraud;
• review and assess the annual internal audit plan and
receive a report on the results of the Internal Audit
function’s work on a periodic basis;
• oversee the relationship with the external auditor including
assessing its independence and objectivity, review the
annual audit plan to ensure it is consistent with the scope of
the audit engagement, and review the findings of the audit;
• assess the qualifications, expertise and resources of the
external auditor and the effectiveness of the audit process; and
• ensure that, following the transition period applied under
the CMA Order, the audit services contract is put out to
tender at least once every 10 years.
While the Ethics & Compliance Committee maintained
responsibility for monitoring systems and controls to prevent
bribery and corruption, the Audit Committee still received
updates from the Group Ethics & Compliance Manager on
any significant non-compliances.
Key areas reviewed in 2016
The Committee fully discharged its responsibilities during the
year and the following describes the work completed by the
Audit Committee in 2016:
Annual Report
A key element of the governance requirements regarding the
Group’s Financial Statements is for the report and accounts
to be fair, balanced and understandable. To ensure this
requirement is met by Tullow, the Group takes a collaborative
approach to creating its Annual Report and Accounts,
with direct input from the Board throughout the process.
The process of planning, writing and reviewing the report
is run by a central project team, alongside a formal audit
process undertaken by our external auditor. In order for the
Audit Committee and the Board to be satisfied with the overall
fairness, balance and clarity of the final report, the following
steps are taken:
• early planning, taking into consideration regulatory changes
and best practice;
• comprehensive guidance issued to key report contributors
across the Group;
• a series of key proof dates for comprehensive review across
different levels in the Group that aim to ensure consistency
and overall balance; and
• Senior Management and Board sign-off.
Financial reporting
• Monitoring the integrity of the Financial Statements and
formal announcements relating to the Group’s financial
performance. Reviewing the significant financial reporting
issues and accounting policies and disclosures in the
financial reports.
• The Committee met with the external auditor as part of the
full-year and half-year accounts approval process. During
this exercise the Committee considered the key audit risks
identified as being significant to the 2016 accounts and the
most appropriate treatment and disclosure of any new or
judgemental matters identified during the audit and
half-yearly review as well as any recommendations or
observations made by the external auditor. The primary
areas of judgement considered by the Committee in relation
to the 2016 accounts and how these were addressed are
detailed opposite:
70
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Significant financial judgements for 2016
How the Committee addressed these judgements
Recognition of finance lease liabilities: The Group has a contract with a supplier for the
lease of the TEN FPSO. Management were required to exercise judgement in determining
whether the FPSO should be recognised as a finance lease in accordance with IAS 17 as
at December 2016. The key judgement involved in determining whether a finance lease
should be recognised was an assessment of key contractual clauses, as due to the delays
in commissioning the vessel the Certificate of Offshore Completion was not issued before
31 December 2016, and as such the non-cancellable lease period had not commenced.
In addition, the Group had not obtained the right of use of the vessel in its intended form.
The Committee and Deloitte LLP reviewed and
challenged management’s judgement that the TEN
FPSO lease did not meet the IAS 17 finance lease
recognition criteria at year end 31 December 2016.
Recognition of assets held for sale (see also note 18 to the Financial Statements): The
Group signed a sales and purchase agreement to farm-down a portion of our interest in
Uganda to Total on 9 January 2017. Management has exercised judgement in determining
that this disposal met the requirements of IFRS 5 and that the associated assets and
liabilities should be transferred to held for sale at 31 December 2016.
The Committee and Deloitte LLP reviewed and
challenged management’s judgement that they were
committed to the farm-down and the sale as highly
probable ahead of the balance sheet date.
Carrying value of intangible exploration and evaluation assets (see also note 11 to the
Financial Statements): The amounts for intangible exploration and evaluation assets
represent active exploration projects. These amounts will be written off to the income
statement as exploration costs unless commercial reserves are established or the
determination process is not completed and there are no indications of impairment in
accordance with the Group’s accounting policy. The process of determining whether there is
an indicator for impairment or calculating the impairment requires critical estimation. The
key areas in which management has applied judgement and estimation are as follows: the
Group's intention to proceed with a future work programme for a prospect or licence; the
likelihood of licence renewal or extension; and the success of a well result or geological or
geophysical survey.
The Group has a very active exploration and
appraisal work programme and the Committee
reviews and challenges management assumptions
and judgements underlying the calculation of
intangible assets for each licence at each balance
sheet date. In addition, Deloitte LLP has identified
this as a significant area of focus for its audit and
undertakes discussions with operational and finance
staff to challenge evidence provided by management
to support the value of intangible assets and provides
detailed reporting to the Committee on the results of
its work. This is a recurring area of judgement.
Carrying value of property, plant and equipment (see also note 12 to the Financial
Statements): Management performs impairment reviews on the Group’s property, plant
and equipment assets at least annually with reference to indicators in IAS 36 Impairment of
Assets. Where indicators are present and an impairment test is required, the calculation of
the recoverable amount requires estimation of future cash flows within complex impairment
models.
Results of the impairment tests were discussed and
challenged by the Committee. In addition, Deloitte
LLP performs similar procedures and audits the
underlying economic models to satisfy itself of
the integrity of the process. This is a recurring area
of judgement.
Key assumptions and estimates in the impairment models relate to: commodity prices that
are based on forward curves for two years, the mid-term price assumption for three years
after this and the long-term corporate economic assumptions thereafter, pre-tax discount
rates that are adjusted to reflect risks specific to individual assets, commercial reserves
and the related cost profiles.
Presumption of going concern: The Group closely monitors and manages its liquidity risk.
Cash forecasts are regularly produced and sensitivities run for different scenarios including,
but not limited to, changes in commodity prices, different production rates from the Group’s
producing assets and delays to development projects. In addition to the Group’s operating
cash flows, portfolio management opportunities and other funding options are reviewed to
potentially enhance the financial capability and flexibility of the Group. In the current low
commodity price environment, the Group has taken appropriate action to reduce its cost
base and had $1.0 billion of debt liquidity headroom and free cash at the end of 2016. The
Group’s forecast, taking into account the risks described above, shows that the Group will
be able to operate within its current debt facilities and have sufficient financial headroom
for the 12 months from the date of approval of the 2016 Annual Report and Accounts.
Decommissioning costs (see also note 23 to the Financial Statements): Decommissioning
costs are uncertain and cost estimates can vary in response to many factors, including
changes to the relevant legal requirements, the emergence of new technology or experience
at other assets. The expected timing, work scope, amount of expenditure and risk weighting
may also change. Therefore significant estimates and assumptions are made in determining
the provision for decommissioning.
Provisions for onerous service contracts (see also note 23 to the Financial Statements):
Due to the reduction in planned future work programmes, the Group has identified a number
of onerous service contracts. In order to calculate the provisions management has estimated
the expected future usage of the contracts and its estimated liability under the contract.
The Committee reviewed and challenged the
assumptions and judgements in the underlying
going concern forecast cash flows by discussing and
analysing the risks, sensitivities and mitigations
identified by management. This is also an area of
higher risk and as a result the Committee receives
in-depth written and oral reporting from Deloitte
LLP on its conclusions on management assessment
of going concern.
A review of all decommissioning cost estimates is
undertaken annually by internal experts. The results
are then reviewed in the context of operator estimates
for the purposes of the annual Financial Statements.
Provision for environmental clean-up and remediation
costs is based on current legal and contractual
requirements, technology and price levels. The impact
on decommissioning estimates was reviewed and
challenged by the Committee. Deloitte LLP also
reviewed the results as part of its audit. This is
a recurring area of judgement.
The Committee reviewed and challenged the
assessment of the Group’s onerous contracts
with Deloitte LLP, including an assessment of
the intended usage and assumed rates which
underpinned the calculation of the provision.
71
2www.tullowoil.com AUDIT COMMITTEE REPORT CONTINUED
In 2016 Tullow’s Annual Report and Accounts for 2015 have
been subject to a review by the Financial Reporting Council.
The review focused on the discount rate used to calculate
recoverable amount of goodwill and PPE, goodwill and PPE
impairment sensitivities and going concern disclosures. We are
pleased with the outcome of the review as no material findings
have been reported by the FRC. The FRC has, however,
encouraged some improvement to Tullow’s disclosure on
discount rates, which we have implemented in our 2016 report
and accounts. The FRC has also identified a number of other
disclosure areas, which are less material for Tullow, which
we keep under review to ensure that, if they become material,
they are enhanced to meet FRC expectations.
External auditor
Making recommendations to the Board on the appointment or
re-appointment of the Group’s external auditors with, where
appropriate, the selection of a new external auditor, overseeing
the Board’s relationship with the external auditor and regular
assessment of the effectiveness of the external audit process
is a key responsibility of the Audit Committee.
• The UK Corporate Governance Code states that the Audit
Committee should have primary responsibility for making
a recommendation on the appointment, re-appointment
or removal of the external auditor. On the basis of the
review of external audit effectiveness described below, the
Committee recommended to the Board that it recommends
to shareholders the re-appointment of Deloitte as Tullow’s
statutory auditor at the 2017 AGM.
• The external auditor is required to rotate the audit partner
responsible for the Group audit every five years. The current
Deloitte lead audit partner, Mr. Dean Cook, started his
tenure in 2015 and his current rotation will end with the
audit of our 2018 accounts.
• The audit contract was last tendered in 2004 and no
contractual obligations existed that acted to restrict the
Audit Committee’s choice of external auditor. Under the
EU Audit Regulation and the Competition and Markets
Authority’s The Statutory Audit Services for Large
Companies Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014, Tullow elected to apply the
transitional rules with an annual review of this approach.
According to those rules, the Company is required to
run a competitive tender process in respect of auditor
appointment no later than 31 December 2024.
• The Group’s external auditor is Deloitte LLP and the
Audit Committee assessed the qualification, expertise,
resources, and independence of the external auditor as
well as the effectiveness of the audit process. This review
covered all aspects of the audit service provided by Deloitte
LLP, including obtaining a report on the audit firm’s own
internal quality control procedures and consideration of
the audit firm’s annual transparency reports in line with
the UK Corporate Governance Code. The Audit Committee
also approved the external audit terms of engagement
and remuneration. During 2016 the Committee held private
meetings with the external auditor and the Audit Committee
Chairman also maintained regular contact with the audit
72
partner throughout the year. These meetings provide an
opportunity for open dialogue with the external auditor
without management being present. Matters discussed
included the auditor’s assessment of significant financial
risks and the performance of management in addressing
these risks, the auditor’s opinion of management’s role
in fulfilling obligations for the maintenance of internal
controls, the transparency and responsiveness of
interactions with management, confirmation that no
restrictions have been placed on it by management,
maintaining the independence of the audit and how
it has exercised professional challenge.
• In order to ensure the effectiveness of the external audit
process, Deloitte LLP conducts an audit risk identification
process at the start of the audit cycle. This plan is presented
to the Audit Committee for its review and approval and,
for the 2016 audit, the key audit risks identified included
carrying value of exploration and evaluation assets, carrying
value of plant, property and equipment, provision for tax
claims, decommissioning provisions, risk of management
override, going concern, depreciation depletion and
amortisation (DD&A), revenue recognition as well as
provisions for onerous service contracts. These and other
identified risks are reviewed through the year and reported
at Audit Committee meetings where the Committee
challenges the work completed by the auditor and tests
management’s assumptions and estimates in relation
to these risks. The Committee also seeks an assessment
from management of the effectiveness of the audit process.
In addition, a separate questionnaire addressed to all
attendees of the Audit Committee and senior finance managers
is used to assess external audit effectiveness. As a result of
these reviews, the Audit Committee considered the external
audit process to be operating effectively.
• The Committee closely monitors the level of audit and
non-audit services provided by the external auditor to
the Group. Non-audit services are normally limited to
assignments that are closely related to the annual audit
or where the work is of such a nature that a detailed
understanding of the Group is necessary. A policy and
standard for the engagement of the external auditor to
supply non-audit services is in place to formalise these
arrangements, which requires Audit Committee approval
for certain categories of work. This policy and standard are
designed to ensure the external auditor’s independence
is maintained. They have been revised in 2016 to reflect
changes in the regulatory environment.
• A breakdown of the fees paid to the external auditor in
respect of audit and non-audit work is included in note 4
to the Financial Statements. In addition to processes put
in place to ensure segregation of audit and non-audit roles,
Deloitte LLP is required, as part of the assurance process
in relation to the audit, to confirm to the Committee that it
has both the appropriate independence and the objectivity
to allow it to continue to serve the members of the Company.
This confirmation is received every six months and no matters
of concern were identified by the Committee.
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE in Ghana, Uganda and Kenya. Detailed results from these
reviews were reported to management and in summary to
the Audit Committee during the year. Where required the
Audit Committee receives full details on any key findings.
The Audit Committee receives regular reports on the status
of the implementation of Internal Audit recommendations.
The Group also undertook regular audits of non-operated
Joint Ventures under the supervision of Business Unit
management and the Group Internal Audit Manager.
• The Committee receives summaries of investigations of
significant known or suspected fraudulent activity by third
parties and employees including ongoing monitoring and
following-up of fraud investigations.
• The Audit Committee assessed the effectiveness of Internal
Audit through its review of progress versus plan, the results
of audits reported at each of the meetings, and the thorough
self-assessment review report provided by the Group Internal
Audit Manager. Results of the review were discussed at the
Committee meetings and actions to further improve Internal
Audit effectiveness are being implemented. Resourcing levels
in Internal Audit are assessed by the Audit Committee with
a view to ensuring that it can fully discharge its duties.
Whistle-blowing procedure
Ensuring that an effective whistle-blowing procedure is in place.
• In line with best practice and to ensure Tullow works to the
highest ethical standards, an independent whistle-blowing
procedure was in operation throughout 2016 to allow staff to
raise in confidence any concerns about business practices.
This procedure complements established internal reporting
processes. The whistle-blowing policy is included in the
Code of Ethical Conduct which is available to all staff in
printed form and on the corporate website. The Committee
considers the whistle-blowing procedures to be appropriate
for the size and scale of the Group.
Review of effectiveness of the Audit Committee
• During the year, the Audit Committee commissioned an
independent review of its own effectiveness with the results
reported to the Board. The Committee was considered
to be operating effectively and in accordance with the
UK Corporate Governance Code and the relevant guidance.
Internal controls and risk management
Responsibility for reviewing the effectiveness of the Group’s risk
management and internal control systems is delegated to the
Audit Committee by the Board.
The Audit Committee obtained comfort over the effectiveness
of the Group’s risk management and internal control systems
through activities coordinated by the Internal Audit function.
These activities comprised:
• audit reviews undertaken by the Internal Audit team;
• assurance activities undertaken by the Group functions;
• enhancement of the enterprise risk management process;
• external auditor’s observations on internal financial
controls identified as part of its audit; and
• regular performance, risk and assurance reporting by the
Business Unit and Corporate teams to the Board.
During the year, Group Internal Audit presented its findings to
the Audit Committee, which monitored progress of issues
raised and their timely resolution on a regular basis.
In addition, during the year, the Audit Committee received
reports from the independent reserves auditor ERCE and
reviewed the arrangements in place for managing information
technology risk relating to the Group’s critical information
systems. The Committee also reviewed the arrangements for
Company employees and contractors to raise concerns through
the ‘Speaking Up’ programme.
Based on the results of the annual effectiveness review of risk
management and internal control systems that was
coordinated by Group Internal Audit, the Audit Committee
concluded that the system of internal controls operated
effectively throughout the financial year and up to the date on
which the Financial Statements were signed.
Internal Audit requirements
Considering how the Group’s Internal Audit requirements shall
be satisfied and making recommendations to the Board.
• The Group Internal Audit Manager has direct access and
responsibility to the Audit Committee Chairman and
Committee. His main responsibilities include: evaluating
the development of the Group’s overall control environment
as well as the effectiveness of risk identification and
management at operating, regional and corporate levels.
During 2016, the Group Internal Audit Manager met with
the Audit Committee Chairman and with the Audit
Committee without the presence of management to
assess management’s responsiveness to Internal Audit
recommendations made during the year and to assess
the effectiveness of Internal Audit.
• The Committee reviewed and challenged the programme
of 2016 Internal Audit work developed to address both
financial and overall risk management objectives identified
within the Group. The plan was subsequently adopted with
progress reported at each of the Audit Committee meetings.
41 Internal Audit reviews were undertaken during the year,
covering a range of financial and business processes in the
Group’s London office and the main operational locations
73
2www.tullowoil.com NOMINATIONS COMMITTEE REPORT
Committee’s role
The Committee reviews the composition
and balance of the Board and the senior
executive team on a regular basis and
also ensures robust succession plans
are in place for all Directors and senior
executives. When recruiting new
Executive or non-executive Directors,
the Committee appoints external search
consultants to provide a list of possible
candidates, from which a shortlist is
produced. External consultants are
instructed that diversity is one of the
criteria that the Committee will take into
consideration in their selection of the
shortlist. The Committee’s terms of
reference are reviewed annually and
are set out on the corporate website.
“The majority of the
Committee’s time during
the year was spent on CEO
succession planning and
implementation.”
Simon R Thompson
Nominations Committee Chairman
Committee’s main responsibilities
The Committee’s main duties are:
Committee members
Simon R Thompson
Steve Lucas
Tutu Agyare
Anne Drinkwater
Ann Grant
Jeremy Wilson
Meetings
attended
5/5
5/5
5/5
5/5
5/5
5/5
2016 highlights
• Agreeing a CEO and Chairman
succession plan
• Ongoing succession planning for
Directors and senior executives
• Reviewing the structure, size and
composition of the Board (including
the skills, knowledge, experience and
diversity of its members) and making
recommendations to the Board with
regard to any changes required;
• Identifying and nominating, for Board
approval, candidates to fill Board
vacancies as and when they arise;
• Succession planning for Directors
and other senior executives;
• Reviewing annually the time
commitment required of
non-executive Directors; and
• Making recommendations to the
Board regarding membership of
the Audit, Remuneration and other
Committees in consultation with
the Chair of each Committee.
Committee membership and meetings
The composition of the Committee
changed at the beginning of 2016 to
include all non-executive Directors.
Simon Thompson was Chairman of
the Committee throughout the year.
The membership and attendance of
members at Committee meetings held
in 2016 are shown in the adjacent table.
In addition to five formal meetings, the
Committee held a number of informal
discussions, telephone conference calls
and interviews during the year.
DEAR SHAREHOLDER
The main task of the Nominations
Committee is to ensure that the Board
has the necessary skills and expertise
to support the Company’s current and
future activities. In addition, we continue
to focus on the recruitment, development
and retention of a diverse pipeline of
managers who will occupy the most
senior positions in the Company in
the future.
The majority of the Committee’s
time during the year was spent
on CEO succession planning and
implementation, and various resulting
changes to the Board, its Committees
and the Senior Management team.
As announced in January 2017, the
Committee recommended, and the
Board approved, the appointment of
Paul McDade as CEO following the AGM
on 26 April 2017. At the same time, I will
step down as Chairman of the Board
and Aidan Heavey will succeed me as
Chairman for a transition period of up to
two years. These changes represent the
culmination of a process of succession
planning that has taken place over
a number of years, and Aidan’s
appointment as Chairman reflects
the Board’s belief that, owing to the
unique nature of Tullow’s business and
relationships across Africa, a phased
transition of the leadership is appropriate.
During the course of 2017, the Committee
will continue to review the structure, size
and composition of the Board and the
Senior Management team to ensure that
they provide a balanced and diverse range
of experience, knowledge and approaches
to complement Paul in his new role.
Simon R Thompson
Chairman of the Nominations Committee
7 February 2017
74
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE
of this review the Committee recommended the
appointment of Jeremy Wilson as Chairman of the
Nominations Committee; Mike Daly as Chairman of the
Ethics and Compliance Committee; and Tutu Agyare as
Chairman of the Remuneration Committee. All of these
changes were approved by the Board and will occur with
effect from the conclusion of the 2017 AGM.
• Board size and composition – In 2016 (following the
retirement of Graham Martin) the Board comprised eleven
Directors: four Executive and seven non-executive
Directors, and included two women and one African.
Subject to the approval of shareholders, following the
various changes discussed above, the Board will consist of
three Executive Directors, five non-executive Directors and
the Chairman, and will include one woman and one African.
The Board continues to support the aspirations set out in
the 2011 Davies Report ‘Women on Boards’ and will seek to
redress the current imbalance in the representation of
women during the coming years.
• Improving the diversity of the talent pipeline – As part
of a continuing effort to address the lack of gender and
national diversity in the Senior Management team (see also
Organisation & Culture section on pages 54 and 55)
diversity was included in the 2016 performance scorecard
and will be included in the 2017 corporate scorecard. A diversity
plan was developed and progress has been made against
that plan which has included: improving our understanding
and reporting of diversity within the company; an increased
focus on diversity by the leadership team; and specific
actions to improve processes such as recruitment, staff
development and performance management to enhance
the diversity of the senior management pipeline. The
Committee is confident that if the implementation of this
plan continues with the same level of commitment observed
in 2016, diversity, particularly at senior levels, will materially
improve over the coming years. The Committee will report
progress against the plan.
• Committee evaluation – The performances of the Board and
its Committees were considered as part of the externally
facilitated Board evaluation process.
Committee activities
• CEO succession planning and implementation – Detailed
planning for the identification of a successor to Aidan Heavey
started in 2015 and continued in 2016. In consultation
with executive search consultants Egon Zehnder and other
external advisers, the Committee developed a detailed role
specification and benchmarked the previously identified
internal candidate against a long and shortlist of external
candidates, ensuring that diversity aspirations were reflected
where possible. At the conclusion of this process, the
Committee interviewed the preferred candidate and ultimately
made a recommendation to the Board that Paul McDade
be appointed as Chief Executive Officer. There is no other
connection between Egon Zehnder and Tullow.
• Chairman succession planning and implementation – Given
Aidan Heavey’s unique role as founder of Tullow Oil and
CEO for 31 years, the Committee was mindful of the need
to maintain continuity and stability during the leadership
transition, particularly with respect to the extensive network
of relationships that Aidan has developed, in Africa and
elsewhere, over the past three decades. In discussion
with Aidan and Paul, as prospective CEO, the Committee
recommended to the Board that a phased approach be
adopted, with Aidan assuming the role of non-executive
Chairman for a transitional period not exceeding two years.
The Committee believes that a phased transition is in the
best interests of shareholders, host governments and other
key stakeholders, but fully recognises the UK Corporate
Governance Code implications of the proposed changes
and the need to engage with shareholders in order to
explain the rationale for this decision. This process will
continue during the period leading up to the 2017 AGM,
when the decision will be subject to shareholder approval.
• CFO emergency planning – In January 2017, Ian Springett
commenced an extended leave of absence in order to
undergo treatment for a medical condition. The Board
implemented the emergency plan, appointing Les Wood,
Vice President Finance and Commercial, as interim CFO.
• Board and Senior Management succession planning –
As part of its discussions about the potential leadership
transition, the Committee held preliminary discussions
with Paul McDade about the future structure, size and
composition of the Board and the Senior Management
team, in order to ensure that they will provide a
complementary balance of skills, knowledge, experience
and diversity. These discussions have continued during
the early part of 2017.
• Senior Independent Director and membership of Board
Committees – Following the scheduled retirement of
Ann Grant after nine years’ service on the Board, the
Committee recommended Jeremy Wilson be appointed
Senior Independent Director. Jeremy confirmed to the
Committee that he is able to commit additional time to the
role, if required, in order to carry out any duties that arise
as a result of the appointment of a non-independent
Chairman. The Committee also reviewed the membership
and chairmanship of each of the Board Committees in light
of the changes to the composition of the Board. As a result
75
2www.tullowoil.com EHS COMMITTEE REPORT
“The Committee has a
forward-looking agenda,
and provides appropriate
advice about emerging
risks that the business
might face in its operations.”
Anne Drinkwater
Chair of the EHS Committee
Committee’s role
The Committee works to enhance
the Board’s engagement with EHS
through appropriate in-depth reviews
of strategically important EHS issues
for the Group. The Committee has a
forward-looking agenda, and provides
appropriate advice about emerging risks
that the business might face in its
operations. It also reviews a wide range
of EHS leading and lagging indicators
to gain an insight into how EHS policies,
standards and practices are being
implemented in the Group’s operations.
In particular, the Committee reviews
high-potential incidents, especially
where they have occurred repeatedly in
one location or activity. It also scrutinises
the outcome of audits and investigations.
Committee’s main responsibilities
The Committee’s responsibilities are:
• advising on Company EHS policies;
Meetings
attended
• providing feedback on Company
EHS standards and practices;
Committee member
Anne Drinkwater (Chair)
Paul McDade
Simon Thompson
Mike Daly
4/4
4/4
4/4
3/4
2016 highlights
• Overseeing improvements in
occupational health & safety
• Issuing a Human Rights Policy
• Reviewing readiness of
equipment & processes ahead
of TEN start-up
• monitoring the implementation
of environmental, health, security
and safety policies, including
process safety management;
• providing feedback on reports
relating to material environmental,
health and safety risks; and
• assessing material regulatory
and technical developments
in EHS management.
The Committee’s terms of reference
are reviewed annually and are available
on the corporate website.
The Committee currently comprises
three non-executive Directors and one
Executive Director – Paul McDade, who
has executive responsibility for EHS across
the Group. Anne Drinkwater is Chair of
the Committee and chaired all meetings
throughout the year. Collectively, the
Committee members have considerable
operational EHS experience gained from
diverse operating environments across
the oil and gas and extractive industries.
DEAR SHAREHOLDER
The Environment, Health and Safety (EHS)
Committee monitors the performance
and key risks the Company faces
in relation to its occupational and
process safety, security, health
and environmental management.
The Committee has an ongoing focus on
process safety. Following its site visit to the
FPSO Kwame Nkrumah in October 2015,
the Committee actively monitored the
Jubilee Asset Integrity Plan throughout
2016. The Committee also reviewed the
new operating and offtake procedures
which were implemented following
identification of an issue with the Jubilee
turret bearing.
With the commissioning and start-up
of a second FPSO in Ghana this year,
the Committee was also involved in
reviews of the readiness of equipment,
processes, and the organisational
structure and staff competence
of the integrated operations team
for both facilities.
During 2016, Tullow issued a new Human
Rights Policy. This supports and enhances
the Company’s commitment to the UN
Voluntary Principles on Security and
Human Rights (VPSHR) in its operations.
Anne Drinkwater
Chair of the EHS Committee
7 February 2017
76
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE
• During the year the Committee worked to ensure that
lessons learnt from incident investigations and audits
were incorporated into the IMS and business processes.
An example of this work is the inclusion of environmental
and social management plans in the Company’s stage
gate assurance and decision processes.
• The Committee reviewed risk management in drilling
and completion operations including processes, tools
and performance.
• The Company carried out a thorough review of business
continuity planning as part of its review of crisis management.
Improvements were identified and made part of the system,
and the Committee reviewed and discussed this work.
Looking forward to 2017
• The Committee will have a continued emphasis on process
safety, and will continue to closely monitor the Jubilee Asset
Integrity Management Plan until it is completed and to review
well control. Additionally, the Committee will provide oversight
on how lessons learnt from Jubilee are being factored into
the first year of TEN production operations.
• The Committee will review assurance work focused
on improvements made in the Company’s management
of malaria risks. In 2016, this was a focus area for Tullow
due to a malaria-related fatality in Ghana in late 2015.
• The Committee will continue to review the EHS elements
of the East Africa development project plans.
In addition to the core Committee members, functional heads
and senior managers from across the Group were invited to
meetings to provide additional details and insights on specific
agenda items. They also provide guidance on EHS issues and
support discussions about how EHS can be embedded across
their parts of the business. In 2016 those attending the meetings
included Senior Management from Tullow’s operations and
management team members from the Safety, Sustainability
& External Affairs function.
Committee activities in 2016
• The Committee reviewed the EHS elements of the SSEA
2016 plan. The plan sets out milestones that need to be
reached to meet SSEA’s multi-year objectives and covers
all aspects of EHS. Examples of these milestones include:
• finalising Safe and Sustainable Operations and Human
Rights policies, and issuing supporting standards;
• carrying out a process safety and asset integrity audit
of the Jubilee FPSO;
• implementing the Voluntary Principles on Security
and Human Rights (VPSHR); and
• continuing to develop competence across the range
of EHS skills.
• In monitoring the SSEA plan during 2016, the Committee
noted the benefits to the business of the application of clear,
simple standards and accountabilities. This has brought a
greater focus on improving the foundations of good EHS
performance, including work planning, workforce
competency, and adherence to critical procedures.
• At each meeting the Committee tracked performance
against the EHS KPIs, which cover both leading and lagging
indicators. In addition to providing a snapshot of progress,
they have been used to identify areas where more focus
may be required, such as asset integrity. Some of the EHS
KPIs are part of the corporate scorecard and are linked to
remuneration and these are overseen by the Committee.
• During 2015, Tullow implemented a four-tiered risk
assurance framework in order to provide different levels
of the organisation with assurance that risks are being
appropriately managed. Using this framework, in 2016
the Committee reviewed asset integrity management
on Jubilee, pre-start reviews of TEN and environmental
management in Kenya.
• An issue with the turret bearing of the Jubilee FPSO
was identified in February 2016. This resulted in the
need to implement new operating and offtake procedures.
The Committee reviewed these procedures from an
EHS perspective.
• The Integrated Management System (IMS) was embedded
in all of Tullow’s businesses during 2016. The Committee
monitored its implementation across all aspects relating
to EHS and security.
77
2www.tullowoil.com ETHICS & COMPLIANCE COMMITTEE REPORT
DEAR SHAREHOLDER
Tullow has built a very strong reputation
for business integrity and we work hard
to maintain this, knowing that it is one of
our most valuable assets. Any behaviour
which has a negative impact on this
reputation could significantly affect
our ability to operate and we recognise
that this is one of the key risks we
must manage.
In 2016, work on Ethics & Compliance
continued to have a high profile across
Tullow. The Ethics & Compliance
Committee met regularly and provided
support to the business by encouraging
strong ethical behaviour and ensuring
full compliance with all relevant
legislation. We were encouraged by
the strong leadership shown by our
senior executives in these areas which
has raised awareness across the
organisation and provided a very clear
message about their importance.
The Committee also undertook a
number of specific actions including
agreeing a new E-Learning module,
approving a full revision to our
expenditure related to a public official
standard, and supporting increased
engagement with the Tullow business.
We remain fully focused on continuing
to promote Ethics & Compliance across
everything we do and look forward
to making further progress in 2017.
Ann Grant
Chair of the Ethics &
Compliance Committee
7 February 2017
78
Committee’s role
The highest standards of ethics and
compliance play a critical role in the
continued success and integrity of
Tullow’s business and are an essential
part of our risk management processes.
The Committee supports the Board in
promoting ethics and compliance both in
Tullow and with those who work with us,
and assures our stakeholders that our
policies and approach are adequate
and effective.
The term ‘ethics’ means the Tullow
Values and culture, which require us to
operate in a way that meets clear ethical
standards. ‘Compliance’ means ensuring
that we meet all the requirements of
legislation applying to the business and
specifically the UK Bribery Act.
Committee’s main responsibilities
The Committee’s responsibilities are set
out in its terms of reference and are to:
• advise the Board on the development
“We remain fully focused
on continuing to promote
Ethics & Compliance across
everything we do and look
forward to making further
progress in 2017.”
Ann Grant
Chair of the Ethics &
Compliance Committee
Committee members
Meetings
attended
of strategy and policies relating
to ethics and compliance;
Ann Grant
Steve Lucas
Ian Springett
4/4
4/4
4/4
2016 highlights
• Strong leadership from
senior executives on Ethics &
Compliance
• Agreeing Ethics & Compliance
training across the entire
organisation through an
effective E-learning module
• Increased oversight on key
Ethics & Compliance risks
• Approval of revision to the
Expenditure Related to a Public
Official Standard
• Direct engagement with and
support to Ethics & Compliance
resources in country
• Oversight of key investigations,
ensuring appropriate outcomes
• review key ethical and compliance
risks and monitor the effectiveness
of respective mitigation activities
and controls;
• evaluate the ethical and compliance
aspects of Tullow’s culture and make
recommendations to rectify any
deficiencies identified, with an
emphasis on the example set by
management and the senior
leadership team;
• oversee development and monitor
implementation and effectiveness of
the Code of Ethical Conduct and other
policies and standards in relation
to ethics and compliance;
• make recommendations to the Board
about amendments to the Code Of
Ethical Conduct and other policies
and standards;
• receive reports and review the
findings of significant internal and
external investigations, audits and
reviews relating to ethics and
compliance policies and procedures;
• liaise with and report to the Audit
Committee about relevant standards
and procedures, the adequacy of
systems for raising concerns and
any significant fraud or error that has
been reported to the Committee; and
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE
• review compliance performance across the Group using
data from monitoring, auditing and investigations.
The Committee’s terms of reference are available on the
Tullow website and are reviewed annually.
The Committee currently comprises two non-executive
Directors, Ann Grant, who chairs the Committee, and Steve
Lucas, and one Executive Director, Ian Springett, who has
executive responsibility for Ethics & Compliance across the
Group. Ann Grant chaired all meetings in 2016. The Chairman
of the Board also regularly attended the Committee’s meetings.
The heads of key functions in the Group provided specific
support for particular agenda items and discussions.
In addition, during 2016, the Committee was supported by
management team members from Ethics & Compliance, Legal,
Organisation Strategy & Effectiveness, and Internal Audit.
Committee activities during 2016
The Committee was briefed on, and oversaw, a number of Ethics
& Compliance initiatives across the Group. These included:
• continued improvements in the level of engagement of the
Ethics & Compliance function with the organisation,
including the Board and Executive;
• the development and execution of a new E-learning training
module across the organisation;
• monitoring of the implementation of the revised standard
for expenditure related to public officials;
• improvements in the governance and management of
investigations carried out by the Business Integrity team
and in ensuring the country involved takes ownership
of that work;
• ensuring greater oversight and scrutiny of consultants
who are Politically Exposed Persons (PEPs) or considered
high-risk by virtue of their interaction with public officials;
• continually reviewing the effectiveness of the tone used by
senior leaders in relation to ethics and compliance by
monitoring our assurance processes and reviewing the
whistle-blowing statistics and the outcomes of related
investigations; and
• monitoring the response to internal investigations, looking
for trends in the findings, identifying any systemic issues
and highlighting lessons learned.
Looking forward to 2017
The Committee’s work in 2017 will focus on:
• consolidating the improved ethics and compliance
culture across the organisation;
• ensuring implementation of the Ethics & Compliance strategy;
• improving the capability and effectiveness of the
Ethics & Compliance team; and
• delivering an ethics and compliance risk
management programme.
79
2www.tullowoil.com REMUNERATION REPORT
ANNUAL STATEMENT
ON REMUNERATION
The Remuneration Committee is focused on ensuring Executive Directors are rewarded
for the long-term success of the Company rather than short-term returns.
DEAR SHAREHOLDER
On behalf of the Board, I am presenting
the Remuneration Committee’s
(‘Committee’s’) report for 2016 on
Directors’ remuneration. The report is
again split into three main sections:
• this Annual Statement, which
provides a summary of the year
under review and the Committee’s
intentions going forward;
• the Directors’ Remuneration
Policy Report, which sets out the
forward-looking three-year Directors’
Remuneration Policy for the Company
which will operate from 1 January 2017
and will, subject to shareholder
approval, become formally effective
from the 2017 Annual General
Meeting (‘AGM’); and
• the Annual Report on Remuneration
provides details of the remuneration
earned by Directors in the year ended
31 December 2016 and how the new
Remuneration Policy will be operated
in 2017.
2017 Board Changes
On 11 January 2017, Tullow announced a
number of changes to its Board which
will all become effective following the
Company’s AGM on 26 April 2017:
• Paul McDade, currently Chief Operating
Officer, will be appointed Chief Executive
Officer. This follows an internal and
external process led by Tullow’s
Nominations Committee. Paul’s base
salary of £725,000 is around 18 per
cent lower than his predecessor’s, and
the rest of his remuneration package
has been set in line with the proposed
2017 Remuneration Policy –
see pages 86 to 89.
80
• Simon Thompson will step down from
the role of Chairman and from the Tullow
Board. As part of the Committee and
Board’s review of non-executive Director
fees for 2017, Simon’s annual fee will
reduce by 10 per cent to £280,000 from
1 January 2017 until his leaving date.
• Aidan Heavey, currently Chief Executive
Officer, will be appointed as non-
executive Chairman for a transition
period of up to two years, subject to
shareholder approval at the AGM.
From the conclusion of the AGM, Aidan
will continue to receive his current
remuneration including all benefits
for a period of six months. This amount
was determined to be appropriate by the
Committee and includes consideration
for: (i) Aidan’s service as Chairman of
the Board; (ii) compensation for abridging
his contractual notice period with the
Group; and (iii) Aidan being available,
on an exclusive and full-time basis for
this six-month period. Then, Aidan will
receive a Chairman’s fee of £280,000
per annum which is in line with the
reduced Chairman’s fee in effect as at
1 January 2017. Following the initial
six-month period, Aidan will be
expected to dedicate at least 70 days
per year to his duties as Chairman.
• Ann Grant will retire and will be replaced
as Senior Independent Director (SID)
by Jeremy Wilson. With the previous
Chief Executive Officer becoming
non-executive Chairman, the
Committee is aware that the SID role
will have increased responsibilities
and will require more time and effort
than in previous years. Accordingly
the Committee has proposed to
increase the SID fee from £10,000
as at January 2017 to £40,000 from
26 April 2017.
“The Committee is
particularly pleased with
the achievement of strategic
financing which ensured
funding capacity for 2016
in a downside environment
and the successful delivery
of the TEN Project which
produced first oil on-target
in August 2016.”
Jeremy Wilson
Chairman of the
Remuneration Committee
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Summary of major decisions made in 2016
In 2016, assisted by our remuneration advisers PwC, the
Committee has conducted a thorough review of the Remuneration
Policy which was approved by shareholders in 2014 for the
three-year period ending in December 2016 (‘the 2014 Policy’).
The review has taken into account feedback already received
from major shareholders and emerging best practice, including
the report of the Investment Association dated 3 July 2016 and
the final report of the Executive Remuneration Working Group
dated July 2016. As a result of this review, we are proposing a
number of amendments to our Directors’ Remuneration Policy
for the period 2017 to 2019 (‘the 2017 Policy’).
2017 Policy
The Committee believes that the basic structure and underlying
principles of the 2014 Policy, including its link to the Group’s
ongoing strategy and business goals, remains appropriate for
Tullow and is accordingly proposing that many components of
the 2014 Policy remain the same for the 2017 Policy. However,
we are recommending some specific amendments to increase
flexibility, to simplify the remuneration structure and to provide
challenging yet incentivising targets for our Executive Directors.
As a result of a benchmarking exercise, we are also recommending
that the maximum opportunity for performance-related pay be
reduced. Set out below are the main features of the 2017 Policy
highlighting the changes from the 2014 Policy, which are
explained in greater detail in the Remuneration Policy Report.
Tullow Incentive Plan (TIP)
• The maximum annual award opportunity to be reduced from
600 per cent of base salary to 400 per cent of base salary.
• Full vesting of the TSR performance condition to be
triggered at upper quartile (75th percentile) performance
instead of upper quintile (80th percentile).
• Discretion to settle any portion of the annual cash bonus
component of a TIP award in deferred shares.
Other changes
• Minimum shareholding requirement for Executive Directors
of 300 per cent of base salary in owned shares (deferred
shares are no longer included in the calculation).
• Reductions in the Chairman’s fee from £310,500 to £280,000
and in the base non-executive Director fee from £69,500 to
£60,000, effective 1 January 2017.
The Committee believes that these proposals will better align
the interests of management and shareholders, incentivise,
motivate and retain our valued Executive Directors and help us
move forward in what promises to be an exciting and challenging
time for the industry. Further details of the rationale for the
changes are shown in the Director’s Remuneration Policy Report.
Performance and reward for 2016
The Committee continues to monitor executive base salaries in
an effort to remain competitive and appropriately placed in the
international oil and gas industry. Base salaries are reviewed
annually, taking into account the factors set out in the appended
policy table. The Committee continued to use the approved 2014
Policy during 2016. At the start of 2016, and for the third
consecutive year, Executive Director base salaries were frozen to
reflect the continued streamlining and refocusing of the business
and the ongoing difficulties of our business sector, representing a
reduction in base salaries in real terms. For 2017, other than the
salary increase for Paul McDade on appointment to his new role
as Chief Executive Officer, in light of the current state of the
oil and gas markets, the Committee believes it is appropriate
to maintain the freeze on the base salaries for the fourth year
running of the other Tullow Executive Directors for the coming
year. This represents a further decrease in salaries in real terms.
The performance targets set for 2016 in respect of the TIP
awards to be granted in 2017 were challenging in the context
of the time and proved even more so as the year progressed.
Although Tullow’s share price increased greatly during the year
and relative TSR against the comparator group in 2016 was in
the upper quartile, TSR is measured over three years for the
purposes of the TIP. It is therefore again disappointing to report
a nil contribution for the TSR measure, which made up 50 per cent
of the corporate scorecard.
However, the Group again scored well on its financial,
production, organisational and strategic targets for the year.
The Committee is particularly pleased with the achievement of
strategic financing which ensured funding capacity for 2016 in a
downside environment and the successful delivery of the TEN
Project which produced first oil on-target in August 2016.
The net result of these various factors produced an overall
KPI performance of 38.8 per cent, resulting in a cash bonus of
97 per cent of salary and a further 97 per cent of salary awarded
in shares deferred for five years. Full details of performance
against the KPIs is shown on pages 16 and 21.
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2www.tullowoil.com REMUNERATION REPORT CONTINUED
Shareholder dialogue
Your views are very important to the Board of Tullow and we are
committed to providing you with clarity and transparency about
these key changes to our 2017 Policy. The Committee will again
consult major shareholders ahead of any significant future
changes to policy, although it is intended that the 2017 Policy
for which approval will be sought at the 2017 AGM will remain
in operation for the forthcoming three years.
On behalf of the Committee, I would like to thank shareholders
for their significant vote approving the 2015 Annual Statement
and Annual Report on Remuneration at the last AGM and look
forward to your continued support in approving the new
remuneration policy for 2017 onwards.
As part of the Board changes coming into effect following the AGM
in April, I will be stepping down as Remuneration Committee
Chairman and will be replaced by my fellow non-executive
Director, Tutu Agyare. For continuity, I will however continue to
serve as a member of the Committee. Steve Lucas will also
step down from the Committee, and will be replaced by Mike
Daly, also from the conclusion of the AGM. I would like to thank
Steve for his contributions to the Committee during his tenure,
and wish Tutu well in his new role as Chairman.
If you have any comments or questions on any element of the
report, please email me at remunerationchair@tullowoil.com.
.
Jeremy Wilson
Chairman of the Remuneration Committee
7 February 2017
COMPONENTS OF REMUNERATION
FIXED PAY
BASE SALARY
PENSION & BENEFITS
Pension
Benefits
Medical insurance
Permanent health insurance
Life assurance
PERFORMANCE
RELATED
TULLOW INCENTIVE PLAN
Annual award of cash (up to 100 per cent of salary)
Balance awarded in shares
(up to 400 per cent salary)
TOTAL REMUNERATION
Glossary
AGM
Annual General Meeting
Capex
Capital expenditure
DSBP
Deferred Share Bonus Plan
EHS
Environment, Health & Safety
ESOS
2000 Executive Share Option Scheme
HMRC
Her Majesty’s Revenue and Customs
Opex
Operating expenses
PSP
Performance Share Plan
SIP
TIP
UK Share Incentive Plan
Tullow Incentive Plan
TSR
Total Shareholder Return
82
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23/02/2017 14:45:45
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Preparation of this report
This report has been prepared in accordance with the
requirements of the Companies Act 2006, the Large and
Medium-sized Companies and Groups (Accounts & Reports)
(Amendment) Regulations 2013, which came into force
on 1 October 2013 and which set out the reporting
requirements in respect of Directors’ remuneration and the
Listing Rules. The legislation requires the external auditor to
state whether, in its opinion, the parts of the report that are
subject to audit have been properly prepared in accordance with
the relevant legislation and these parts have been highlighted.
DIRECTORS’ REMUNERATION POLICY REPORT
This part of the Remuneration Report sets out the proposed
Remuneration Policy for the Company which is intended to
be effective following approval from shareholders through a
binding vote at the AGM to be held in April 2017. The previous
Remuneration Policy for the Company commenced on
1 January 2014 and became formally effective following
approval from shareholders through a binding vote at the AGM
held in April 2014. This section also explains how the proposed
Remuneration Policy will be operated during 2017.
Policy overview
The principles of the Remuneration Committee (‘Committee’)
are to ensure that remuneration is linked to Tullow’s strategy
and promotes the attraction, motivation and retention of the
highest quality executives who are key to delivering sustainable
long-term value growth and substantial returns to shareholders.
Consideration of shareholders’ views
The Committee considers shareholder feedback received at the
AGM each year and, more generally, guidance from shareholder
representative bodies. This feedback, plus any additional
feedback received during any meetings from time to time, is
considered as part of the Company’s annual review of the
continuing appropriateness of the Remuneration Policy.
Employment conditions elsewhere in the Group
In setting the Remuneration Policy and remuneration levels for
Executive Directors, the Committee is cognisant of the approach
to rewarding employees in the Group and levels of pay increases
generally. The Committee does not formally consult directly with
employees on the Executive pay policy, but it does receive regular
updates from Claire Hawkings, Vice President, Organisational
Strategy & Effectiveness (VP – OS&E).
The following differences exist between the Company’s policy
for the remuneration of Executive Directors, as detailed in the
summary table overleaf, and its approach to the payment of
employees generally:
• benefits offered to other employees generally include a
performance bonus award of up to 35 per cent of salary;
• pension provision of a payment of 10 per cent of salary
into our Company defined contribution plan, increasing
to 15 per cent of salary for employees over 50; and
• participation in the TIP is limited to the Executive Directors
and Senior Management according to their role and
responsibility. All other employees are eligible to participate
in the Company’s below Board level share-based plans.
In general, these differences exist to ensure that remuneration
arrangements are market competitive for all levels of role in
the Company. Whilst there is a performance link to
remuneration for all employees, in the case of the Executive
Directors and Senior Management, a greater emphasis tends
to be placed on variable pay given their opportunity to impact
directly upon Company performance.
Summary of Directors’ remuneration policy
Key changes for 2017
The Committee believes that the basic structure of the previous
Remuneration Policy has worked well to align the interests of
our Executives and our shareholders. The changes proposed
by the Committee are set out in the table overleaf and are
designed to provide increased flexibility in the Remuneration
Policy to respond to volatile market conditions and to re-align
Executive compensation with peer companies, both in the
international exploration and production sector and having
regard to FTSE companies of similar current market capitalisation.
Significant changes in the 2017 Policy include:
1) Executive Directors
The maximum annual award opportunity for the TIP to be
reduced from 600 per cent of base salary to 400 per cent
of base salary.
• The period from 2014 to 2016 saw a dramatic decline in oil
prices and in Tullow’s share price. We remain focused on
increasing shareholder value and re-entering the FTSE 100
as soon as possible. However, following feedback from
shareholders, consultation with PwC and completion of
a benchmarking exercise, the Committee believes that a
600 per cent multiplier is inappropriate for Tullow’s current
position within the FTSE, despite stretching performance
targets that make that level of reward achievable only in
exceptional circumstances. We are therefore recommending
a reduction in the maximum award opportunity to 400 per
cent of base salary to better reflect our current market
position. In the event that the Company returns to the
FTSE 100 Index and remains there for an entire financial
year, the Committee reserves the right, at its sole
discretion, to increase the multiplier to 500 per cent
of base salary for the subsequent year.
Full vesting of the TSR performance condition to be triggered at
upper quartile (75th percentile) performance instead of upper
quintile (80th percentile).
• In consultation with PwC, the Committee determined that
a maximum vesting of the TSR performance condition at
upper quartile performance was appropriate and in line
with industry practice within the FTSE and internationally.
Particularly in light of the 200 per cent reduction to the
overall maximum award opportunity the Committee believes
that this is an appropriate adjustment to provide a challenging
yet achievable incentive to the Executive Directors.
83
2www.tullowoil.com REMUNERATION REPORT CONTINUED
1) Executive Directors continued
Discretion to settle any portion of the annual cash bonus
component of a Tullow Incentive Plan (TIP) award in
deferred shares.
• TIP awards consist of a short-term bonus component
(usually paid in cash) and a long-term incentive component
(paid in deferred shares with a five-year vesting term).
A number of institutional investor bodies, governance
agencies and advisory firms encourage the deferral of a
portion of cash bonus into deferred shares. The Committee
believes that the TIP properly balances short-term cash
incentives with long-term share-based awards but that in
certain circumstances it may be appropriate for the cash
component to be partially deferred into shares with a
vesting period not less than one year from the date of grant.
This discretion would provide the Committee with greater
flexibility to craft awards that are appropriate to the
performance of the Company in a given year while also
ensuring proper alignment of the interests of the Executive
Directors and our shareholders.
Minimum shareholding requirement reduced to 300 per cent
of base salary.
• Tullow’s existing shareholding policy prohibits Executive
Directors from selling more than 50 per cent of post-tax
vesting share awards until such time as their shareholding
exceeds 400 per cent of base salary (rising to 600 per cent
on the first vesting of the TIP). It was previously Tullow’s
policy to include unvested and unexercised awards in this
calculation and that was the basis for setting such an
extraordinarily high shareholding requirement. Guidance
has now clarified that unvested awards should not be
counted in minimum shareholding requirements and
accordingly the Committee has reduced the multiple of base
salary for Executive Director shareholdings but specified
that it will only include ‘owned shares’ in the calculation of
these amounts. The Committee believes that, at 300 per
cent of base salary, Tullow’s minimum shareholding
requirement still significantly exceeds the average
minimum shareholding requirement across the FTSE.
2) Non-executive Directors
Non-executive Director fees are reviewed annually and for
2017 the Committee and the Board (with each Director
abstaining from any decision on their own remuneration)
recommend that the current Chairman’s fee be reduced from
£310,500 to £280,000 and each of the non-executive Director
fees be reduced from £69,500 to £60,000. Additional
responsibility fees paid to Committee Chairs would remain
unchanged, save that the fee paid to the Chair of the Ethics
& Compliance Committee would increase from £5,000 to
£10,000 to reflect the increased demands placed on that
Committee. The above reductions in fees payable to the
current Chairman and the non-executive Directors reflect the
cost pressures in the oil and gas industry and Tullow’s current
position within the FTSE.
• As part of the fee reductions recommended above, the fee
for our current Senior Independent Director, Ann Grant,
decreases from £15,000 to £10,000 until her retirement
date. In view of the increased responsibilities and time
commitment of the SID role in the new Tullow Board from
26 April 2017, it is proposed the SID fee will then however
be increased to £40,000.
• From the conclusion of the AGM, Aidan Heavey will continue
to receive his current remuneration including all benefits
for a period of six months. This amount was determined to
be appropriate by the Committee and includes
consideration for: (i) Aidan’s service as Chairman of the
Board; (ii) compensation for abridging his contractual notice
period with the Group; and (iii) Aidan being available, on an
exclusive and full-time basis for this six-month period.
Following the conclusion of this six-month period, Aidan
will receive a Chairman’s fee of £280,000 per annum which
is in line with the reduced Chairman’s fee in effect as at 1
January 2017. Following the initial six-month period, Aidan
will be expected to dedicate at least 70 days per year to his
duties as Chairman.
Operation of share plans
The Committee will operate the TIP (and legacy plans)
according to their respective rules and in accordance with
the Listing Rules and HMRC rules where relevant.
The Committee, consistent with market practice, retains
discretion over a number of areas relating to the operation
and administration of the plans in relation to Senior
Management, including Executive Directors. These include
(but are not limited to) the following (albeit with the level of
award restricted as set out in the policy table overleaf):
• who participates;
• the timing of grant of awards and/or payment;
• the size of awards and/or payment;
• discretion relating to the measurement of performance
in the event of a change of control or reconstruction;
• determination of a good leaver (in addition to any
specified categories) for incentive plan purposes and
a good leaver’s treatment;
• adjustments to awards required in certain circumstances
(e.g. rights issues, corporate restructuring and special
dividends); and
• the ability to adjust existing performance conditions for
exceptional events so that they can still fulfil their
original purpose.
The choice of the performance metrics applicable to the TIP,
which are set by the Committee at the start of the relevant
financial year, reflects the Committee’s belief that any
incentive compensation should be appropriately challenging
and tied to the delivery of stretching financial, operational and
TSR-related objectives, explicitly linked to the achievement of
Tullow’s long-term strategy.
84
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Following completion of the financial year, the Committee will
review the Company’s performance against the corporate
scorecard resulting in a percentage score. The multiple set by
the Committee is then applied to the percentage score to
determine the total TIP Award amount. A TIP Award is divided
equally between cash bonus and deferred shares up to the
first 200 per cent of base salary. Any portion of a TIP Award
above 200 per cent of base salary shall be satisfied in deferred
shares only. Deferred shares forming part of a TIP Award are
normally deferred for five years and are normally subject to
malus and clawback. In its discretion, the Committee may
elect to satisfy any portion of the cash bonus element of a TIP
Award in deferred shares which will be deferred for a period
determined by the Committee, being not less than one year
from the date of grant. Deferred shares issued in lieu of any
portion of the cash bonus component of a TIP Award shall be
subject to malus, clawback and the minimum shareholding
requirements set out in the table overleaf.
Legacy remuneration
For the avoidance of doubt, in approving this Directors’
Remuneration Policy, authority was given to the Company to
honour any commitments entered into with current or former
Directors that have been disclosed to shareholders in previous
remuneration reports. Details of any payments to former
Directors will be set out in the Annual Report on
Remuneration as they arise.
As a result of the switch from: (i) a three-year PSP vesting
period to a five-year TIP vesting period; and (ii) pre-vesting
performance conditions to pre-grant performance conditions,
the following transitional arrangements applied in the early
years of the TIP’s operation:
• to cover the gap between 2016 (when the 2013 PSP awards
(the final set of awards under this plan) vest) and 2019
(when the deferred TIP shares granted in 2014 in relation to
2013 would otherwise normally vest), instead of vesting over
five years the deferred TIP shares granted in 2014 will vest
50 per cent after three years (i.e. 2017) and 50 per cent after
four years (i.e. 2018) and the deferred TIP shares granted
in 2015 will vest 50 per cent after four years (i.e. 2019) and
50 per cent after five years (i.e. 2020). Deferred TIP shares
granted in 2016 in relation to the performance period ended
31 December 2015 and subsequent deferred TIP share
grants will vest after five years from grant; and
• to reduce the impact of overlapping performance periods,
the TSR performance period for TIP awards made in 2014
was measured over the 2013 financial year, the performance
period for TIP awards granted in 2015 was measured over
the 2013–14 financial years and the 2016 awards will be
measured over the 2014–15 financial years (operating a
three-year TSR performance period for early TIP awards
would create an overlap with past PSP awards). TSR, in
relation to the 2017 TIP award, will be based on a three-year
performance period ending with the financial year ending
immediately prior to grant.
In addition to the TIP, Executive Directors are also eligible to
participate in the UK SIP on the same terms as other
employees. All employee share plans do not operate
performance conditions.
Calculation of TIP Awards
In addition to base salary and other benefits described in
the Remuneration Policy, each Executive Director shall be
eligible to receive an award issued under the rules of the
TIP (a ‘TIP Award’). The TIP combines short and long-term
incentive-based pay and includes a cash bonus component
and a deferred share award component.
At the beginning of each financial year, the Committee will
determine a multiple of base salary, subject to the limits
established under this Policy, to apply to a TIP Award. At the
same time the Committee will also determine a balanced
corporate scorecard of performance metrics applicable to any
TIP Award. The choice of the performance metrics and the
weightings given to them, which are set by the Committee at
the start of the relevant financial year, reflects the
Committee’s belief that any incentive compensation should be
appropriately challenging and tied to the delivery of stretching
financial, operational and total shareholder return (‘TSR’)
related objectives, explicitly linked to the achievement of
Tullow’s long-term strategy.
85
2www.tullowoil.com REMUNERATION REPORT CONTINUED
Summary Directors’ Remuneration Policy
Purpose and link
to strategy
Operation
Maximum opportunity
of sums paid/payable
Remuneration and not part of the Policy Report)
Framework used to assess performance and provisions for the recovery
Application of policy in 2017 (this forms part of the Annual Report on
Base salary
To provide an appropriate
level of fixed cash
income.
To attract and retain
individuals with the
personal attributes,
skills and experience
required to deliver our
strategy.
Generally reviewed annually with increases
normally effective from 1 January. Base
salaries will be set by the Committee taking
into account:
• the scale, scope and responsibility
of the role;
• the skills and experience of the
individual;
• the base salary of other employees,
including increases awarded to the
wider population; and
• the base salary of individuals
undertaking similar roles in companies
of comparable size and complexity.
This may include international oil & gas
sector companies or a broader group of
FTSE-listed organisations.
Any increases to current Executive
Director salaries, presented in the
‘Application of Policy in 2017’ column to
the right of this policy table, will not
normally exceed the average increase
awarded to other UK-based employees.
Increases may be above this level in
certain circumstances, for instance if
there is an increase in the scale, scope or
responsibility of the role or to allow the
base salary of newly appointed executives
to move towards market norms as their
experience and contribution increase.
A broad assessment of individual and business performance is used as
Current Executive Director base salaries:
part of the salary review. No recovery provisions apply.
Aidan Heavey
Angus McCoss
Paul McDade
Ian Springett
2017
£886,074
£501,106
£501,106
£532,073
On appointment as Chief Executive Officer after the AGM on
26 April 2017, Paul McDade’s salary will increase to £725,000.
Aidan Heavey’s salary will continue to be paid for a period of
6 months after the AGM on 26 April 2017.
No other changes for 2017. Salaries (other than for
Paul McDade) frozen for fourth year running.
Pension and
benefits
To attract and retain
individuals with the
personal attributes,
skills and experience
required to deliver our
strategy.
Defined contribution pension scheme or
salary supplement in lieu of pension. The
Company does not operate or have any
legacy defined benefit pension schemes.
Medical insurance, income protection and
life assurance. Additional benefits may be
provided as appropriate.
Executive Directors may participate in the
Tullow UK Share Incentive Plan (SIP).
Pension: 25% of base salary.
Benefits: The range of benefits that may
be provided is set by the Committee
after taking into account local market
practice in the country where the
executive is based. No monetary
maximum is given for benefits provided
to the Executive Directors as the cost
will depend on individual circumstances.
Benefit values vary year on year
depending on premiums and the
maximum potential value is the cost of
the provision of these benefits.
Tullow UK SIP: Up to HM Revenue &
Customs (HMRC) limits, currently
£150 per month. Maximum participation
levels and matching levels for all staff,
including Executive Directors, are set by
reference to the rules of the plan
and relevant legislation.
Not applicable.
No change.
86
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE
Summary Directors’ Remuneration Policy
Purpose and link
to strategy
Operation
Maximum opportunity
Framework used to assess performance and provisions for the recovery
of sums paid/payable
Application of policy in 2017 (this forms part of the Annual Report on
Remuneration and not part of the Policy Report)
Base salary
To provide an appropriate
Generally reviewed annually with increases
Any increases to current Executive
level of fixed cash
normally effective from 1 January. Base
Director salaries, presented in the
income.
salaries will be set by the Committee taking
‘Application of Policy in 2017’ column to
A broad assessment of individual and business performance is used as
part of the salary review. No recovery provisions apply.
Current Executive Director base salaries:
Aidan Heavey
Angus McCoss
Paul McDade
Ian Springett
2017
£886,074
£501,106
£501,106
£532,073
On appointment as Chief Executive Officer after the AGM on
26 April 2017, Paul McDade’s salary will increase to £725,000.
Aidan Heavey’s salary will continue to be paid for a period of
6 months after the AGM on 26 April 2017.
No other changes for 2017. Salaries (other than for
Paul McDade) frozen for fourth year running.
To attract and retain
individuals with the
personal attributes,
skills and experience
required to deliver our
strategy.
into account:
of the role;
individual;
• the scale, scope and responsibility
• the skills and experience of the
• the base salary of other employees,
including increases awarded to the
wider population; and
• the base salary of individuals
undertaking similar roles in companies
of comparable size and complexity.
This may include international oil & gas
sector companies or a broader group of
FTSE-listed organisations.
the right of this policy table, will not
normally exceed the average increase
awarded to other UK-based employees.
Increases may be above this level in
certain circumstances, for instance if
there is an increase in the scale, scope or
responsibility of the role or to allow the
base salary of newly appointed executives
to move towards market norms as their
experience and contribution increase.
Defined contribution pension scheme or
Pension: 25% of base salary.
Not applicable.
No change.
Pension and
benefits
To attract and retain
individuals with the
personal attributes,
skills and experience
required to deliver our
strategy.
salary supplement in lieu of pension. The
Company does not operate or have any
legacy defined benefit pension schemes.
Benefits: The range of benefits that may
be provided is set by the Committee
after taking into account local market
Medical insurance, income protection and
practice in the country where the
life assurance. Additional benefits may be
executive is based. No monetary
provided as appropriate.
Executive Directors may participate in the
Tullow UK Share Incentive Plan (SIP).
maximum is given for benefits provided
to the Executive Directors as the cost
will depend on individual circumstances.
Benefit values vary year on year
depending on premiums and the
maximum potential value is the cost of
the provision of these benefits.
Tullow UK SIP: Up to HM Revenue &
Customs (HMRC) limits, currently
£150 per month. Maximum participation
levels and matching levels for all staff,
including Executive Directors, are set by
reference to the rules of the plan
and relevant legislation.
87
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REMUNERATION REPORT CONTINUED
Summary Directors’ Remuneration Policy continued
Purpose and link
to strategy
Operation
Maximum opportunity
of sums paid/payable
Remuneration and not part of the Policy Report)
Framework used to assess performance and provisions for the recovery
Application of policy in 2017 (this forms part of the Annual Report on
Tullow
Incentive
Plan (TIP)
To provide a simple,
competitive,
performance-linked
incentive plan that:
• aligns the interests
of management
and shareholders;
• promotes the
long-term success
of the Company;
• provides a real
incentive to achieve
our strategic
objectives and deliver
superior shareholder
returns; and
• will attract, retain
and motivate
individuals with the
required personal
attributes, skills and
experience.
An annual TIP Award consisting of up
to 400 per cent of base salary which is
divided evenly between cash and deferred
shares up to the first 200 per cent of base
salary. Any amount above 200 per cent
of base salary is awarded entirely in
deferred shares1.
Deferred shares are normally subject for
deferral until the fifth anniversary of grant,
normally subject to continued service.
TIP Awards are non-pensionable and will
be made in line with the Committee’s
assessment of performance targets.
At the discretion of the Committee, any
portion of the cash component of a TIP
Award can be satisfied by granting deferred
shares with a vesting date set by the
Committee being not earlier than the first
anniversary of grant.
The maximum amount of any Award shall
be established by the Committee at the
beginning of each year of this policy,
provided it shall not exceed 400 per cent
of salary for Executive Directors.
Dividend equivalents will accrue on TIP
deferred shares over the vesting period,
and will be payable in respect of shares
that vest.
In the event that Tullow is a member
of the FTSE 100 Index for a full financial
year during the term of this Remuneration
Policy, the Committee reserves the
discretion to increase the maximum TIP
Award opportunity from 400 per cent of
base salary to 500 per cent of base salary
should the Committee determine it
appropriate to do so in the circumstances.
Minimum
shareholding
requirement
To align the interests
of management and
shareholders and
promote a long-term
approach to performance
and risk management.
Executive Directors are required to retain
at least 50 per cent of post-tax share awards
until a minimum shareholding equivalent to
300 per cent of base salary is achieved in owned
shares. Unvested TIP shares will not count
towards the minimum shareholding requirement.
Not applicable.
Not applicable.
No change.
Non-executive
Directors
To provide an appropriate
fee level to attract
individuals with the
necessary experience
and ability to make a
significant contribution
to the Group’s activities
while also reflecting the
time commitment and
responsibility of the role.
Shares included in this calculation are those
held beneficially by the Executive Director
and his or her spouse/civil partner.
The Chairman is paid an annual fee and the
non-executive Directors are paid a base fee
and additional responsibility fees for the role
of Senior Independent Director or for chairing
a Board Committee.
Fees are normally reviewed annually.
Each non-executive Director is also entitled
to a reimbursement of necessary travel and
other expenses.
Non-executive Directors do not participate in
any share scheme or annual bonus scheme
and are not eligible to join the Group’s
pension schemes.
Non-executive Director remuneration is
determined within the limits set by the
Articles of Association.
There is no maximum prescribed fee
increase although fee increases for
non-executive Directors will not normally
exceed the average increase awarded to
Executive Directors. Increases may be above
this level if there is an increase in the scale,
scope or responsibility of the role.
1. Under the rules of the TIP, deferred shares may be awarded in the form of conditional shares, forfeitable shares or nil-cost options at the
discretion of the Committee. To date, all TIP awards have been made in the form of nil-cost options.
88
A balanced scorecard of stretching financial and operational objectives, linked to the
The corporate scorecard for 2017 will consist of:
achievement of Tullow’s long-term strategy will be used to assess TIP outcomes.
• 50 per cent based on relative TSR, over the three-year
Specific targets and their weighting will vary from year to year in accordance with
period prior to grant, against a comparator group of oil
strategic priorities but may include targets relating to: relative or absolute Total
and gas exploration companies with a threshold (25 per
Shareholder Return (TSR); earnings per share (EPS); Environmental, Health and Safety
cent of the award) vesting at median performance and a
(EHS); financial; production; operations; project; exploration; or specific strategic and
maximum (100 per cent) vesting at upper quartile performance;
personal objectives. At the end of each year the Committee will determine a
performance score against each of the components of the corporate scorecard which
will result in an aggregate performance score out of 100 per cent (KPI Score). At
least 50 per cent of any TIP award will be based on financial measures including TSR.
Performance will typically be measured over one year for all measures apart
from TSR and EPS, which, if adopted, will normally be measured over the three
financial years prior to grant.
For relative TSR, no more than 25 per cent of the maximum TIP opportunity will
be payable for threshold performance with 100 per cent payable on delivering
upper quartile performance.
Non-TSR targets will normally be based on a challenging sliding scale with
20 per cent of the maximum opportunity payable for threshold performance
through to a maximum of 100 per cent payable for delivering stretch performance.
The Committee reserves the right to exercise its discretion in the event of
exceptional and unforeseen positive or negative developments during the
performance period. In addition, the Committee reserves the right to reduce the
TIP payment where the Committee considers that the level of payment is not
commensurate with overall corporate performance and returns delivered to
shareholders over the performance period.
The Committee will review performance measures annually, in terms of the
range of targets, the measures themselves and weightings applied to each element
of the TIP. Any revisions to the measures and/or weightings will only take place if
it is necessary because of developments in the Group’s strategy and, where
these are material, following appropriate consultation with shareholders.
TIP awards are subject to malus and clawback. The Committee retains
discretion to apply malus and clawback to both the cash and deferred share
elements of the TIP during the five-year vesting period in the event of a material
adverse restatement of the financial accounts or reserves or a catastrophic
failure of operational, EHS and risk management.
• 10 per cent based on strategic financing measures;
• 12 per cent based on production, operational and safety
measures; and
• 18 per cent based on business development, growth
and organisational objectives.
The Committee has set specific targets for the above KPIs
that are stretching and that are explicitly linked to the
achievement of Tullow’s long-term strategy.
The Committee is of the opinion that, given the commercial
sensitivity of Tullow’s non-TSR-related KPIs, disclosing in
advance precise targets for the TIP would not be in shareholders’
interests. Except in circumstances where elements remain
commercially sensitive, actual targets, performance
achieved and awards made will be published at the end of
the performance periods so shareholders can fully assess
the basis for any pay-outs.
• The final 10 per cent of the corporate scorecard will be
determined at the discretion of the Committee, based on
an overall assessment of Company performance during
the year.
Details of actual performance against KPIs will be given
retrospectively in the 2017 Annual Report.
Not applicable.
Current non-executive Director fees:
Chairman2
£280,000
(£310,500)
Non-executive base fee
Senior Independent Director3
Senior Independent Director4
Audit Committee Chair
Remuneration Committee Chair
EHS Committee Chair
E&C Committee Chair
2017
(2016)
£60,000
£10,000
£40,000
£20,000
£20,000
£15,000
£10,000
(£69,500)
(£15,000)
(£15,000)
(£20,000)
(£20,000)
(£20,000)
(£5,000)
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE
Tullow
Incentive
Plan (TIP)
An annual TIP Award consisting of up
to 400 per cent of base salary which is
The maximum amount of any Award shall
be established by the Committee at the
divided evenly between cash and deferred
beginning of each year of this policy,
shares up to the first 200 per cent of base
provided it shall not exceed 400 per cent
salary. Any amount above 200 per cent
of salary for Executive Directors.
of base salary is awarded entirely in
deferred shares1.
Dividend equivalents will accrue on TIP
deferred shares over the vesting period,
Deferred shares are normally subject for
and will be payable in respect of shares
deferral until the fifth anniversary of grant,
that vest.
normally subject to continued service.
In the event that Tullow is a member
TIP Awards are non-pensionable and will
of the FTSE 100 Index for a full financial
be made in line with the Committee’s
assessment of performance targets.
objectives and deliver
At the discretion of the Committee, any
superior shareholder
portion of the cash component of a TIP
Award can be satisfied by granting deferred
shares with a vesting date set by the
Committee being not earlier than the first
anniversary of grant.
year during the term of this Remuneration
Policy, the Committee reserves the
discretion to increase the maximum TIP
Award opportunity from 400 per cent of
base salary to 500 per cent of base salary
should the Committee determine it
appropriate to do so in the circumstances.
To provide a simple,
competitive,
performance-linked
incentive plan that:
• aligns the interests
of management
and shareholders;
• promotes the
long-term success
of the Company;
• provides a real
incentive to achieve
our strategic
returns; and
• will attract, retain
and motivate
individuals with the
required personal
attributes, skills and
experience.
Minimum
shareholding
requirement
To align the interests
of management and
shareholders and
Executive Directors are required to retain
Not applicable.
at least 50 per cent of post-tax share awards
until a minimum shareholding equivalent to
promote a long-term
300 per cent of base salary is achieved in owned
approach to performance
shares. Unvested TIP shares will not count
and risk management.
towards the minimum shareholding requirement.
Non-executive
Directors
non-executive Directors are paid a base fee
determined within the limits set by the
and additional responsibility fees for the role
Articles of Association.
fee level to attract
individuals with the
necessary experience
and ability to make a
significant contribution
to the Group’s activities
while also reflecting the
time commitment and
responsibility of the role.
Shares included in this calculation are those
held beneficially by the Executive Director
and his or her spouse/civil partner.
of Senior Independent Director or for chairing
a Board Committee.
Fees are normally reviewed annually.
Each non-executive Director is also entitled
to a reimbursement of necessary travel and
other expenses.
Non-executive Directors do not participate in
any share scheme or annual bonus scheme
and are not eligible to join the Group’s
pension schemes.
There is no maximum prescribed fee
increase although fee increases for
non-executive Directors will not normally
exceed the average increase awarded to
Executive Directors. Increases may be above
this level if there is an increase in the scale,
scope or responsibility of the role.
Purpose and link
to strategy
Operation
Maximum opportunity
Framework used to assess performance and provisions for the recovery
of sums paid/payable
Application of policy in 2017 (this forms part of the Annual Report on
Remuneration and not part of the Policy Report)
A balanced scorecard of stretching financial and operational objectives, linked to the
achievement of Tullow’s long-term strategy will be used to assess TIP outcomes.
Specific targets and their weighting will vary from year to year in accordance with
strategic priorities but may include targets relating to: relative or absolute Total
Shareholder Return (TSR); earnings per share (EPS); Environmental, Health and Safety
(EHS); financial; production; operations; project; exploration; or specific strategic and
personal objectives. At the end of each year the Committee will determine a
performance score against each of the components of the corporate scorecard which
will result in an aggregate performance score out of 100 per cent (KPI Score). At
least 50 per cent of any TIP award will be based on financial measures including TSR.
Performance will typically be measured over one year for all measures apart
from TSR and EPS, which, if adopted, will normally be measured over the three
financial years prior to grant.
For relative TSR, no more than 25 per cent of the maximum TIP opportunity will
be payable for threshold performance with 100 per cent payable on delivering
upper quartile performance.
Non-TSR targets will normally be based on a challenging sliding scale with
20 per cent of the maximum opportunity payable for threshold performance
through to a maximum of 100 per cent payable for delivering stretch performance.
The Committee reserves the right to exercise its discretion in the event of
exceptional and unforeseen positive or negative developments during the
performance period. In addition, the Committee reserves the right to reduce the
TIP payment where the Committee considers that the level of payment is not
commensurate with overall corporate performance and returns delivered to
shareholders over the performance period.
The Committee will review performance measures annually, in terms of the
range of targets, the measures themselves and weightings applied to each element
of the TIP. Any revisions to the measures and/or weightings will only take place if
it is necessary because of developments in the Group’s strategy and, where
these are material, following appropriate consultation with shareholders.
TIP awards are subject to malus and clawback. The Committee retains
discretion to apply malus and clawback to both the cash and deferred share
elements of the TIP during the five-year vesting period in the event of a material
adverse restatement of the financial accounts or reserves or a catastrophic
failure of operational, EHS and risk management.
The corporate scorecard for 2017 will consist of:
• 50 per cent based on relative TSR, over the three-year
period prior to grant, against a comparator group of oil
and gas exploration companies with a threshold (25 per
cent of the award) vesting at median performance and a
maximum (100 per cent) vesting at upper quartile performance;
• 10 per cent based on strategic financing measures;
• 12 per cent based on production, operational and safety
measures; and
• 18 per cent based on business development, growth
and organisational objectives.
The Committee has set specific targets for the above KPIs
that are stretching and that are explicitly linked to the
achievement of Tullow’s long-term strategy.
The Committee is of the opinion that, given the commercial
sensitivity of Tullow’s non-TSR-related KPIs, disclosing in
advance precise targets for the TIP would not be in shareholders’
interests. Except in circumstances where elements remain
commercially sensitive, actual targets, performance
achieved and awards made will be published at the end of
the performance periods so shareholders can fully assess
the basis for any pay-outs.
• The final 10 per cent of the corporate scorecard will be
determined at the discretion of the Committee, based on
an overall assessment of Company performance during
the year.
Details of actual performance against KPIs will be given
retrospectively in the 2017 Annual Report.
Not applicable.
No change.
To provide an appropriate
The Chairman is paid an annual fee and the
Non-executive Director remuneration is
Not applicable.
Current non-executive Director fees:
2017
(2016)
Chairman2
£280,000
(£310,500)
Non-executive base fee
Senior Independent Director3
Senior Independent Director4
Audit Committee Chair
Remuneration Committee Chair
EHS Committee Chair
E&C Committee Chair
£60,000
£10,000
£40,000
£20,000
£20,000
£15,000
£10,000
(£69,500)
(£15,000)
(£15,000)
(£20,000)
(£20,000)
(£20,000)
(£5,000)
2. Aidan Heavey’s current remuneration will continue for 6 months after the AGM on 26 April 2017. Thereafter, Aidan will receive a Chairman’s
fee of £280,000 per annum which is in line with the reduced Chairman’s fee in effect as at 1 January 2017.
3. To 26 April 2017.
4. After 26 April 2017.
89
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REMUNERATION REPORT CONTINUED
External appointments
The Board has not introduced a formal policy in relation to the
number of external directorships that an Executive Director
may hold, considering any potential appointments on a
case-by-case basis. During 2016, Ian Springett sought the
Board’s permission, which was agreed, to take up a non-
executive Director role with G4S plc, effective 1 January 2017.
In this, and other requests from Executive Directors to take up
external appointments, the Board considers the individual’s
aggregate time commitment anticipated by the new role
against their current commitments to Tullow. In respect of Ian’s
appointment, the Board agreed that he would retain his fee of
£61,750 per annum. Angus McCoss has been nominated by
Tullow as its representative on the board of Ikon Science
Limited, a company in which Tullow has a small equity stake.
Any fees payable for his services have been waived by Tullow.
Policy for new appointments
Base salary levels will take into account market data for the
relevant role, internal relativities, the individual’s experience
and their current base salary. Where an individual is recruited
at below market norms, they may be re-aligned over time (e.g.
two to three years), subject to performance in the role. Benefits
will generally be in accordance with the approved policy.
Individuals will participate in the TIP up to the normal annual
limit subject to: (i) award levels in the year of appointment
being pro-rated to reflect the proportion of the financial year
worked; and (ii) where a performance metric is measured over
more than one year, the proportion of awards based on that
metric will normally be reduced to reflect the proportion of the
performance period worked. The Committee may consider
buying out incentive awards which an individual would forfeit
upon leaving their current employer although any
compensation would, be consistent with respect to currency
(i.e. cash for cash, equity for equity), vesting periods (i.e. there
would be no acceleration of payments), expected values and the
use of performance targets.
For an internal Executive Director appointment, any variable
pay element awarded in respect of the prior role may be
allowed to pay out according to its terms, adjusted as relevant
to take account of the appointment. In addition, any other
ongoing remuneration obligations existing prior to appointment
may continue. For external and internal appointments, the
Committee may agree that the Company will meet certain
relocation and/or incidental expenses as appropriate.
Fee levels for non-executive Director appointments will take
into account the expected time commitment of the role and the
current fee structure in place at that time.
Remuneration scenarios for Executive Directors
The charts below show how the composition of the Executive
Directors’ remuneration packages varies at different levels of
performance under the remuneration policy, as a percentage
of total remuneration opportunity and as a total value:
Aidan
Heavey
Angus
McCoss
Paul
McDade
Ian
Springett
Fixed
Target
Maximum
Fixed
Target
Maximum
Fixed
Target
Maximum
Fixed
Target
Maximum
£m
1
2
3
4
5
6
7
Fixed pay
TIP (cash)
TIP (deferred shares)
1. Base salaries are those effective as at 1 January 2017
(unchanged from 1 January 2016).
2. Pensions are based on a 25 per cent employer contribution.
3. The target TIP award is taken to be 50 per cent of the maximum annual
opportunity for 2017 (200 per cent of salary) for all Executive Directors.
4. The maximum value of the TIP is taken to be 400 per cent of salary
(i.e. the maximum annual opportunity) for 2017.
5. No share price appreciation has been assumed.
Service agreements
Each Executive Director entered into a new service agreement
with Tullow Group Services Limited effective 1 January 2014,
save for Paul McDade who will enter into a new service
agreement prior to the 2017 AGM in respect of his new role
as Chief Executive Officer. Each service agreement sets out
restrictions on the ability of the Director to participate in
businesses competing with those of the Group or to entice or
solicit away from the Group any senior employees in the six
months after ceasing employment. The above reflects the
Committee’s policy that service contracts should be structured
to reflect the interests of the Group and the individuals
concerned, while also taking due account of market and
best practice.
The term of each service contract is not fixed. Each agreement
is terminable by the Director on six months’ notice and by the
employing company on 12 months’ notice.
90
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Policy for loss of office
Executive Directors’ service contracts are terminable by the
Director on six months’ notice and by the relevant employing
company on 12 months’ notice. There are no specific provisions
under which Executive Directors are entitled to receive
compensation upon early termination, other than in accordance
with the notice period.
disability, redundancy, retirement, his office or employment
being either a company which ceases to be a Group member or
relating to a business or part of a business which is transferred
to a person who is not a Group member or any other reason the
Committee so decides). For a good leaver, unvested awards will
normally vest at cessation of employment (unless the Committee
decides they should vest at the normal vesting date).
On termination of an Executive Director’s service contract, the
Committee will take into account the departing Director’s duty
to mitigate his loss when determining the amount of any
compensation. Disbursements such as legal and outplacement
costs and incidental expenses may be payable where appropriate.
Any unvested awards held under the Tullow Oil 2005 DSBP (the
last awards were granted to Executive Directors in 2013) will
lapse at cessation of employment unless the individual is a
good leaver (defined under the plan as death, injury or
Any unvested awards held under the Tullow Oil 2005 PSP (the
last awards were granted to Executive Directors in 2013) will
lapse at cessation of employment unless the individual is a
good leaver (defined as per the DSBP). For a good leaver,
unvested awards will normally vest at the normal vesting date
(unless the Committee decides they should vest at cessation
of employment) subject to performance conditions and time
pro-rating (unless the Committee decides that the application
of time pro-rating is inappropriate).
The Committee’s policy in respect of the treatment of Executive Directors leaving Tullow following the introduction of the
TIP is described below:
Cessation of employment due to death, injury, disability, retirement, redundancy, the
participant’s employing company or business for which they work being sold out of the
Company’s Group or in other circumstances at the discretion of the Committee
Cessation of employment due
to other reasons (e.g. termination
for cause)
TIP
(cash)
Cessation during a financial year, or after the year but prior to the normal TIP
Award date, may, at the discretion of the Committee, result in the cash part of the
TIP being paid following the date of cessation (pro-rated for the proportion of the
year worked).
No entitlement to the cash part of
the TIP following the date notice
is served
TIP
(deferred shares)
Cessation during a financial year, or after the year but prior to the normal TIP
Award date, may, at the discretion of the Committee, result in an award of
deferred shares being made (pro-rated for the proportion of the year worked).
Unvested TIP Shares generally vest at the normal vesting date (except on death
or retirement – see below) unless the Committee determines they should vest
at cessation.
On death, TIP Shares generally vest immediately unless the Committee
determines that they should vest at the normal vesting date.
On retirement (as evidenced to the satisfaction of the Committee), TIP Shares
will vest at the earlier of the normal vesting date and three years from retirement
unless the Committee determines they should vest at cessation.
Unvested TIP Shares lapse. No
entitlement to the deferred share
element of the TIP following the
date notice is served
Non-executive Director terms of appointment
Non-executive Director
Simon Thompson
Tutu Agyare
Mike Daly
Anne Drinkwater
Ann Grant
Steve Lucas
Jeremy Wilson
Number of
complete
years on
the Board
5
6
Date of current
engagement
commenced
01.01.15
24.08.16
2
4
8
4
3
01.06.14
10.02.15
15.05.14
14.03.15
21.10.16
Year
appointed
2011
2010
2014
2012
2008
2012
2013
Expiry of
current term
31.12.17
23.08.19
31.05.17
09.02.18
30.04.17
13.03.18
20.10.19
In each case, the appointment is renewable thereafter if agreed by the Director and the Board. The appointment of any non-executive
Director may be terminated by either party on three months’ notice (six months for Simon Thompson). There are no arrangements
under which any non-executive Director is entitled to receive compensation upon the early termination of his or her appointment.
91
2www.tullowoil.com REMUNERATION REPORT CONTINUED
Committee’s advisers
The Committee invites individuals to attend meetings to provide
advice so as to ensure that the Committee’s decisions are
informed and take account of pay and conditions in the Group
as a whole. Sources of advice include:
• Ian Springett, Chief Financial Officer;
• Claire Hawkings, VP – OS&E; and
• Further to a formal tender process, including consideration
of its independence and objectivity, PwC LLP was appointed
as formal advisers to the Remuneration Committee from
June 2016.
The total fees paid to PwC in respect of the advice provided for
2016 totalled £60,000 (excluding VAT) and related to the review
and design of the Company’s 2017 Remuneration Policy and
related issues. PwC LLP is a member of the Remuneration
Consultants Group and as such voluntarily operates under the
code of conduct in relation to executive remuneration
consulting in the UK. PwC LLP also provided tax and consulting
services to Tullow during the year.
Fees paid to New Bridge Street, the previous advisers to the
Remuneration Committee, totalled £6,015 (excluding VAT) and
related to the provision of TSR calculations and advice with
regards to the 2015 Directors’ Remuneration Report.
The Committee has access to the Company Secretary at all
times, who advises as necessary and, where appropriate,
makes arrangements for the Committee to receive independent
legal advice at the request of the Committee Chair.
The Committee also consults with the Company’s major
investors and investor representative groups as appropriate. No
Director takes part in any decision directly affecting his or her
own remuneration. The Company Chairman also absents
himself during discussion relating to his own fees.
ANNUAL REPORT ON REMUNERATION
This part of the report provides details of the operation of the
Remuneration Committee, how the Remuneration Policy was
implemented in 2016 (including payment and awards in respect
of incentive arrangements) and how shareholders voted at the
2016 AGM. This part of the report also includes a summary of
how the new Remuneration Policy, if approved by shareholders,
will be operated for 2017, although, for ease of reference, this is
also presented within the Remuneration Policy Report.
Remuneration Committee membership and meetings
The Committee currently comprises five non-executive
Directors and is chaired by Jeremy Wilson. The membership
and attendance of members at Committee meetings held in
2016 are shown below.
Committee member
Jeremy Wilson (Chair)
Tutu Agyare¹
Anne Drinkwater
Steve Lucas
Simon Thompson
Meetings attended
6/6
5/6
6/6
6/6
6/6
1. Tutu Agyare was unable to attend one Committee meeting, due to a
prior engagement, but provided comments on the agenda and matters
to be discussed to the Committee Chairman in advance of the meeting.
Committee’s main responsibilities
• Determining and agreeing with the Board the remuneration
policy for the Chief Executive Officer, the Chairman,
Executive Directors and Senior Executives.
• Reviewing progress made against performance targets and
agreeing incentive awards.
• Reviewing the design of share incentive plans for approval
by the Board and shareholders and determining the policy
on annual awards to Executive Directors and Senior
Executives under existing plans.
• Within the terms of the agreed policy, determining the
remainder of the remuneration packages (principally
comprising salary and pension) for each Executive Director
and Senior Executive.
• Monitoring the level and structure of remuneration for
Senior Management.
• Reviewing and noting the remuneration trends across
the Group.
The Committee’s terms of reference are reviewed annually and
can be viewed on the Company’s corporate website.
92
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Directors’ remuneration (audited)
The remuneration of the Directors for the year ended 31 December 2016 payable by Group companies and comparative figures for
2015 are shown in the table below:
Executive Directors
Aidan Heavey
Angus McCoss
Paul McDade
Ian Springett
Graham Martin5
Subtotal
Non-executive Directors
Tutu Agyare
Mike Daly
Anne Drinkwater
Ann Grant
Steve Lucas
Simon Thompson
Jeremy Wilson
Subtotal
Total
Fixed pay
Salary/fees1
£
Pensions2
£
Taxable
benefits3
£
Tullow Incentive Plan
TIP cash
£
Deferred TIP
shares4
£
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
886,080
886,080
501,110
501,110
501,110
501,110
532,080
532,080
167,037
501,110
2,587,417
2,921,490
69,500
69,500
69,500
69,500
84,500
84,500
89,500
89,500
89,500
89,500
310,500
310,500
89,500
89,500
802,500
802,500
3,389,917
3,723,990
221,520
221,520
125,278
125,278
125,278
125,278
133,020
133,020
41,759
125,278
646,855
730,374
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
646,855
730,374
66,638
57,849
10,758
6,655
9,017
5,394
15,751
8,371
3,614
9,744
105,778
88,013
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
105,778
88,013
859,497
835,130
486,076
472,296
486,076
472,296
516,117
501,485
162,025
472,296
2,509,791
2,753,503
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,509,791
2,753,503
859,497
835,130
486,076
472,296
486,076
472,296
516,117
501,485
–
472,296
2,347,766
2,753,503
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,347,766
2,753,503
Total
£
2,893,232
2,835,709
1,609,298
1,577,635
1,607,557
1,576,374
1,713,085
1,676,441
374,435
1,580,724
8,197,607
9,246,883
69,500
69,500
69,500
40,542
84,500
84,500
89,500
79,500
89,500
89,500
310,500
310,500
89,500
82,833
802,500
756,875
9,000,107
10,049,383
1. Base salaries of the Executive Directors have been rounded up to the nearest £10 for payment purposes, in line with established policy.
2. None of the Executive Directors has a prospective entitlement to a defined benefit pension by reference to qualifying services.
3. Taxable benefits comprise private medical insurance for all Executive Directors; Aidan Heavey’s taxable benefits comprised private medical
insurance (£17,523) and car benefits/club membership (£47,550); Ian Springett also receives club membership.
4. These figures represent that part of the TIP award required to be deferred into shares.
5. Part year – Graham Martin resigned as an Executive Director effective 28 April 2016.
Material contracts
There have been no other contracts or arrangements during the financial year in which a Director of the Company was materially
interested and/or which were significant in relation to the Group’s business.
Termination payments (audited)
The principles governing compensation for loss of office payments are set out on page 91.
As previously announced on 9 December 2015, Graham Martin informed the board that he would retire as an Executive Director at
the 2016 Annual General Meeting. Mr. Martin also resigned as Company Secretary effective 1 January 2016. Mr. Martin’s
appointment as an Executive Director and his employment with Tullow therefore ended on 28 April 2016.
93
2www.tullowoil.com REMUNERATION REPORT CONTINUED
Termination payments (audited) continued
Mr. Martin received his salary, benefits and pension allowance as usual in respect of his employment until 28 April 2016. Mr. Martin
worked for part of the 2016 financial year and the Committee therefore determined that he will remain eligible to receive the cash
part of the Tullow Incentive Plan in respect of the portion of the year worked.
Under the rules of the various Tullow incentive arrangements, Mr. Martin left Tullow as a good leaver and as such his existing
share awards were treated in the following way:
• An award of deferred shares under the Tullow Incentive Plan granted in 2014 over 58,246 shares will vest on 19 February 2017
as to 50 per cent of the shares subject to the award and 19 February 2018 as to the remaining 50 per cent.
• An award of deferred shares under the Tullow Incentive Plan granted in 2015 over 86,398 shares will vest as to 50 per cent of
the shares subject to the award on 18 February 2019 and on the third anniversary of the retirement date as to the remaining
50 per cent.
• An award of deferred shares under the Tullow Incentive Plan granted in 2016 over 319,767 shares will all vest on the third
anniversary of the retirement date.
• Mr. Martin’s deferred share awards under the Tullow Incentive Plan will remain exercisable for a period of 12 months from the
date of vesting, in accordance with the Tullow Incentive Plan rules.
• Awards under the 2005 Performance Share Plan granted over 192,604 shares have already vested and will remain exercisable
until 12 months from the date of retirement;
• Awards under the 2005 Deferred Share Bonus Plan granted over 123,279 shares have already vested and will remain
exercisable until 12 months from the date of retirement; and
• Any partnership and matching shares from Tullow’s UK Share Incentive Plan that have been acquired by Mr. Martin and are
held on his behalf on his retirement date will be transferred to him. As at the date of his retirement, 10,650 shares were held
on Mr. Martin’s behalf pursuant to the plan.
Mr. Martin will continue to be covered by the Company’s directors’ and officers’ insurance and his indemnity in respect of third party
liabilities will continue in force, each according to their terms. On retiring and ceasing employment with Tullow, Mr. Martin was not
entitled to any other payments or any payment for loss of office.
There have been no termination payments to Graham Martin or previously to any other Executive Directors.
Details of variable pay earned in the year
Determination of 2017 TIP Award based on performance to 31 December 2016 (audited)
The Group’s progress against its corporate scorecard is tracked during the year to assess our performance against our strategy.
The corporate scorecard is made up of a collection of Key Performance Indicators (‘KPIs’) which indicate the company’s overall
health and performance across a range of operational, financial and non-financial measures.
The corporate scorecard is central to Tullow’s approach to performance management and the 2016 indicators were agreed with the
Board and focus on targets that were deemed important for the year.
Each KPI measured has a percentage weighting and financial indicators have trigger, base and stretch performance targets.
Following the end of the 2016 financial year, the corporate scorecard KPI performance was 38.8 per cent of the maximum and the
Committee awarded Executive Directors a total TIP award equating to 194 per cent of base salary. This will be payable 50 per cent
in cash and 50 per cent in shares deferred for five years (i.e. vesting in 2022). Details of the performance targets which operated
and performance against those targets are as follows:
% of award
(% of salary
maximum)
15%
(75%)
Actual
13.5%
(67.5%)
Performance metric
Performance
Strategic Financing
Two key targets relating
to Capacity Funding and
Strategic Solution
to Deleverage.
The Capacity Funding target includes maintaining liquidity through the
bi-annual redetermination of our Senior Reserves Based Lending (RBL)
debt capacity; extending the Rolling Corporate Facility by one year; and
amending the gearing covenant - 2016 funding capacity was achieved by
securing a year’s extension to our Corporate Facility, amending the
financial covenant under the RBL and Corporate Facility and the
issuance of $300m convertible bonds.
The second longer-term Strategic target focuses on deleveraging and
rebasing our balance sheet – Positive free cash flow in Q4 began the
gradual deleveraging process, and the farm-down of our Uganda assets
will fully fund our future capital commitments associated with this
project once the deal is complete.
Based on a review of the two Strategic Financing targets, the Committee
accordingly agreed a payout of 13.5% out of the potential 15% allocation.
94
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Performance metric
Performance
Safe & Efficient
Business Operations
Quantitative Targets
relating to Production,
Opex, Net G&A and Capex.
SSEA Targets.
Business Development
and Growth
Targets relating to the
TEN Project, East Africa
and Exploration.
Production: trigger target of 77.3kboepd pays 0%; base target of 81.4k
boepd pays 50%; and stretch of 85.3kbopd pays 100% – 2016
Production of 71.1kboepd, which includes 4,600 boepd of net lost
production covered by insurance, was below the trigger target of 77.3k
boepd and therefore 0% pay-out (maximum 5%) was achieved.
Opex: trigger target of $16.5 underlying cash opex/boe pays 0%; base
target of $15.7 opex/boe pays 50%; and stretch target of $14.9 pays
100% – 2016 Opex of $14.3 per barrel of oil (including insurance
pay-outs) overachieved the stretch target of $14.9 and therefore the
maximum 1.25% was awarded.
Net G&A: trigger target of $147 million pays 0%; base target of
$127 million pays 50%; and stretch target of $100 million pays 100%
– 2016 Net G&A was $116.4 million which was between the base target
of $127 million and our stretch target of $100 million achieving a
0.9% pay-out of the 1.25% allocation.
Capex: trigger target of $1,100 million pays 0% and the stretch target
of $900 million pays 100% – 2016 Capex of $857m overachieved the
stretch target of $942 million and therefore the maximum 2.5%
was awarded.
Tullow’s SSEA targets are focused on reducing process safety events;
making improvements to our asset integrity; occupational health and
safety focused on Long Time Injury Frequency (LTIF) reduction and
malaria prevention; and sustainability, including metrics such as
environmental and social performance – In 2016 there were no Tier 1
and Tier 2 incidents. The Jubilee Asset Integrity improvement plan
progress is on schedule. The LTIF rate was 0, beating the stretch
target of 0.24. There were no serious malaria cases reported and
no significant work disruptions reported the year to date.
In view of the above SSEA performance, the Committee determined
a 4.1% achievement out of a maximum 5% allocation.
The KPI for the TEN Project was based on the following targets: timing
of achieving first oil; ramp-up of production; production attainment and
operability – First oil was achieved in August 2016; ramp-up Production
was 5.5mmbbls; and the capacity of the FPSO has been successfully
tested at an average rate of over 80,000 boepd. The TEN Project has
been classified as a ‘world class’ project and ranks in the top 10% of
global projects for both schedule delivery and capex budget (per
Independent Project Analysis (IPA)). Based on these achievements,
the Committee determined a score of 4.5% out of the maximum 5%.
The East Africa KPI comprised the following targets: implementing a
material transaction on our East Africa Portfolio; maintaining East Africa
development for Final Investment Decision by the end 2017; and
presenting Kenya Early Oil Investment Proposal. The farm-down of our
Uganda assets to Total was announced in early 2017. Also in Uganda,
eight production licences were awarded; the pipeline is progressing
upstream and pipeline FEED are commencing in 2017; and upstream
ESIA scoping studies are approved. In Kenya, our licences have been
extended; water injection testing has commenced; and the Kenya Early
Oil Pilot Scheme has been approved by the upstream partners. Based on
these achievements, the Committee determined a score of 4.5% out of
the maximum 5%.
The exploration KPI is made up of the following three targets: accessing
material acreage positions; progressing quality prospects; and discovering
predicted risked volumes through exploration. In 2016, two material
licences in Guyana and Zambia were signed and 13 quality prospects were
progressed across Kenya, Namibia, Norway, Suriname and Mauritania.
In Norway, the Cara discovery and the Wisting appraisal well added a
combined P50 resource of approximately 41mmboe net. Based on these
achievements, the Committee determined a score of 3.4% out of the
maximum 5%.
% of award
(% of salary
maximum)
15%
(75%)
Actual
8.8%
(44.0%)
15%
(75%)
12.4%
(62.0%)
95
2www.tullowoil.com REMUNERATION REPORT CONTINUED
Details of variable pay earned in the year continued
Determination of 2017 TIP Award based on performance to 31 December 2016 (audited) continued
Performance metric
Performance
Organisation
Targets relating to
Organisational Efficiency &
Effectiveness, Diversity and
Ethics & Compliance and
fully implementing the
Integrated Management
System (IMS)
Highlights from the progress against the Organisation KPI included in 2016:
IMS implementation is on track; the employee survey ran with high
participation and action plans were developed to address feedback; all key
risks have controls in place to manage them, and are monitored quarterly;
all recommendations from an external audit on SAP effectiveness have
been implemented; aspirational diversity targets have been agreed and
senior leadership engaged; and an Ethics & Compliance e-learning module
has been rolled out. Based on these achievements, the Committee
determined a score of 4.1% out of the maximum 5%.
Relative TSR
Total
Performance against a bespoke group of listed exploration
and production companies¹ measured over three years to 31 December
2016 – 25% is payable at median, increasing to 100% payable at upper
quintile. Tullow’s share price performed well in 2016 closing 97% up
since it opened on 4 January 2016 at 165.7p. Whilst this annual
performance puts Tullow in the upper quintile of the comparator
group, because TSR is measured on a rolling three-year basis, Tullow’s
performance was below median and therefore this KPI has no pay-out.
% of award
(% of salary
maximum)
5%
(25%)
Actual
4.1%
(20.5%)
50%
(250%)
0%
(0%)
100%
(500%)
38.8%
(194.0%)
1. The TSR comparator group for the 2017 TIP award was as follows: Anadarko, Apache, BG Group, Cairn Energy, Canadian Natural Resources,
Cobalt Energy, Conoco Phillips, Hess, Kosmos Energy, Lundin Petroleum, Marathon Oil, Noble Energy, Oil Search, Ophir Energy, Premier Oil, Santos,
SOCO International, Talisman Energy and Woodside Petroleum.
Further information on Tullow Group’s performance against the corporate scorecard is shown on pages 16 to 21 of the Annual Report and
Accounts.
TIP Awards granted in 2016 (audited)
The third set of TIP awards were granted to Executive Directors on 11 February 2016, based on the performance period ended
31 December 2015, as follows:
Executive
Aidan Heavey
Angus McCoss
Paul McDade
Ian Springett
Graham Martin
Number of TIP
shares awarded1
565,423
Face value of awards at
grant date
£835,130
319,767
319,767
339,529
319,767
£472,296
£472,296
£501,485
£472,296
Normal vesting dates
(end of exercise window)
Pre-grant
performance period
11.02.2021 to
11.02.26
01.01.2015 to 31.12.2015
(TSR 01.01.2014 to 31.12.2016)
1. Awards made in the form of nil-cost options.
UK SIP shares awarded in 2016 (audited)
The UK SIP is a tax-favoured all-employee plan that enables UK employees to save out of pre-tax salary. Quarterly contributions
are used by the Plan trustee to buy Tullow Oil plc shares (partnership shares). The Group funds an award of an equal number of
shares (matching shares). The current maximum contribution is £150 per month. Details of shares purchased and awarded to
Executive Directors under the UK SIP are as follows:
Director
Angus McCoss
Paul McDade
Ian Springett
Graham Martin
Shares held
01.01.16
4,532
9,502
3,010
9,502
Partnership
shares acquired
in year
979
980
979
574
Matching
shares awarded
in year
979
980
979
574
Total shares held
31.12.16
6,490
11,462
4,968
–
SIP shares that
became unrestricted
in the year
238
238
240
10,650
Total unrestricted
shares held at
31.12.161
2,324
7,294
802
–
1. Unrestricted shares (which are included in the total shares held at 31 December 2016) are those which no longer attract a tax liability if they are
withdrawn from the Plan.
96
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE CEO – TOTAL PAY VERSUS TSR
TOTAL SHAREHOLDER RETURN
Total Pay £,000
250
200
150
100
50
0
5,000
250
4,000
200
3,000
150
2,000
100
1,000
50
0
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2009
2010
2011
2012
2013
2014
2015
2016
TSR
CEO Total Pay
Tullow
FTSE 100
Comparison of overall performance and pay
As a member of both indices in recent times, the Remuneration Committee has chosen to compare the TSR of the
Company’s ordinary shares against both the FTSE 100 and FTSE 250 indices.
The values indicated in the graph overleaf show the share price growth plus reinvested dividends over an eight-year period from
a £100 hypothetical holding of ordinary shares in Tullow Oil plc and in the two indices. The total remuneration figures for the
Chief Executive during each of the last eight financial years are shown in the table below. The total remuneration figure includes
the annual bonus based on that year’s performance (2009 to 2012), PSP awards based on three-year performance periods ending
in the relevant year (2009 to 2015) and the value of TIP awards based on the performance period ending in the relevant year
(2013 to 2016). The annual bonus pay-out, PSP vesting level and TIP award, as a percentage of the maximum opportunity, are
also shown for each of these years.
Total remuneration
Annual bonus
PSP vesting
TIP
Year ending in
2009
£4,516,580
86%
100%
2010
£3,558,698
58%
100%
2011
£4,688,541
80%
100%
2012
£2,623,116
70%
23%
2013
£2,750,273
–
–
2014
£2,378,316
–
–
2015
2016
£2,835,709 £2,893,232
–
–
–
–
–
–
–
–
30%
23%
38%
39%
Percentage change in Chief Executive’s remuneration
The table below shows the percentage change in the Chief Executive’s total remuneration (excluding the value of any pension
benefits receivable in the year) between the financial year ended 31 December 2015 and 31 December 2016, compared to that of
the average for all employees of the Group.
Chief Executive
Average employees
Salary
0%
5.2%
% change from 2015 to 2016
Benefits
15.2%
–
Bonus
3%
19%
Relative importance of spend on pay
The following table shows the Group’s actual spend on pay for all employees relative to dividends, tax and retained profits.
Staff costs (£’m)
Dividends (£’m)
Tax (£’m)*
Retained profits (£’m)*
* Voluntary disclosure.
2015
218
–
(158)
860
2016
168
–
(230)
630
The dividend figures relate to amounts payable in respect of the relevant financial year.
% change
-23
–
-46
-27
97
2www.tullowoil.com REMUNERATION REPORT CONTINUED
Shareholder voting at the AGM
At last year’s AGM on 28 April 2016 the remuneration-related resolutions received the following votes from shareholders:
2015 Annual Statement & Annual Report on Remuneration
For
Against
Total votes cast (for and against)
Votes withheld
Total number of votes
577,361,715
59,345,941
636,707,656
3,485,321
% of votes cast
90.68
9.32
100
At the 2014 AGM, held on 30 April 2014, the 2014 Remuneration Policy Report received the following votes from shareholders:
For
Against
Total votes cast (for and against)
Votes withheld
Summary of past TIP awards
Details of nil-cost options granted to Executive Directors under the TIP:
2014 Remuneration Policy Report
Total number of votes
585,950,806
59,419,570
636,707,656
1,183,901
% of votes cast
90.79
9.21
100
Director
Aidan Heavey
Angus McCoss
Paul McDade
Ian Springett
Graham Martin2
Award grant
date
19.02.14
18.02.15
11.02.16
Share price on
grant date
774p
400p
148p
19.02.14
18.02.15
11.02.16
19.02.14
18.02.15
11.02.16
19.02.14
18.02.15
11.02.16
19.02.14
18.02.15
11.02.16
774p
400p
148p
774p
400p
148p
774p
400p
148p
774p
400p
148p
Granted during
year
–
–
565,423
–
–
319,767
–
–
319,767
–
–
339,529
–
–
319,767
As at 01.01.16
102,992
152,772
–
255,764
58,246
86,398
–
144,644
58,246
86,398
–
144,644
61,845
91,737
–
153,582
58,246
86,398
–
144,644
As at 31.12.16
102,992
152,772
565,423
821,187
58,246
86,398
319,767
464,411
58,246
86,398
319,767
464,411
61,845
91,737
339,529
493,111
58,246
86,398
319,767
464,411
Earliest date
shares can be
acquired1
19.02.17
18.02.19
11.02.21
Latest date
shares can be
acquired
19.02.24
17.02.25
11.02.26
19.02.17
18.02.19
11.02.21
19.02.17
18.02.19
11.02.21
19.02.17
18.02.19
11.02.21
19.02.17
18.02.19
11.02.21
19.02.24
17.02.25
11.02.26
19.02.24
17.02.25
11.02.26
19.02.24
17.02.25
11.02.26
19.02.24
17.02.25
11.02.26
1. 50 per cent of the 2014 award vests on 19.02.17 and 50 per cent vests on 19.02.18; 50 per cent of 2015 award vests on 18.02.19 and 50 per cent vests
on 18.02.20.
2. As at leaving date on 28 April 2016.
98
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Summary of past 2005 Performance Share Plan (PSP)
Details of shares granted to Executive Directors for nil consideration under the PSP:
Director
Paul McDade
Ian Springett
Graham Martin1
Award grant
date
15.05.08
18.03.09
17.03.10
Share price on
grant date
924.5
778
1,281
01.09.08
18.03.09
17.03.10
15.05.08
18.03.09
17.03.10
791
778
1,281
924.5
778
1,281
As at 01.01.16
80,277
98,355
13,972
192,604
68,873
104,438
14,836
188,147
80,277
98,355
13,972
192,604
Exercised
during year
–
–
–
–
–
–
–
–
–
–
–
–
As at 31.12.16
80,277
98,355
13,972
192,604
68,873
104,438
14,836
188,147
80,277
98,355
13,972
192,604
Earliest date
shares can be
acquired
15.05.11
18.03.12
17.03.13
Latest date
shares can be
acquired
14.05.18
17.03.19
16.03.20
01.09.11
18.03.12
17.03.13
15.05.11
18.03.12
17.03.13
31.08.18
17.03.19
16.03.20
14.05.18
17.03.19
16.03.20
1. As at leaving date on 28 April 2016.
All of the PSP awards listed are based on relative three-year TSR performance and the Committee considering that both the
Group’s underlying financial performance and its performance against other key factors (e.g. Health & Safety) over the relevant
period are satisfactory. 50 per cent of awards are/were measured against an international oil sector comparator group (see past
Remuneration Reports for details of specific companies) and 50 per cent of awards are/were measured against the FTSE 100. All
outstanding awards under PSP have been granted as, or converted into, nil exercise price options. To the extent that they vest, they
are normally exercisable from three to 10 years from grant.
Summary of past Deferred Share Bonus Plan (DSBP) awards
Details of nil exercise cost options granted to Executive Directors for nil consideration under the DSBP:
Director
Aidan Heavey
Angus McCoss
Paul McDade
Ian Springett
Graham Martin1
Award grant date
18.03.11
21.03.12
22.02.13
22.02.13
13.03.08
18.03.09
17.03.10
18.03.11
21.03.12
22.02.13
17.03.10
18.03.11
21.03.12
22.02.13
13.03.08
18.03.09
17.03.10
18.03.11
21.03.12
22.02.13
As at 01.01.16
19,995
45,654
45,649
111,298
25,816
25,816
14,686
28,374
15,941
11,308
25,819
25,816
121,944
16,927
12,007
27,415
27,411
83,760
16,021
28,374
15,941
11,308
25,819
25,816
123,279
Exercised
during year
19,995
45,654
45,649
111,298
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Earliest date shares
can be acquired
01.01.14
01.01.15
01.01.16
Latest date shares
can be acquired
17.03.21
20.03.22
21.02.23
01.01.16
21.02.23
01.01.11
01.01.12
01.01.13
01.01.14
01.01.15
01.01.16
01.01.13
01.01.14
01.01.15
01.01.16
01.01.11
01.01.12
01.01.13
01.01.14
01.01.15
01.01.16
12.03.18
17.03.19
16.03.20
17.03.21
20.03.22
21.02.23
16.03.20
17.03.21
20.03.22
21.02.23
12.03.18
17.03.19
16.03.20
17.03.21
20.03.22
21.02.23
As at 31.12.16
–
–
–
–
25,816
25,816
14,686
28,374
15,941
11,308
25,819
25,816
121,944
16,927
12,007
27,415
27,411
83,760
16,021
28,374
15,941
11,308
25,819
25,816
123,279
1. As at leaving date on 28 April 2016.
All outstanding awards under the DSBP were granted as, or have been converted into, nil exercise price options. To the extent that
they vest, they are exercisable from three to 10 years from grant.
99
2www.tullowoil.com REMUNERATION REPORT CONTINUED
Summary of past Deferred Share Bonus Plan (DSBP) awards continued
The aggregate gain made by Directors on the exercise of nil exercise price options under the DSBP during the year was £292,702 (gross)
(2015: £99,332). On 11 February 2016, being the date that Angus McCoss exercised his options in the table overleaf, the middle market
quoted price of a Tullow share was £1.48. On 22 August 2016, being the date Aidan Heavey exercised his options in the table above, the
middle market quoted price of a Tullow share was £2.29.
Share price range
During 2016, the highest mid-market price of the Company’s shares was 332.4p and the lowest was 118.2p. The year-end price was 312.7p.
Directors’ interests in the share capital of the Company (Audited)
The interests of the Directors (all of which were beneficial), who held office at 31 December 2016, are set out in the table below:
% of salary
under 2017
Remuneration
Policy
shareholding
guidelines1
Ordinary shares held
31.12.15
31.12.16
TIP awards
PSP awards
DSBP awards
SIP
Total
Unvested
Vested
Unvested
Vested
Unvested
Vested
Restricted
Unrestricted
31.12.16
12,000
305,801
261,078
6,401,511
2,030,392
Aidan
Heavey
Angus
McCoss
Paul
McDade
Ian Springett
Graham
Martin
Non-executive Directors
Simon
Thompson
Tutu Agyare
Mike Daly
Anne
Drinkwater
Ann Grant
Steve Lucas
Jeremy
Wilson
27,119
15,000
3,175
3,171
7,000
1,940
600
305,801
12,000
2,030,392²
27,119
1,940
3,175
7,000
3,171
600
45,000
6,178,813
2,181
821,187
274,702
171
464,411
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
192,604
188,147
192,604²
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
121,944
83,760
123,279²
–
–
–
–
–
–
–
–
–
7,000,000
4,166
2,324
745,603
4,168
4,166
7,294
1,096,222
802
781,986
–
–
–
–
–
–
–
–
10,650²
2,821,336²
–
–
–
–
–
–
–
27,119
1,940
3,175
7,000
3,171
600
45,000
191
464,411
7
493,111
n/a
464,411
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1. Calculated using share price of 312.7p at year end. Under the Company’s shareholding guidelines, each Executive Director is required to build
up their shareholdings in the Company’s shares to at least 300 per cent of their salary. Further details of the minimum shareholding requirement
is set out in the Remuneration Policy Report.
2. As at leaving date on 28 April 2016.
On 5 January 2017 Angus McCoss, Paul McDade and Ian Springett were each awarded 356 SIP shares, all of which are restricted.
Accounting for certain restricted SIP shares becoming unrestricted SIP shares in the period between 1 January 2017 and the date
of this report, Angus McCoss holds 4,462 restricted SIP shares and 2,384 unrestricted SIP shares (total 6,846), Paul McDade holds
4,466 restricted SIP shares and 7,352 unrestricted SIP shares (total 11,818) and Ian Springett holds 4,464 restricted SIP shares and
860 unrestricted SIP shares (total 5,324).
There have been no other changes in the interests of any Director between 1 January 2017 and the date of this report.
Approval
This report was approved by the Board of Directors on 7 February 2017 and signed on its behalf by:
.
Jeremy Wilson
Chairman of the Remuneration Committee
100
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE CORPORATE GOVERNANCE
OTHER STATUTORY INFORMATION
Shareholders’ rights
The rights and obligations of shareholders are set out in the
Company’s Articles of Association (which can be amended by
special resolution). The rights and obligations attaching to the
Company’s shares are as follows:
• dividend rights – holders of the Company’s shares may, by
ordinary resolution, declare dividends but may not declare
dividends in excess of the amount recommended by the
Directors. The Directors may also pay interim dividends.
No dividend may be paid other than out of profits available
for distribution. Subject to shareholder approval, payment
or satisfaction of a dividend may be made wholly or partly
by distribution of specific assets;
• voting rights – voting at any general meeting is by a show of
hands unless a poll is duly demanded. On a show of hands
every shareholder who is present in person at a general
meeting (and every proxy or corporate representative
appointed by a shareholder and present at a general
meeting) has one vote regardless of the number of shares
held by the shareholder (or represented by the proxy or
corporate representative). If a proxy has been appointed by
more than one shareholder and has been instructed by one
or more of those shareholders to vote ‘for’ the resolution
and by one or more of those shareholders to vote ‘against’
a particular resolution, the proxy shall have one vote
for and one vote against that resolution. On a poll, every
shareholder who is present in person has one vote for every
share held by that shareholder and a proxy has one vote for
every share in respect of which he has been appointed as
proxy (the deadline for exercising voting rights by proxy is
set out in the form of proxy). On a poll, a corporate
representative may exercise all the powers of the company
that has authorised him. A poll may be demanded by any of
the following: (a) the Chairman of the meeting; (b) at least
five shareholders entitled to vote and present in person or
by proxy or represented by a duly authorised corporate
representative at the meeting; (c) any shareholder or
shareholders present in person or by proxy or represented
by a duly authorised corporate representative and holding
shares or being a representative in respect of a holder of
shares representing in the aggregate not less than one-tenth
of the total voting rights of all shareholders entitled to attend
and vote at the meeting; or (d) any shareholder or shareholders
present in person or by proxy or represented by a duly
authorised corporate representative and holding shares
or being a representative in respect of a holder of shares
conferring a right to attend and vote at the meeting on
which there have been paid up sums in the aggregate equal
to not less than one-tenth of the total sums paid up on all
the shares conferring that right;
Results and dividends
The loss on ordinary activities after taxation of the
Group for the year ended 31 December 2016 was
$597.3 million (2015: loss of $1,036.9 million).
No dividends have been recommended by the Board in 2016
(2015: £nil).
Subsequent events
On 5 January 2017, Tullow announced that Ian Springett,
CFO, had taken an extended leave of absence in order to
undergo treatment for a medical condition with Les Wood,
Vice President Finance and Commercial, appointed Interim CFO.
On 9 January 2017, Tullow announced that it had agreed a
substantial farm-down of its assets in Uganda to Total. For
further details please see the Strategic Report.
On 11 January 2017, the Group announced that Paul McDade,
currently Chief Operating Officer, will be appointed Chief
Executive Officer following Tullow’s Annual General Meeting on
26 April 2017. This follows an internal and external process led
by Tullow’s Nominations Committee. At the same time, after six
years on Tullow’s Board and five as Chairman, Simon Thompson
will step down from the Board. Aidan Heavey, Chief Executive Officer
and founder of Tullow Oil, will succeed Mr. Thompson as Chairman
of the Group for a transitional period of up to two years. Ann Grant,
Senior Independent Director, will retire at the AGM after nine years’
service on the Board. Jeremy Wilson, a non-executive Director of
Tullow Oil and Chairman of the Remuneration Committee, will
succeed Ms Grant as Senior Independent Director.
On 17 January 2017, the Group announced that the Erut-1 well
in Block 13T, Northern Kenya, had discovered a gross oil
interval of 55 metres with 25 metres of net oil pay at a depth of
700 metres. The overall oil column for the field is considered to
be 100 to 125 metres.
Share capital
As at 1 February 2017, the Company had an allotted and fully paid
up share capital of 914,481,960 each with a nominal value of £0.10.
Substantial shareholdings
As at 7 February 2017, the Company had been notified in
accordance with the requirements of provision 5.1.2 of the
Financial Conduct Authority’s Disclosure Rules and
Transparency Rules of the following significant holdings in the
Company’s ordinary share capital:
Shareholder
The Capital Group Companies, Inc.
Deutsche Bank AG
Genesis Asset Managers, LLP
Majedie Asset Management Limited
Oppenheimer Funds, Inc.1
IFG International Trust Company Ltd 2
Number of
shares
132,051,991
73,138,818
54,857,056
45,815,547
45,191,459
38,960,366
% of issued
capital
14.44
8.02
5.99
5.02
4.96
5.98
1. Following requests under section 793 of the Companies Act 2006, the
Company understands that the percentage of its issued share capital
held by Oppenheimer Funds, Inc. as at 31 January 2016 was 0 per
cent. No further notifications under DTR5 have been received from
Oppenheimer Funds, Inc. during the year ended 31 December 2016,
or to the date of publication.
2. Based on notification received 14 November 2006. IFG is now known
as First Names Trust Company.
101
2www.tullowoil.com OTHER STATUTORY INFORMATION CONTINUED
• under the $300 million secured revolving credit facility
agreement between, among others, the Company and
certain subsidiaries of the Company, BNP Paribas, HSBC
Bank plc, Standard Chartered Bank, Lloyds TSB Bank plc
and Crédit Agricole Corporate and Investment Bank and
the lenders specified therein, each lender thereunder
may cancel its commitments immediately and demand
repayment of all outstanding amounts owed by the
Company and certain subsidiaries of the Company to it
under the agreement and any connected finance
document, which amount will become due and payable
within 15 business days; and
• under the $1 billion secured revolving credit facility
agreement between, among others, the Company and
certain subsidiaries of the Company, BNP Paribas, Crédit
Agricole Corporate and Investment Bank and Standard
Chartered Bank and the lenders specified therein, each
lender thereunder may cancel its commitments
immediately and demand repayment of all outstanding
amounts owed by the Company and certain subsidiaries
of the Company to it under the agreement and any
connected finance document, which amount will become
due and payable within 15 business days;
• to the extent that a ‘change of control’ occurs, in general
terms, as a result of (i) a disposal of all or substantially
all the properties or assets of the Company and all its
restricted subsidiaries (other than through a merger or
consolidation) in one or a series of related transactions;
(ii) a plan being adopted relating to the liquidation or
dissolution of the Company; or (iii) any person becomes
the beneficial owner, directly or indirectly, of shares of the
Company which grant that person more than 50 per cent
of the voting rights of the Company:
• under an indenture relating to $650 million of 6 per cent
Senior Notes due in 2020 between, among others, the
Company, certain subsidiaries of the Company and
Deutsche Trustee Company Limited as the Trustee,
the Company must make an offer to noteholders to
repurchase all the notes at 101 per cent of the aggregate
principal amount of the notes, plus accrued and unpaid
interest. The repurchase offer must be made by the
Company to all noteholders within 30 days following the
‘change of control’ and the repurchase must take place
no earlier than 10 days and no later than 60 days from the
date the repurchase offer is made. Each noteholder may
take up the offer in respect of all or part of its notes; and
Shareholders’ rights continued
• return of capital – in the event of the liquidation of the
Company, after payment of all liabilities and deductions
taking priority, the balance of assets available for
distribution will be distributed among the holders of
ordinary shares according to the amounts paid up on the
shares held by them. A liquidator may, with the authority of
a special resolution, divide among the shareholders the
whole or any part of the Company’s assets, or vest the
Company’s assets in whole or in part in trustees upon such
trusts for the benefit of shareholders, but no shareholder is
compelled to accept any property in respect of which there
is a liability;
• control rights under employee share schemes – the
Company operates a number of employee share schemes.
Under some of these arrangements, shares are held by
trustees on behalf of employees. The employees are not
entitled to exercise directly any voting or other control
rights. The trustees will generally vote in accordance with
employees’ instructions and abstain where no instructions
are received. Unallocated shares are generally voted at the
discretion of the trustees; and
• restrictions on holding securities – there are no restrictions
under the Company’s Articles of Association or under UK
law that either restrict the rights of UK resident shareholders
to hold shares or limit the rights of non-resident or foreign
shareholders to hold or vote the Company’s ordinary shares.
There are no UK foreign exchange control restrictions on
the payment of dividends to US persons on the Company’s
ordinary shares.
Material agreements containing ‘change of control’ provisions
The following significant agreements will, in the event of a
‘change of control’ of the Company, be affected as follows:
• to the extent that a ‘change of control’ occurs as a result of
any person, or group of persons acting in concert (as
defined in the City Code on Takeovers and Mergers), gaining
control of the Company:
• under the $3.4 billion (or up to $3.9 billion in the
event that the Company exercises its option to increase
the commitments by up to an additional $500 million
and the lenders provide such additional commitments)
senior secured revolving credit facility agreement
between, among others, the Company and certain
subsidiaries of the Company, BNP Paribas, HSBC Bank
plc, Standard Chartered Bank, Lloyds TSB Bank plc and
Crédit Agricole Corporate and Investment Bank and the
lenders specified therein, each lender thereunder may
cancel its commitments immediately and demand
repayment of all outstanding amounts owed by the
Company and certain subsidiaries of the Company to it
under the agreement and any connected finance
document, which amount will become due and payable
within 15 business days and, in respect of each letter of
credit issued under the agreement, full cash cover will be
required within 15 business days;
102
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE • under an indenture relating to $650 million of 6.25 per
cent Senior Notes due in 2022 between, among others,
the Company, certain subsidiaries of the Company and
Deutsche Trustee Company Limited as the Trustee,
the Company must make an offer to noteholders to
repurchase all the notes at 101 per cent of the aggregate
principal amount of the notes, plus accrued and unpaid
interest in the event that a change of control of the
Company occurs. The repurchase offer must be made by
the Company to all noteholders within 30 days following
the change of control and the repurchase must take place
no earlier than 10 days and no later than 60 days from the
date the repurchase offer is made. Each noteholder may
take up the offer in respect of all or part of its notes; and
• to the extent that a ‘change of control’ occurs, in general
terms, as a result of: (i) any person or persons, acting
together, acquiring or becoming entitled to more than
50 per cent of the voting rights of the Company; or (ii) an
offer being made to all of the Company’s shareholders to
acquire all or a majority of the issued ordinary share capital
of the Company (or such offeror proposing a scheme of
arrangement with regard to such acquisition, and thereby
becoming entitled to exercise more than 50 per cent of the
voting rights of the Company):
• under a trust deed constituting $300 million of
6.625 per cent guaranteed convertible bonds due in 2021
(the Convertible Bonds) between, among others, the
Company, certain subsidiaries of the Company and
Deutsche Trustee Company Limited as the Trustee, the
bondholders shall have the right to require the Company:
to (i) convert, in accordance with a formula specified in
the trust deed, the Convertible Bonds into preference
shares in the Company, which in turn will be exchanged
by the Company for ordinary shares; or (ii) redeem the
Convertible Bonds at their principal amount, together
with accrued and unpaid interest at the date of the
change of control event. The Company is required to
give the Trustee notice of the occurrence of an event
constituting a change of control within five calendar days
of the occurrence of such event, and the bondholders
shall thereafter have 60 calendar days in which to
exercise the election referred to above. If the bondholders
elect to redeem the Convertible Bonds, the Company is
required to make payment of this amount 14 business
days after receiving notification of such election.
Directors
The biographical details of the Directors of the Company at the
date of this report are given on pages 42 and 43.
Details of Directors’ service agreements and letters of
appointment can be found on pages 90 and 91. Details of the
Directors’ interests in the ordinary shares of the Company and
in the Group’s long-term incentive and other share option
schemes are set out on page 96 and pages 98 to 100 in the
Directors’ Remuneration Report.
Directors’ indemnities and insurance cover
As at the date of this report, indemnities are in force under which
the Company has agreed to indemnify the Directors, to the extent
permitted by the Companies Act 2006, against claims from third
parties in respect of certain liabilities arising out of, or in
connection with, the execution of their powers, duties and
responsibilities as Directors of the Company or any of its
subsidiaries. The Directors are also indemnified against the cost
of defending a criminal prosecution or a claim by the Company,
its subsidiaries or a regulator provided that where the defence
is unsuccessful the Director must repay those defence costs.
The Company also maintains Directors’ and Officers’ Liability
insurance cover, the level of which is reviewed annually.
Conflicts of interest
A Director has a duty to avoid a situation in which he or she
has, or can have, a direct or indirect interest that conflicts, or
possibly may conflict, with the interests of the Group. The Board
requires Directors to declare all appointments and other
situations that could result in a possible conflict of interest and
has adopted appropriate procedures to manage and, if
appropriate, approve any such conflicts. The Board is satisfied
that there is no compromise to the independence of those
Directors who have appointments on the boards of, or
relationships with, companies outside the Group.
Powers of Directors
The general powers of the Directors are set out in Article 104 of
the Articles of Association of the Company. It provides that the
business of the Company shall be managed by the Board which
may exercise all the powers of the Company whether relating
to the management of the business of the Company or not. This
power is subject to any limitations imposed on the Company by
applicable legislation. It is also limited by the provisions of the
Articles of Association of the Company and any directions given
by special resolution of the shareholders of the Company which
are applicable on the date that any power is exercised.
103
2www.tullowoil.com OTHER STATUTORY INFORMATION CONTINUED
Powers of Directors continued
Please note the following specific provisions relevant to the
exercise of power by the Directors:
• Pre-emptive rights and new issues of shares – the holders
of ordinary shares have no pre-emptive rights under the
Articles of Association of the Company. However, the ability
of the Directors to cause the Company to issue shares,
securities convertible into shares or rights to shares,
otherwise than pursuant to an employee share scheme,
is restricted under the Companies Act 2006 which provides
that the directors of a company are, with certain exceptions,
unable to allot any equity securities without express
authorisation, which may be contained in a company’s
articles of association or given by its shareholders in general
meeting, but which in either event cannot last for more than
five years. Under the Companies Act 2006, the Company may
also not allot shares for cash (otherwise than pursuant to an
employee share scheme) without first making an offer on a
pre-emptive basis to existing shareholders, unless this
requirement is waived by a special resolution of the
shareholders. The Company received authority at the last
Annual General Meeting to allot shares for cash on a
non-pre-emptive basis up to a maximum nominal amount of
£9,116,822. The authority lasts until the earlier of the Annual
General Meeting of the Company in 2017 or 30 June 2017.
• Repurchase of shares – subject to authorisation by
shareholder resolution, the Company may purchase its own
shares in accordance with the Companies Act 2006. Any
shares that have been bought back may be held as treasury
shares or must be cancelled immediately upon completion of
the purchase. The Company received authority at the last
Annual General Meeting to purchase up to 91,168,225 ordinary
shares. The authority lasts until the earlier of the Annual
General Meeting of the Company in 2017 or 30 June 2017.
• Borrowing powers – the net external borrowings of the Group
outstanding at any time shall not exceed an amount equal to
four times the aggregate of the Group’s adjusted capital and
reserves calculated in the manner prescribed in Article 105
of the Company’s Articles of Association, unless sanctioned
by an ordinary resolution of the Company’s shareholders.
Appointment and replacement of Directors
The Company shall appoint (disregarding Alternate Directors) no
fewer than two and no more than 15 Directors. The appointment
and replacement of Directors may be made as follows:
• the shareholders may by ordinary resolution elect any
person who is willing to act to be a Director;
• the Board may elect any person who is willing to act to be a
Director. Any Director so appointed shall hold office only
until the next Annual General Meeting and shall then be
eligible for election;
• each Director is required in terms of the Articles of
Association to retire from office at the third Annual General
Meeting after the Annual General Meeting at which he or
she was last elected or re-elected, although he or she may
be re-elected by ordinary resolution if eligible and willing.
However, to comply with the principles of best corporate
governance, the Board intends that each Director will
submit him or herself for re-election on an annual basis;
• the Company may by special resolution remove any Director
before the expiration of his or her period of office or may, by
ordinary resolution, remove a Director where special notice
has been given and the necessary statutory procedures are
complied with; and
• there are a number of other grounds on which a Director’s
office may cease, namely voluntary resignation, where all the
other Directors (being at least three in number) request his or
her resignation, where he or she suffers physical or mental
incapacity, where he or she is absent from meetings of the
Board without permission of the Board for six consecutive
months, becomes bankrupt or compounds with his or her
creditors or where he or she is prohibited by law from being
a Director.
104
Tullow Oil plc 2016 Annual Report and AccountsCORPORATE GOVERNANCE Encouraging diversity in our workforce
Tullow is committed to eliminating discrimination and
encouraging diversity amongst its workforce. Decisions related
to recruitment selection, development or promotion are based
upon merit and ability to adequately meet the requirements of
the job, and are not influenced by factors such as gender,
marital status, race, ethnic origin, colour, nationality, religion,
sexual orientation, age or disability.
Auditor and disclosure of relevant audit information
Having made the requisite enquiries, so far as the Directors are
aware, there is no relevant audit information (as defined by
section 418(3) of the Companies Act 2006) of which the
Company’s auditor is unaware and each Director has taken all
steps that ought to have been taken to make him or herself
aware of any relevant audit information and to establish that
the Company’s auditor is aware of that information.
We want our workforce to be truly representative of all sections
of society and for all our employees to feel respected and able
to reach their potential. Our commitment to these aims and
detailed approach are set out in Tullow’s Code of Ethical
Conduct and Equal Opportunities Policy.
We aim to provide an optimal working environment to suit the
needs of all employees, including those of employees with
disabilities. For employees who become disabled during their
time with the Group, Tullow will provide support to help them
remain safely in continuous employment.
Employee involvement and engagement
We use a range of methods to inform and consult with
employees about significant business issues and our
performance. These include webcasts, the Group’s intranet,
town hall meetings and Tullow World, our in-house magazine.
We have an employee share plan for all permanent employees,
which gives employees a direct interest in the business’ success.
Political donations
In line with Group policy, no donations were made for
political purposes.
Corporate responsibility
The Group works to achieve high standards of environmental,
health and safety management. Our performance in these areas
can be found on pages 38 and 39 of this report. Further
information is available on the Group website: www.tullowoil.
com, including archived copies of the separate Corporate
Responsibility Report which was published in previous years.
A resolution to re-appoint Deloitte LLP as the Company’s
auditor will be proposed at the AGM. More information can
be found in the Audit Committee Report on page 72.
Annual General Meeting
The Notice of Annual General Meeting will be mailed to
shareholders separately and will set out the resolutions to
be proposed at the forthcoming AGM. The meeting will be held
on 26 April 2017 at Tullow Oil’s Head Office, 9 Chiswick Park,
566 Chiswick High Road, London W4 5XT from 12 noon.
This Corporate Governance Report (which includes the
Directors’ Remuneration Report) and the information referred
to herein has been approved by the Board and signed on its
behalf by:
Kevin Massie
Corporate Counsel and Company Secretary
7 February 2017
Registered office:
9 Chiswick Park
566 Chiswick High Road
London W4 5XT
Company registered in England and Wales No. 3919249
P_Other_statutory_info_TLW_AR16_CG.indd 5
23/02/2017 14:44:16
105
2www.tullowoil.com Aerial view of the TEN FPSO,
Prof. John Evans Atta Mills,
offshore Ghana
3 FINANCIAL
STATEMENTS
Statement of Directors’ responsibilities
Independent auditor’s report for the
Group Financial Statements
Group Financial Statements
Company Financial Statements
Five-year financial summary
Supplementary information
Shareholder information
Licence interests
Commercial reserves and resources
Transparency disclosure
Sustainability data
Tullow Oil plc subsidiaries
Glossary
108
109
116
150
159
160
161
166
167
172
175
177
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare Financial
statements for each financial year. Under that law the directors
are required to prepare the Group Financial Statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and Article 4 of
the IAS Regulation and have elected to prepare the Parent
Company Financial Statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law), including
FRS 101 “Reduced Disclosure Framework”. Under company
law the Directors must not approve the accounts unless they
are satisfied that they give a true and fair view of the state of
affairs of the company and of the profit or loss of the Company
for that period.
In preparing the Parent Company Financial Statements,
the Directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether FRS 101 Reduced Disclosure Framework
have been followed, subject to any material departures
disclosed and explained in the Financial Statements; and
• prepare the Financial Statements on the going concern
basis unless it is inappropriate to presume that the
Company will continue in business.
In preparing the Group Financial Statements, International
Accounting Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies,
in a manner that provides relevant, reliable, comparable
and understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s financial
position and financial performance; and
• make an assessment of the Group’s ability to continue
as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to
ensure that the Financial Statements comply with the
Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• the Financial Statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole;
• the Strategic Report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included in
the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they
face; and
• the Annual Report and Financial Statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Company’s performance, business model and strategy.
By order of the Board
Aidan Heavey
Chief Executive Officer
Les Wood
Interim Chief Financial Officer
7 February 2017
7 February 2017
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT FOR THE GROUP FINANCIAL STATEMENTS
Opinion on Financial Statements of Tullow Oil plc
In our opinion:
• the Financial Statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at
31 December 2016 and of the group’s loss for the year then ended;
• the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• the Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including FRS 101 ‘Reduced Disclosure Framework’; and
• the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the Group Financial Statements, Article 4 of the IAS Regulation.
The Financial Statements that we have audited comprise:
• the Group income statement;
• the Group statement of comprehensive income;
• the Group and Parent Company balance sheets;
• the Group cash flow statement;
• the Group and Parent Company statements of changes in equity;
• the Group statement of accounting policies;
• related notes 1 to 31 to the Group financial statements;
• the Parent Company statement of accounting policies; and
• related notes 1 to 7 to the Parent Company Financial Statements.
The financial reporting framework that has been applied in the preparation of the Group Financial Statements is applicable law and
IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Parent
Company Financial Statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice), including FRS 101 ‘Reduced Disclosure Framework’.
Summary of our audit approach
Key risks
The key risks that we identified in the current year were:
• the carrying value of Exploration and Evaluation (‘E&E’) assets;
• the carrying value of Property, Plant and Equipment (‘PP&E’) assets;
• the going concern assumption; and
• provision for onerous service contracts.
In the prior year provision for tax claims was also included as a key risk in our audit opinion. Whilst
this remains a judgemental area, following the resolution over the past two years of some of the
largest exposures, the impact on audit strategy and allocation of resources was lower in 2016.
In addition, there is a new key risk relating to the provision for onerous service contracts.
The materiality that we used in the current year was $44 million (2015: $60 million) which is less
than 2 per cent of net assets. This equates to less than 5 per cent of pre-tax loss.
Our Group audit scope included a full audit of all three reporting units which account for 100 per
cent of the Group’s total revenue, loss before tax and net assets. The materialities used for these
components ranged from $20 million to $30 million.
Materiality
Scoping
Significant changes
in our approach
There have been no significant changes in our approach to the audit.
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3www.tullowoil.com INDEPENDENT AUDITOR’S REPORT FOR THE GROUP FINANCIAL STATEMENTS CONTINUED
Going concern and the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the group
As required by the Listing Rules we have reviewed the Directors’ statement regarding
the appropriateness of the going concern basis of accounting contained within note
(ah) to the Financial Statements and the Directors’ statement on the longer-term
viability of the group on page 52.
We confirm that we have nothing
material to add or draw attention
to in respect of these matters.
We are required to state whether we have anything material to add or draw attention
to in relation to:
• the Directors’ confirmation on page 40 that they have carried out a robust
assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity;
• the disclosures on pages 46-53 that describe those risks and explain how they
are being managed or mitigated;
• the Directors’ statement in note (ah) to the financial statements about whether
they considered it appropriate to adopt the going concern basis of accounting in
preparing them and their identification of any material uncertainties to the
Group’s ability to continue to do so over a period of at least twelve months from
the date of approval of the Financial Statements; and
• the Directors’ explanation on pages 52-53 as to how they have assessed the
prospects of the Group, over what period they have done so and why they
consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards
for Auditors and confirm that we are independent of the Group and we have fulfilled
our other ethical responsibilities in accordance with those standards.
We agree with the Directors’ adoption
of the going concern basis of accounting
and we did not identify any such material
uncertainties. However, because not all
future events or conditions can be
predicted, this statement is not a
guarantee as to the Group’s ability
to continue as a going concern.
We confirm that we are independent of
the Group and we have fulfilled our other
ethical responsibilities in accordance
with those standards. We also confirm
we have not provided any of the
prohibited non-audit services referred
to in those standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the
allocation of resources in the audit and directing the efforts of the engagement team.
Carrying value of exploration and evaluation (‘E&E’) assets
Risk description
See note 11 and the Audit
Committee Report on
page 69 for further details
The carrying value of E&E assets as at 31 December 2016 is $2,025.8 million, and the group has
written off E&E expenditure totalling $723.0 million in the year.
The assessment of the carrying value requires management to exercise judgement as described
in the ‘critical accounting judgements’ section of the Annual Report on page 124. Management’s
assessment requires consideration of a number of factors, including but not limited to, the group’s
intention to proceed with a future work programme for a prospect or licence, the likelihood of
licence renewal, and the success of drilling and geological analysis to date.
As disclosed in note 9, the sale of a portion of the group’s interest in E&E assets in Uganda
was announced subsequent to the year end. This resulted in a write down of $330.4 million
to both the portion held for sale and the retained interest based on the fair value of the total
expected consideration.
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS Carrying value of exploration and evaluation (‘E&E’) assets continued
How the scope of our audit
responded to the risk
We evaluated management’s assessment of E&E assets carried forward with reference to the
criteria of IFRS 6: Exploration for and Evaluation of Mineral Resources and the Group’s
accounting policy (see page 121).
The audit procedures we performed included obtaining an understanding of the Group’s ongoing
E&E activity by interviewing operational and finance staff covering all key locations, and gathering
audit evidence to assess the value of E&E assets carried forward. Such evidence included
approved project budgets, and confirmations of ongoing appraisal activity and the licence phase.
Where an asset has demonstrated indicators of impairment but has been retained on the balance
sheet, we have gathered evidence to assess the status of appraisal activity, allocation of budget
and any conclusion on commerciality.
Where an asset has been impaired we have challenged management on the events that led to the
impairment, including by reference to future budgeted expenditure. We have also challenged
management on the inputs to the fair value calculation of the consideration receivable from the
Uganda farm-down with specific focus on the expected timing of receipt of the consideration.
Key observations
We are satisfied that the assets have been treated in accordance with the criteria of IFRS 6 and
Tullow’s E&E accounting policy.
In some circumstances the costs of wells from exploration continue to be held on the balance
sheet for a significant period of time while development plans are finalised and government
consent is obtained, for example in Kenya and Uganda where development is considered to be
highly likely.
Based on the audit evidence we have gathered we are satisfied that management has reached
these conclusions appropriately.
Carrying value of property, plant and equipment (‘PP&E’) assets
Risk description
See note 12 and the Audit
Committee Report on page
69 for further information.
The Group holds PP&E assets of $5,362.9 million as at 31 December 2016 and has recorded
PP&E impairments of $167.6 million in 2016.
As described in the ‘critical accounting judgements’ section of the Annual Report on page 124,
the assessment of the carrying value of PP&E assets requires management to exercise
judgement in identifying indicators of impairment, such as a decrease in oil price or a downgrade
of proved and probable reserves.
When such indicators are identified, management must make an estimate of the recoverable
amount of the asset, which is then compared against the carrying value. The calculation of the
recoverable amount requires judgement in estimating future oil and gas prices, the applicable
asset discount rate, and the cost and production profiles of reserves estimates.
How the scope of our audit
responded to the risk
We examined management’s assessment of impairment indicators, which concluded that
the continuation of low oil prices during the year represented an indicator of impairment for
a number of assets with limited headroom.
The assumptions that underpin management’s calculation of the recoverable amount of oil and
gas assets are inherently judgemental. Our audit work therefore assessed the reasonableness
of management’s key assumptions in calculating the recoverable amount of each asset.
Specifically our work included, but was not limited to, the following procedures:
• benchmarking and analysis of oil and gas price assumptions against forward curves,
peer information and other market data;
• recalculation of the recoverable amount of the assets using a reasonable range of oil prices
developed from third-party forecasters;
• agreement of hydrocarbon production profiles and proved and probable reserves to third-party
reserve reports;
• verification of estimated future costs by agreement to approved budgets and where applicable,
third-party data; and
• the recalculation and benchmarking of discount rates applied, with involvement from Deloitte
industry valuation specialists.
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3www.tullowoil.com INDEPENDENT AUDITOR’S REPORT FOR THE GROUP FINANCIAL STATEMENTS CONTINUED
Carrying value of property, plant and equipment (‘PP&E’) assets continued
Key observations
Our recalculation of the recoverable amount of the assets resulted in a judgemental
misstatement just above our reporting threshold that arose as a result of the oil price
assumptions adopted by management falling outside of what we consider to be a reasonable
range at various points in the forecast.
Notwithstanding the matter noted above, we are satisfied that the recoverability of the assets has
been assessed in accordance with the requirements of IAS 36: Impairment of Assets.
Management has disclosed the impact of sensitivities of both the discount rate and commodity
prices in the PP&E note on page 134.
Going concern assumption
Risk description
See note (ah) and the Audit
Committee Report on page
69 for further information.
The group is dependent upon its ability to generate sufficient cashflows to meet scheduled loan
repayments and covenant requirements and hence to operate within its existing debt facilities.
Commodity price volatility in the oil and gas sector continues to place increased pressure on
these cashflows and the ability of the Group to comply in the future with covenant ratios.
The going concern assumption is also dependent upon group specific considerations, such
as the contractual amortisation of debt facilities, performance of the Group’s operating assets,
the continued receipt of insurance proceeds relating to the Jubilee field in Ghana and the timing
of cash outflows in respect of onerous service contracts.
How the scope of our audit
responded to the risk
Management’s going concern forecasts include a number of assumptions related to future
cashflows and associated risks. Our audit work has focused on evaluating and challenging the
reasonableness of these assumptions and their impact on the forecast period.
Specifically, we obtained, challenged and assessed management’s going concern forecasts, and
performed procedures, including:
• Challenging management as to the reasonableness of pricing assumptions applied, based on
benchmarking to market data;
• Verifying the consistency of key inputs relating to future costs and production to other financial
and operational information obtained during our audit; and
• Performing sensitivity analysis on management’s “base case”, including applying downside
scenarios such as lower oil prices, reduced production and restricted insurance proceeds, and
considering the mitigating actions highlighted by management in the event that they were required.
Key observations
Management has concluded that the going concern basis remains appropriate after performing a
detailed forecast of liquidity and covenant compliance for a period of 12 months from the date of
approval of the 2016 Annual Report and Accounts.
We are satisfied that the going concern assumption remains appropriate given the headroom
available in management’s base case, together with the mitigating actions available to management
should a liquidity shortfall arise in reasonable downside scenarios as discussed in note (ah).
Provision for onerous service contracts
Risk description
See note 23 and the Audit
Committee Report on page
69 for further information.
In response to lower commodity prices and certain legal restrictions, the group has reduced its
planned future work programmes and in consequence a number of service contracts have
become onerous.
Judgement is required to estimate the appropriate level of provision required for the onerous
element of the contracts and the ultimate outcome of contract claims. The assumptions made
include the estimate of usage under the contract, likelihood of cash outflows and the valuation
of any liability arising, including consideration of any contract claims and disputes.
The Group has included contract provisions in their disclosure of key sources of uncertainty
on page 125.
Management has disclosed a charge of $114.9 million in note 23 to the financial statements.
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS Provision for onerous service contracts continued
How the scope of our audit
responded to the risk
Our audit work included challenging the key assumptions through consideration of correspondence
with the counterparties and review of internal and external legal opinions as applicable.
Key observations
We are satisfied that the judgements made by management are reasonable, based on the audit
evidence gathered.
These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of
our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Group materiality
$44 million (2015: $60 million)
Basis for determining
materiality
This is below 2 per cent of net assets and this base is consistent with the prior year. The absolute
decrease is driven by the decrease in the Group’s net assets.
Rationale for the
benchmark applied
We have determined materiality based on the net asset position of the group, reflecting the
long-term value of the Group in its portfolio of exploration and development assets and their
associated reserves and resources. It is not currently appropriate to determine materiality based
on a profit metric given the Group’s loss-making position, driven by the sustained low oil price
environment; however, materiality equates to less than 5 per cent of pre-tax loss.
Net assets
$2,242.5 million
Net Assets
Group materiality
97+3
Group materiality $44 million
Component materiality range
$20 million to $30 million
Audit Committee reporting
threshold $2.2 million
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $2.2 million
(2015: $1.6 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the
financial statements. The threshold has increased relative to 2015 to align with industry practice.
An overview of the scope of our audit
Our group audit scope for the current and prior year included a full audit of all (2015: all) reporting unit locations based on our
assessment of the risks of material misstatement and of the materiality of the Group’s business operations at those locations.
These reporting units account for 100 per cent of the Group’s total revenue, loss before tax and net assets (2015: 100 per cent).
The materialities used for these components ranged from $20 million to $30 million (2015: $20 million to $35 million).
The group team audits the UK, Kenya and Uganda reporting units directly. Their involvement in the work performed by component
auditors varies by location and includes, at a minimum, a review of the reports provided on the results of the work undertaken by
the component audit teams.
In addition, the senior statutory auditor or senior members of his group audit team visited the: Gabon and Ghana to direct and review the
audit work performed by the component auditors. In addition, we visited Kenya and Uganda as part of our work on these components.
At the Parent Company level we also tested the consolidation process.
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INDEPENDENT AUDITOR’S REPORT FOR THE GROUP FINANCIAL STATEMENTS CONTINUED
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006;
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the Financial Statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not
identified any material misstatements in the Strategic Report and the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report in respect
of these matters.
• we have not received all the information and explanations we require for our
audit; or
• adequate accounting records have not been kept by the Parent Company, or
returns adequate for our audit have not been received from branches not visited
by us; or
• the Parent Company Financial Statements are not in agreement with the
accounting records and returns.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion
certain disclosures of Directors’ remuneration have not been made or the part of the
Directors’ Remuneration Report to be audited is not in agreement with the
accounting records and returns.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the Corporate
Governance Statement relating to the Company’s compliance with certain
provisions of the UK Corporate Governance Code.
We have nothing to report arising
from these matters.
We have nothing to report arising
from our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to
report to you if, in our opinion, information in the Annual Report is:
We confirm that we have not
identified any such inconsistencies
or misleading statements.
• materially inconsistent with the information in the audited Financial Statements; or
• apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the Group acquired in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified any
inconsistencies between our knowledge acquired during the audit and the Directors’
statement that they consider the Annual Report is fair, balanced and understandable
and whether the annual report appropriately discloses those matters that we
communicated to the Audit Committee which we consider should have been disclosed.
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the
Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion
on the financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). We also
comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our
quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated
professional standards review team and independent partner reviews.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an Auditor’s Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for
the opinions we have formed.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable
assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors;
and the overall presentation of the Financial Statements. In addition, we read all the financial and non-financial information in the
Annual Report to identify material inconsistencies with the audited Financial Statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Dean Cook MA FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
7 February 2017
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115
3www.tullowoil.com GROUP INCOME STATEMENT
GROUP INCOME STATEMENT
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
GROUP BALANCE SHEET
AS AT 31 DECEMBER 2016
ASSETS
Goodwill
Non-current assets
Intangible exploration and evaluation assets
Property, plant and equipment
Investments
Other non-current assets
Derivative financial instruments
Deferred tax assets
Current assets
Inventories
Trade receivables
Other current assets
Current tax assets
Derivative financial instruments
Cash and cash equivalents
Assets classified as held for sale
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Provisions
Borrowings
Current tax liabilities
Derivative financial instruments
Non-current liabilities
Trade and other payables
Borrowings
Provisions
Deferred tax liabilities
Derivative financial instruments
,
Continuing activities
Sales revenue
Other operating income – lost production insurance proceeds
Cost of sales
Gross profit
Administrative expenses
Restructuring costs
Loss on disposal
Goodwill impairment
Exploration costs written off
Impairment of property, plant and equipment, net
Provision for onerous service contracts, net
Operating loss
Gain/(loss) on hedging instruments
Finance revenue
Finance costs
Loss from continuing activities before tax
Income tax credit
Loss for the year from continuing activities
Attributable to:
Owners of the Company
Non-controlling interest
Loss per ordinary share from continuing activities
Basic
Diluted
Notes
2016
$m
2015
$m
2
6
4
1,269.9
90.1
(813.1)
1,606.6
–
(1,015.3)
4
4
9
10
11
12
23
21
2
5
7
26
8
546.9
(116.4)
(12.3)
(3.4)
(164.0)
(723.0)
(167.6)
(114.9)
(754.7)
18.2
26.4
(198.2)
591.3
(193.6)
(40.8)
(56.5)
(53.7)
(748.9)
(406.0)
(185.5)
(1,093.7)
(58.8)
4.2
(149.0)
(908.3)
311.0
(1,297.3)
260.4
(597.3)
(1,036.9)
(599.9)
2.6
(1,034.8)
(2.1)
(597.3)
(1,036.9)
¢
(65.8)
(65.8)
¢
(113.6)
(113.6)
GROUP STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
YEAR ENDED 31 DECEMBER 2016
Loss for the year
Items that may be reclassified to the income statement in subsequent periods
Cash flow hedges
(Loss)/gains arising in the year
Reclassification adjustments for items included in (loss)/profit on realisation
Exchange differences on translation of foreign operations
Other comprehensive (loss)/income
Tax relating to components of other comprehensive (loss)/income
Net other comprehensive (loss)/income for the year
Total comprehensive expense for the year
Attributable to:
Owners of the Company
Non-controlling interest
116
116 Tullow Oil plc 2016 Annual Report and Accounts
Notes
2016
$m
2015
$m
(597.3)
(1,036.9)
21
21
21
(135.3)
(415.2)
17.1
(533.4)
108.8
(424.6)
513.0
(302.4)
(43.6)
167.0
(42.3)
124.7
(1,021.9)
(912.2)
(1,024.5)
2.6
(910.1)
(2.1)
(1,021.9)
(912.2)
Equity component of convertible bonds
Foreign currency translation reserve
Total liabilities
Net assets
EQUITY
Called-up share capital
Share premium
Hedge reserve
Other reserves
Retained earnings
Non-controlling interest
Total equity
Equity attributable to equity holders of the Company
Approved by the Board and authorised for issue on 7 February 2017.
Aidan Heavey
Les Wood
Chief Executive Officer
Interim Chief Financial Officer
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Notes
2016
$m
2015
$m
10
11
12
13
14
21
24
15
16
14
7
21
17
18
19
23
20
21
19
20
23
24
21
25
25
21
–
2,025.8
5,362.9
1.0
175.7
15.8
758.9
164.0
3,400.0
5,204.4
1.0
223.4
218.7
295.3
8,340.1
9,506.8
155.3
118.4
838.9
138.3
91.7
281.9
837.1
107.2
80.8
763.2
127.6
406.5
355.7
–
2,461.6
1,841.0
10,801.7
11,347.8
(916.1)
(1,110.6)
(51.9)
(591.5)
(83.1)
(5.9)
(187.0)
(73.8)
(208.3)
(2.1)
(1,648.5)
(1,581.8)
(112.3)
(4,388.4)
(1,106.7)
(1,292.4)
(10.9)
(6,910.7)
(8,559.2)
2,242.5
147.5
619.3
48.4
(232.2)
128.2
740.9
778.0
(99.3)
(4,262.4)
(1,065.1)
(1,164.5)
–
(6,591.3)
(8,173.1)
3,174.7
147.2
609.8
–
(249.3)
569.9
740.9
1,336.4
3,154.9
19.8
2,230.1
12.4
26
2,242.5
3,174.7
www.tullowoil.com 117
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
GROUP INCOME STATEMENT
YEAR ENDED 31 DECEMBER 2016
GROUP BALANCE SHEET
GROUP BALANCE SHEET
AS AT 31 DECEMBER 2016
AS AT 31 DECEMBER 2016
Other operating income – lost production insurance proceeds
,
Continuing activities
Sales revenue
Cost of sales
Gross profit
Administrative expenses
Restructuring costs
Loss on disposal
Goodwill impairment
Exploration costs written off
Impairment of property, plant and equipment, net
Provision for onerous service contracts, net
Gain/(loss) on hedging instruments
Operating loss
Finance revenue
Finance costs
Loss from continuing activities before tax
Income tax credit
Loss for the year from continuing activities
Attributable to:
Owners of the Company
Non-controlling interest
Loss per ordinary share from continuing activities
Basic
Diluted
GROUP STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
YEAR ENDED 31 DECEMBER 2016
Items that may be reclassified to the income statement in subsequent periods
Loss for the year
Cash flow hedges
(Loss)/gains arising in the year
Reclassification adjustments for items included in (loss)/profit on realisation
Exchange differences on translation of foreign operations
Other comprehensive (loss)/income
Tax relating to components of other comprehensive (loss)/income
Net other comprehensive (loss)/income for the year
Total comprehensive expense for the year
Attributable to:
Owners of the Company
Non-controlling interest
116 Tullow Oil plc 2016 Annual Report and Accounts
Notes
2016
$m
2015
$m
2
6
4
4
4
9
10
11
12
23
21
2
5
7
1,269.9
1,606.6
90.1
–
(813.1)
(1,015.3)
546.9
(116.4)
(12.3)
(3.4)
(164.0)
(723.0)
(167.6)
(114.9)
591.3
(193.6)
(40.8)
(56.5)
(53.7)
(748.9)
(406.0)
(185.5)
(754.7)
(1,093.7)
18.2
26.4
(198.2)
(58.8)
4.2
(149.0)
(908.3)
311.0
(1,297.3)
260.4
(597.3)
(1,036.9)
(599.9)
(1,034.8)
26
2.6
(2.1)
(597.3)
(1,036.9)
8
¢
(65.8)
(65.8)
¢
(113.6)
(113.6)
Notes
2016
$m
2015
$m
(597.3)
(1,036.9)
21
21
21
(135.3)
(415.2)
17.1
(533.4)
108.8
(424.6)
513.0
(302.4)
(43.6)
167.0
(42.3)
124.7
(1,021.9)
(912.2)
(1,024.5)
2.6
(910.1)
(2.1)
(1,021.9)
(912.2)
ASSETS
Non-current assets
Goodwill
Intangible exploration and evaluation assets
Property, plant and equipment
Investments
Other non-current assets
Derivative financial instruments
Deferred tax assets
Current assets
Inventories
Trade receivables
Other current assets
Current tax assets
Derivative financial instruments
Cash and cash equivalents
Assets classified as held for sale
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Provisions
Borrowings
Current tax liabilities
Derivative financial instruments
Non-current liabilities
Trade and other payables
Borrowings
Provisions
Deferred tax liabilities
Derivative financial instruments
Total liabilities
Net assets
EQUITY
Called-up share capital
Share premium
Equity component of convertible bonds
Foreign currency translation reserve
Hedge reserve
Other reserves
Retained earnings
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Approved by the Board and authorised for issue on 7 February 2017.
Aidan Heavey
Chief Executive Officer
Les Wood
Interim Chief Financial Officer
Notes
2016
$m
2015
$m
10
11
12
13
14
21
24
15
16
14
7
21
17
18
19
23
20
21
19
20
23
24
21
25
25
21
26
–
2,025.8
5,362.9
1.0
175.7
15.8
758.9
8,340.1
164.0
3,400.0
5,204.4
1.0
223.4
218.7
295.3
9,506.8
155.3
118.4
838.9
138.3
91.7
281.9
837.1
2,461.6
10,801.7
107.2
80.8
763.2
127.6
406.5
355.7
–
1,841.0
11,347.8
(916.1)
(51.9)
(591.5)
(83.1)
(5.9)
(1,648.5)
(112.3)
(4,388.4)
(1,106.7)
(1,292.4)
(10.9)
(6,910.7)
(8,559.2)
2,242.5
147.5
619.3
48.4
(232.2)
128.2
740.9
778.0
2,230.1
12.4
2,242.5
(1,110.6)
(187.0)
(73.8)
(208.3)
(2.1)
(1,581.8)
(99.3)
(4,262.4)
(1,065.1)
(1,164.5)
–
(6,591.3)
(8,173.1)
3,174.7
147.2
609.8
–
(249.3)
569.9
740.9
1,336.4
3,154.9
19.8
3,174.7
117
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3www.tullowoil.com
GROUP STATEMENT OF CHANGES IN EQUITY
GROUP STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
GROUP CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 2016
Equity
component
of
convertible
bonds
$m
Foreign
currency
translation
reserve1
$m
Hedge
reserve2
$m
Other
reserves3
$m
Retained
earnings
$m
Non-
controlling
interest4
$m
Total
$m
Total
equity
$m
–
–
–
–
–
–
–
(205.7)
–
–
401.6
–
168.3
(43.6)
–
–
–
–
–
–
–
740.9
2,305.8
3,996.0
– (1,034.8) (1,034.8)
168.3
–
–
4,020.3
24.3
(2.1) (1,036.9)
168.3
–
–
–
–
–
(43.6)
–
(43.6)
–
(1.9)
3.6
(1.9)
–
–
3.6
(1.9)
–
67.3
67.3
–
67.3
Share
capital
$m
Share
premium
$m
147.0
–
–
606.4
–
–
–
–
0.2
–
3.4
–
–
–
–
147.2
–
–
–
609.8
–
–
–
–
–
–
–
(249.3)
–
–
–
569.9
–
(441.7)
–
–
–
740.9 1,336.4 3,154.9
(599.9)
(599.9)
(441.7)
–
–
–
(2.4)
(2.4)
19.8 3,174.7
(597.3)
(441.7)
2.6
–
–
–
–
–
0.3
–
9.5
–
–
–
–
–
–
17.1
48.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17.1
48.4
–
(9.4)
9.8
(9.4)
50.9
50.9
–
–
–
–
–
17.1
48.4
9.8
(9.4)
50.9
–
–
(10.0)
(10.0)
Notes
At 1 January 2015
Loss for the year
Hedges, net of tax
Currency translation
adjustments
Issue of employee
share options
Vesting of PSP shares
Share-based payment
charges
Distribution to non-
controlling interests
At 1 January 2016
Loss for the year
Hedges, net of tax
Currency translation
adjustments
Issue of convertible
bonds
Issue of employee
share options
Vesting of PSP shares
Share-based payment
charges
Distribution to non-
controlling interests
21
25
27
26
21
20
25
27
26
At 31 December 2016
147.5
619.3
48.4
(232.2)
128.2
740.9
778.0 2,230.1
12.4 2,242.5
1. The foreign currency translation reserve represents exchange gains and losses arising on translation of foreign currency subsidiaries, monetary items receivable
from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in
a foreign operation, and exchange gains or losses arising on long-term foreign currency borrowings which are a hedge against the Group’s overseas
investments.
2. The hedge reserve represents gains and losses on derivatives classified as effective cash flow hedges.
3. Other reserves include the merger reserve and the treasury shares reserve which represents the cost of shares in Tullow Oil plc purchased in the market and
held by the Tullow Oil Employee Trust to satisfy awards held under the Group’s share incentive plans (note 27).
4. Non-controlling interest is described further in note 26.
118
118 Tullow Oil plc 2016 Annual Report and Accounts
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Cash and cash equivalents at end of year
17
281.9
355.7
1. An amount of $372.8 million has been represented between movements in trade payables and purchase of property, plant and equipment related to movements
in capital accruals. This reduced the cash outflow for the purchase of property, plant and equipment in 2015 from $1,464.8 million to $1,092.0 million, with a
corresponding adjustment to the cash flow from changes in trade payables, resulting in the net cash inflow from increases in trade payables of $366.5 million
becoming a net cash outflow from decreases in trade payables of $6.3 million.
Cash flows from operating activities
Loss before taxation
Adjustments for:
Depreciation, depletion and amortisation
Loss on disposal
Goodwill impairment
Exploration costs written off
Impairment of property, plant and equipment, net
Provision for onerous service contracts, net
Payment under onerous service contracts
Provision for inventory
Decommissioning expenditure
Share-based payment charge
(Gain)/loss on hedging instruments
Finance revenue
Finance costs
Increase in trade and other receivables
(Increase)/decrease in inventories
Decrease in trade payables
Cash generated from operating activities
Income taxes (paid)/received
Net cash from operating activities
Cash flows from investing activities
Proceeds from disposals
Operating cash flow before working capital movements
Purchase of intangible exploration and evaluation assets
Purchase of property, plant and equipment
Interest received
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of share capital
Debt arrangement fees
Repayment of borrowings
Drawdown of borrowings
Issue of convertible bond
Repayment of obligations under finance leases
Finance costs paid
Distribution to non-controlling interests
Net cash generated by financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange loss
Notes
2016
$m
20151
$m
(908.3)
(1,297.3)
4
9
10
11
12
23
23
15
23
27
21
2
5
9
26
17
466.9
3.4
164.0
723.0
167.6
114.9
(132.0)
–
(23.0)
43.9
(18.2)
(26.4)
198.2
774.0
(99.4)
(47.8)
(29.8)
597.0
(84.5)
580.1
56.5
53.7
748.9
406.0
185.5
–
22.2
(40.8)
48.7
58.8
(4.2)
149.0
967.1
(26.5)
9.0
(6.3)
943.3
34.9
512.5
978.2
62.8
(275.2)
(756.0)
1.2
55.8
(647.6)
(1,092.0)
4.2
(967.2)
(1,679.6)
1,187.5
1,168.8
9.9
(31.7)
(769.1)
300.0
(3.3)
(284.0)
(10.0)
3.5
(25.7)
(191.8)
–
(3.3)
(203.6)
(2.4)
399.3
745.5
(55.4)
355.7
(18.3)
44.1
319.0
(7.4)
www.tullowoil.com 119
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
GROUP STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 DECEMBER 2016
GROUP CASH FLOW STATEMENT
GROUP CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Equity
component
convertible
of
Foreign
currency
Share
capital
$m
Share
premium
$m
bonds
$m
translation
Hedge
Other
reserve1
reserve2
reserves3
$m
$m
$m
Retained
earnings
$m
Notes
Non-
controlling
interest4
$m
Total
$m
Total
equity
$m
147.0
606.4
(205.7)
401.6
740.9
2,305.8
3,996.0
24.3
4,020.3
–
–
–
168.3
– (1,034.8) (1,034.8)
(2.1) (1,036.9)
–
168.3
–
168.3
(43.6)
–
(43.6)
–
(43.6)
At 1 January 2015
Loss for the year
Hedges, net of tax
21
Currency translation
adjustments
Issue of employee
share options
Vesting of PSP shares
Share-based payment
charges
25
27
Distribution to non-
controlling interests
26
At 1 January 2016
Loss for the year
Hedges, net of tax
21
Currency translation
adjustments
Issue of convertible
bonds
Issue of employee
share options
Vesting of PSP shares
Share-based payment
charges
20
25
27
Distribution to non-
controlling interests
26
0.2
–
3.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17.1
48.4
0.3
–
9.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.9)
3.6
(1.9)
–
–
3.6
(1.9)
–
67.3
67.3
–
67.3
–
–
(2.4)
(2.4)
–
–
–
–
(9.4)
17.1
48.4
9.8
(9.4)
50.9
50.9
–
–
–
–
–
–
17.1
48.4
9.8
(9.4)
50.9
–
–
(10.0)
(10.0)
147.2
609.8
(249.3)
569.9
740.9 1,336.4 3,154.9
19.8 3,174.7
(441.7)
(441.7)
(441.7)
(599.9)
(599.9)
2.6
(597.3)
At 31 December 2016
147.5
619.3
48.4
(232.2)
128.2
740.9
778.0 2,230.1
12.4 2,242.5
1. The foreign currency translation reserve represents exchange gains and losses arising on translation of foreign currency subsidiaries, monetary items receivable
from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in
a foreign operation, and exchange gains or losses arising on long-term foreign currency borrowings which are a hedge against the Group’s overseas
investments.
2. The hedge reserve represents gains and losses on derivatives classified as effective cash flow hedges.
3. Other reserves include the merger reserve and the treasury shares reserve which represents the cost of shares in Tullow Oil plc purchased in the market and
held by the Tullow Oil Employee Trust to satisfy awards held under the Group’s share incentive plans (note 27).
4. Non-controlling interest is described further in note 26.
Cash flows from operating activities
Loss before taxation
Adjustments for:
Depreciation, depletion and amortisation
Loss on disposal
Goodwill impairment
Exploration costs written off
Impairment of property, plant and equipment, net
Provision for onerous service contracts, net
Payment under onerous service contracts
Provision for inventory
Decommissioning expenditure
Share-based payment charge
(Gain)/loss on hedging instruments
Finance revenue
Finance costs
Operating cash flow before working capital movements
Increase in trade and other receivables
(Increase)/decrease in inventories
Decrease in trade payables
Cash generated from operating activities
Income taxes (paid)/received
Net cash from operating activities
Cash flows from investing activities
Proceeds from disposals
Purchase of intangible exploration and evaluation assets
Purchase of property, plant and equipment
Interest received
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of share capital
Debt arrangement fees
Repayment of borrowings
Drawdown of borrowings
Issue of convertible bond
Repayment of obligations under finance leases
Finance costs paid
Distribution to non-controlling interests
Net cash generated by financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange loss
Notes
2016
$m
20151
$m
(908.3)
(1,297.3)
4
9
10
11
12
23
23
15
23
27
21
2
5
9
26
17
466.9
3.4
164.0
723.0
167.6
114.9
(132.0)
–
(23.0)
43.9
(18.2)
(26.4)
198.2
774.0
(99.4)
(47.8)
(29.8)
597.0
(84.5)
580.1
56.5
53.7
748.9
406.0
185.5
–
22.2
(40.8)
48.7
58.8
(4.2)
149.0
967.1
(26.5)
9.0
(6.3)
943.3
34.9
512.5
978.2
62.8
(275.2)
(756.0)
1.2
55.8
(647.6)
(1,092.0)
4.2
(967.2)
(1,679.6)
9.9
(31.7)
(769.1)
1,187.5
300.0
(3.3)
(284.0)
(10.0)
3.5
(25.7)
(191.8)
1,168.8
–
(3.3)
(203.6)
(2.4)
399.3
745.5
(55.4)
355.7
(18.3)
44.1
319.0
(7.4)
118 Tullow Oil plc 2016 Annual Report and Accounts
119
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Cash and cash equivalents at end of year
17
281.9
355.7
1. An amount of $372.8 million has been represented between movements in trade payables and purchase of property, plant and equipment related to movements
in capital accruals. This reduced the cash outflow for the purchase of property, plant and equipment in 2015 from $1,464.8 million to $1,092.0 million, with a
corresponding adjustment to the cash flow from changes in trade payables, resulting in the net cash inflow from increases in trade payables of $366.5 million
becoming a net cash outflow from decreases in trade payables of $6.3 million.
3www.tullowoil.com
ACCOUNTING POLICIES
ACCOUNTING POLICIES
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group’s equity
therein. Non-controlling interests consist of the amount of
those interests at the date of the original business
combination (see below) and the non-controlling share of
changes in equity since the date of the combination. Losses
within a subsidiary are attributed to the non-controlling
interest even if that results in a deficit balance. The Group
does not have any material non-controlling interests.
The results of subsidiaries acquired or disposed of during the
year are included in the Group income statement from the
transaction date of acquisition, being the date on which the
Group gains control, and will continue to be included until the
date that control ceases.
Where necessary, adjustments are made to the Financial
Statements of subsidiaries to bring the accounting policies
used into line with those used by the Group.
All intra-Group transactions, balances, income and expenses
are eliminated on consolidation.
Joint arrangements
The Group is engaged in oil and gas exploration, development
and production through unincorporated joint arrangements;
these are classified as joint operations in accordance with
IFRS 11. The Group accounts for its share of the results and
net assets of these joint operations. In addition, where Tullow
acts as Operator to the joint operation, the gross liabilities and
receivables (including amounts due to or from non-operating
partners) of the joint operation are included in the Group’s
balance sheet.
(f) Assets classified held for sale
Non-current assets (or disposal groups) classified as held for
sale are measured at the lower of carrying amount and fair
value less costs to sell. Non-current assets and disposal
groups are classified as held for sale if their carrying amount
will be recovered through a sale transaction rather than
through continuing use. This condition is regarded as met only
when the sale is highly probable and the asset (or disposal
group) is available for immediate sale in its present condition,
management views this trigger as signature of a Sales and
Purchase Agreement or Board approval. Management must
be committed to the sale which should be expected to qualify
for recognition as a completed sale within one year from the
date of classification. Assets classified as held for sale and
the corresponding liabilities are classified with current assets
and liabilities on a separate line in the balance sheet.
(g) Revenue
Sales revenue represents the sales value, net of VAT, of
the Group’s share of liftings in the year together with the
gain/loss on realisation of cash flow hedges and tariff income.
Revenue is recognised when goods are delivered and title
has passed.
Interest income is accrued on a time basis, by reference
to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset’s net carrying amount.
(a) General information
Tullow Oil plc is a company incorporated and domiciled
in the United Kingdom under the Companies Act 2006.
The address of the registered office is Tullow Oil plc,
Building 9, Chiswick Park, 566 Chiswick High Road,
London W4 5XT. The primary activity of the Group is the
discovery and production of oil and gas.
(b) Adoption of new and revised standards
Standards not affecting the reported results or the
financial position
New and revised Standards and Interpretations adopted in the
current year did not have any significant impact on the
amounts reported in these Financial Statements.
At the date of authorisation of these Financial Statements,
the following Standards and Interpretations which have
not been applied in these Financial Statements, but will have
an impact on future Financial Statements, were in issue but
not yet effective (and in some cases had not yet been adopted
by the EU):
IFRS 9
Financial Instruments
IFRS 16
Leases
The adoption of IFRS 9 Financial Instruments, which the
Group will adopt for the year commencing 1 January 2018, will
impact both the measurement and disclosures of financial
instruments. The adoption of IFRS 16 Leases, which the Group
will adopt for the year commencing 1 January 2019, will
impact both the measurement and disclosures of leases.
(c) Changes in accounting policy
The Group’s accounting policies are consistent with the
prior year.
(d) Basis of accounting
The Financial Statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board
(IASB). The Financial Statements have also been prepared in
accordance with IFRS as adopted by the European Union and
therefore the Group Financial Statements comply with Article
4 of the EU IAS Regulation.
The Financial Statements have been prepared on the
historical cost basis, except for derivative financial
instruments that have been measured at fair value and assets
classified as held for sale which are carried at fair value less
cost to sell. The Financial Statements are presented in US
dollars and all values are rounded to the nearest $0.1 million,
except where otherwise stated. The Financial Statements
have been prepared on a going concern basis.
The principal accounting policies adopted by the Group
are set out below.
(e) Basis of consolidation
The consolidated Financial Statements incorporate the
Financial Statements of the Company and entities controlled
by the Company (its subsidiaries) made up to 31 December
each year. Control is achieved where the Company has the
power over an investee entity, is exposed, or has rights, to
variable returns from its involvement with the investee and
has the ability to use its power to affect its returns.
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(h) Over/underlift
(k) Goodwill
Lifting or offtake arrangements for oil and gas produced
The Group allocates goodwill to cash-generating units (CGUs)
in certain of the Group’s jointly owned operations are such that
or groups of CGUs that represent the assets acquired as part
each participant may not receive and sell its precise share of the
of the business combination.
overall production in each period. The resulting imbalance
between cumulative entitlement and cumulative production less
stock is underlift or overlift. Underlift and overlift are valued at
market value and included within receivables and payables
Goodwill is tested for impairment annually as at
31 December and when circumstances indicate
that the carrying value may be impaired.
respectively. Movements during an accounting period are
Impairment is determined for goodwill by assessing the
adjusted through cost of sales such that gross profit is
recognised on an entitlements basis.
In respect of redeterminations, any adjustments to the
Group’s net entitlement of future production are accounted
for prospectively in the period in which the make-up oil is
produced. Where the make-up period extends beyond the
expected life of a field an accrual is recognised for the expected
shortfall.
(i) Inventory
Inventories, other than oil products, are stated at the lower of
cost and net realisable value. Cost is determined by the first-
in first-out method and comprises direct purchase costs,
costs of production and transportation and manufacturing
expenses. Net realisable value is determined by reference to
prices existing at the balance sheet date.
Oil product is stated at net realisable value and changes in net
realisable value are recognised in the income statement.
(j) Foreign currencies
recoverable amount, using the ‘Fair value less cost to sell’
method, of each CGU (or group of CGUs) to which goodwill
relates. When the recoverable amount of the CGU is less than
its carrying amount, an impairment loss is recognised.
Impairment losses relating to goodwill cannot be reversed in
future periods.
(l) Exploration, evaluation and production assets
The Group adopts the successful efforts method of accounting
for exploration and evaluation costs. Pre-licence costs are
expensed in the period in which they are incurred. All licence
acquisition, exploration and evaluation costs and directly
attributable administration costs are initially capitalised in
cost centres by well, field or exploration area, as appropriate.
Interest payable is capitalised insofar as it relates to specific
development activities.
These costs are then written off as exploration costs in the
income statement unless commercial reserves have been
established or the determination process has not been
completed and there are no indications of impairment.
The US dollar is the presentation currency of the Group. For
All field development costs are capitalised as property,
the purpose of presenting consolidated Financial Statements,
plant and equipment. Property, plant and equipment related
the assets and liabilities of the Group’s non-US dollar-
to production activities is amortised in accordance with the
denominated functional entities are translated at exchange
Group’s depletion and amortisation accounting policy.
rates prevailing on the balance sheet date. Income and
expense items are translated at the average exchange rates
for the period. Currency translation adjustments arising on
the restatement of opening net assets of non-US dollar
subsidiaries, together with differences between the
subsidiaries’ results translated at average rates versus
closing rates, are recognised in the statement of
comprehensive income and expense and transferred to the
foreign currency translation reserve. All resulting exchange
differences are classified as equity until disposal of the
subsidiary. On disposal, the cumulative amounts of the
exchange differences are recognised as income or expense.
Cash consideration received on farm-down of exploration
and evaluation assets is credited against the carrying value
of the asset.
(m) Commercial reserves
Commercial reserves are proven and probable oil and gas
reserves, which are defined as the estimated quantities
of crude oil, natural gas and natural gas liquids which
geological, geophysical and engineering data demonstrate
with a specified degree of certainty to be recoverable
in future years from known reservoirs and which are
considered commercially producible. There should be
Transactions in foreign currencies are recorded at the rates
a 50 per cent statistical probability that the actual quantity
of exchange ruling at the transaction dates. Monetary assets
of recoverable reserves will be more than the amount
and liabilities are translated into functional currency at the
estimated as proven and probable reserves and a
exchange rate ruling at the balance sheet date, with a
50 per cent statistical probability that it will be less.
corresponding charge or credit to the income statement.
However, exchange gains and losses arising on monetary
(n) Depletion and amortisation
items receivable from or payable to a foreign operation
All expenditure carried within each field is amortised from
for which settlement is neither planned nor likely to
occur, which form part of the net investment in a
the commencement of production on a unit of production
basis, which is the ratio of oil and gas production in the period
foreign operation, are recognised in the foreign currency
to the estimated quantities of commercial reserves at the end
translation reserve and recognised in profit or loss on
disposal of the net investment. In addition, exchange
of the period plus the production in the period, generally on a
field-by-field basis or by a group of fields which are reliant on
gains and losses arising on long-term foreign currency
common infrastructure. Costs used in the unit of production
borrowings which are a hedge against the Group’s overseas
calculation comprise the net book value of capitalised costs
investments are dealt with in reserves.
plus the estimated future field development costs required to
recover the commercial reserves remaining. Changes in the
estimates of commercial reserves or future field development
costs are dealt with prospectively.
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
ACCOUNTING POLICIES
YEAR ENDED 31 DECEMBER 2016
(a) General information
Non-controlling interests in the net assets of consolidated
Tullow Oil plc is a company incorporated and domiciled
subsidiaries are identified separately from the Group’s equity
in the United Kingdom under the Companies Act 2006.
therein. Non-controlling interests consist of the amount of
The address of the registered office is Tullow Oil plc,
Building 9, Chiswick Park, 566 Chiswick High Road,
those interests at the date of the original business
combination (see below) and the non-controlling share of
London W4 5XT. The primary activity of the Group is the
changes in equity since the date of the combination. Losses
discovery and production of oil and gas.
(b) Adoption of new and revised standards
Standards not affecting the reported results or the
financial position
New and revised Standards and Interpretations adopted in the
current year did not have any significant impact on the
amounts reported in these Financial Statements.
At the date of authorisation of these Financial Statements,
the following Standards and Interpretations which have
not been applied in these Financial Statements, but will have
an impact on future Financial Statements, were in issue but
within a subsidiary are attributed to the non-controlling
interest even if that results in a deficit balance. The Group
does not have any material non-controlling interests.
The results of subsidiaries acquired or disposed of during the
year are included in the Group income statement from the
transaction date of acquisition, being the date on which the
Group gains control, and will continue to be included until the
date that control ceases.
Where necessary, adjustments are made to the Financial
Statements of subsidiaries to bring the accounting policies
used into line with those used by the Group.
not yet effective (and in some cases had not yet been adopted
All intra-Group transactions, balances, income and expenses
by the EU):
IFRS 9
Financial Instruments
IFRS 16
Leases
are eliminated on consolidation.
Joint arrangements
The Group is engaged in oil and gas exploration, development
and production through unincorporated joint arrangements;
The adoption of IFRS 9 Financial Instruments, which the
these are classified as joint operations in accordance with
Group will adopt for the year commencing 1 January 2018, will
IFRS 11. The Group accounts for its share of the results and
impact both the measurement and disclosures of financial
net assets of these joint operations. In addition, where Tullow
instruments. The adoption of IFRS 16 Leases, which the Group
acts as Operator to the joint operation, the gross liabilities and
will adopt for the year commencing 1 January 2019, will
receivables (including amounts due to or from non-operating
impact both the measurement and disclosures of leases.
partners) of the joint operation are included in the Group’s
balance sheet.
The Group’s accounting policies are consistent with the
(f) Assets classified held for sale
Non-current assets (or disposal groups) classified as held for
sale are measured at the lower of carrying amount and fair
value less costs to sell. Non-current assets and disposal
(c) Changes in accounting policy
prior year.
(d) Basis of accounting
The Financial Statements have been prepared in accordance
groups are classified as held for sale if their carrying amount
with International Financial Reporting Standards (IFRS) as
will be recovered through a sale transaction rather than
issued by the International Accounting Standards Board
through continuing use. This condition is regarded as met only
(IASB). The Financial Statements have also been prepared in
when the sale is highly probable and the asset (or disposal
accordance with IFRS as adopted by the European Union and
group) is available for immediate sale in its present condition,
therefore the Group Financial Statements comply with Article
management views this trigger as signature of a Sales and
4 of the EU IAS Regulation.
The Financial Statements have been prepared on the
historical cost basis, except for derivative financial
instruments that have been measured at fair value and assets
classified as held for sale which are carried at fair value less
cost to sell. The Financial Statements are presented in US
dollars and all values are rounded to the nearest $0.1 million,
except where otherwise stated. The Financial Statements
have been prepared on a going concern basis.
are set out below.
(e) Basis of consolidation
The consolidated Financial Statements incorporate the
Financial Statements of the Company and entities controlled
by the Company (its subsidiaries) made up to 31 December
each year. Control is achieved where the Company has the
power over an investee entity, is exposed, or has rights, to
variable returns from its involvement with the investee and
has the ability to use its power to affect its returns.
Purchase Agreement or Board approval. Management must
be committed to the sale which should be expected to qualify
for recognition as a completed sale within one year from the
date of classification. Assets classified as held for sale and
the corresponding liabilities are classified with current assets
and liabilities on a separate line in the balance sheet.
(g) Revenue
Sales revenue represents the sales value, net of VAT, of
the Group’s share of liftings in the year together with the
Revenue is recognised when goods are delivered and title
has passed.
Interest income is accrued on a time basis, by reference
to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset’s net carrying amount.
The principal accounting policies adopted by the Group
gain/loss on realisation of cash flow hedges and tariff income.
120 Tullow Oil plc 2016 Annual Report and Accounts
(h) Over/underlift
Lifting or offtake arrangements for oil and gas produced
in certain of the Group’s jointly owned operations are such that
each participant may not receive and sell its precise share of the
overall production in each period. The resulting imbalance
between cumulative entitlement and cumulative production less
stock is underlift or overlift. Underlift and overlift are valued at
market value and included within receivables and payables
respectively. Movements during an accounting period are
adjusted through cost of sales such that gross profit is
recognised on an entitlements basis.
In respect of redeterminations, any adjustments to the
Group’s net entitlement of future production are accounted
for prospectively in the period in which the make-up oil is
produced. Where the make-up period extends beyond the
expected life of a field an accrual is recognised for the expected
shortfall.
(i) Inventory
Inventories, other than oil products, are stated at the lower of
cost and net realisable value. Cost is determined by the first-
in first-out method and comprises direct purchase costs,
costs of production and transportation and manufacturing
expenses. Net realisable value is determined by reference to
prices existing at the balance sheet date.
Oil product is stated at net realisable value and changes in net
realisable value are recognised in the income statement.
(j) Foreign currencies
The US dollar is the presentation currency of the Group. For
the purpose of presenting consolidated Financial Statements,
the assets and liabilities of the Group’s non-US dollar-
denominated functional entities are translated at exchange
rates prevailing on the balance sheet date. Income and
expense items are translated at the average exchange rates
for the period. Currency translation adjustments arising on
the restatement of opening net assets of non-US dollar
subsidiaries, together with differences between the
subsidiaries’ results translated at average rates versus
closing rates, are recognised in the statement of
comprehensive income and expense and transferred to the
foreign currency translation reserve. All resulting exchange
differences are classified as equity until disposal of the
subsidiary. On disposal, the cumulative amounts of the
exchange differences are recognised as income or expense.
Transactions in foreign currencies are recorded at the rates
of exchange ruling at the transaction dates. Monetary assets
and liabilities are translated into functional currency at the
exchange rate ruling at the balance sheet date, with a
corresponding charge or credit to the income statement.
However, exchange gains and losses arising on monetary
items receivable from or payable to a foreign operation
for which settlement is neither planned nor likely to
occur, which form part of the net investment in a
foreign operation, are recognised in the foreign currency
translation reserve and recognised in profit or loss on
disposal of the net investment. In addition, exchange
gains and losses arising on long-term foreign currency
borrowings which are a hedge against the Group’s overseas
investments are dealt with in reserves.
(k) Goodwill
The Group allocates goodwill to cash-generating units (CGUs)
or groups of CGUs that represent the assets acquired as part
of the business combination.
Goodwill is tested for impairment annually as at
31 December and when circumstances indicate
that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the
recoverable amount, using the ‘Fair value less cost to sell’
method, of each CGU (or group of CGUs) to which goodwill
relates. When the recoverable amount of the CGU is less than
its carrying amount, an impairment loss is recognised.
Impairment losses relating to goodwill cannot be reversed in
future periods.
(l) Exploration, evaluation and production assets
The Group adopts the successful efforts method of accounting
for exploration and evaluation costs. Pre-licence costs are
expensed in the period in which they are incurred. All licence
acquisition, exploration and evaluation costs and directly
attributable administration costs are initially capitalised in
cost centres by well, field or exploration area, as appropriate.
Interest payable is capitalised insofar as it relates to specific
development activities.
These costs are then written off as exploration costs in the
income statement unless commercial reserves have been
established or the determination process has not been
completed and there are no indications of impairment.
All field development costs are capitalised as property,
plant and equipment. Property, plant and equipment related
to production activities is amortised in accordance with the
Group’s depletion and amortisation accounting policy.
Cash consideration received on farm-down of exploration
and evaluation assets is credited against the carrying value
of the asset.
(m) Commercial reserves
Commercial reserves are proven and probable oil and gas
reserves, which are defined as the estimated quantities
of crude oil, natural gas and natural gas liquids which
geological, geophysical and engineering data demonstrate
with a specified degree of certainty to be recoverable
in future years from known reservoirs and which are
considered commercially producible. There should be
a 50 per cent statistical probability that the actual quantity
of recoverable reserves will be more than the amount
estimated as proven and probable reserves and a
50 per cent statistical probability that it will be less.
(n) Depletion and amortisation
All expenditure carried within each field is amortised from
the commencement of production on a unit of production
basis, which is the ratio of oil and gas production in the period
to the estimated quantities of commercial reserves at the end
of the period plus the production in the period, generally on a
field-by-field basis or by a group of fields which are reliant on
common infrastructure. Costs used in the unit of production
calculation comprise the net book value of capitalised costs
plus the estimated future field development costs required to
recover the commercial reserves remaining. Changes in the
estimates of commercial reserves or future field development
costs are dealt with prospectively.
121
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3www.tullowoil.com
ACCOUNTING POLICIES CONTINUED
ACCOUNTING POLICIES CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
(n) Depletion and amortisation continued
Where there has been a change in economic conditions
that indicates a possible impairment in a discovery field,
the recoverability of the net book value relating to that field
is assessed by comparison with the estimated discounted
future cash flows based on management’s expectations of
future oil and gas prices and future costs.
In order to discount the future cash flows the Group
calculates CGU-specific discount rates. The discount rates
are based on an assessment of the Group’s and a relevant
peer group’s post-tax Weighted Average Cost of Capital
(WACC). The post-tax WACC is subsequently grossed up to a
pre-tax rate. The Group then deducts any exploration risk
premium which is implicit within the Group’s and peer group’s
WACC and subsequently applies additional country risk
premium for CGUs in Gabon and Congo, an element of which
is determined by whether the assets are onshore or offshore.
Where there is evidence of economic interdependency
between fields, such as common infrastructure, the fields
are grouped as a single CGU for impairment purposes.
Where conditions giving rise to impairment subsequently
reverse, the effect of the impairment charge is also reversed
as a credit to the income statement, net of any amortisation
that would have been charged since the impairment.
(o) Decommissioning
Provision for decommissioning is recognised in full when
the related facilities are installed. A corresponding amount
equivalent to the provision is also recognised as part of the
cost of the related property, plant and equipment. The amount
recognised is the estimated cost of decommissioning,
discounted to its net present value, and is reassessed each
year in accordance with local conditions and requirements.
Changes in the estimated timing of decommissioning or
decommissioning cost estimates are dealt with prospectively
by recording an adjustment to the provision, and a
corresponding adjustment to property, plant and equipment.
The unwinding of the discount on the decommissioning
provision is included as a finance cost.
(p) Property, plant and equipment
Property, plant and equipment is stated in the balance sheet
at cost less accumulated depreciation and any recognised
impairment loss. Depreciation on property, plant and
equipment other than production assets is provided at rates
calculated to write off the cost less the estimated residual
value of each asset on a straight line basis over its expected
useful economic life of between three and five years.
(r) Share issue expenses and share premium account
Costs of share issues are written off against the premium
arising on the issues of share capital.
(s) Taxation
Current and deferred tax, including UK corporation tax
and overseas corporation tax, are provided at amounts
expected to be paid using the tax rates and laws that have
been enacted or substantively enacted by the balance
sheet date. Deferred corporation tax is recognised on
all temporary differences that have originated but not
reversed at the balance sheet date where transactions
or events that result in an obligation to pay more, or right to
pay less, tax in the future have occurred at the balance sheet
date. Deferred tax assets are recognised only to the extent
that it is considered more likely than not that there will be
suitable taxable profits from which the underlying temporary
differences can be deducted. Deferred tax is measured on a
non-discounted basis.
Deferred tax is provided on temporary differences arising on
acquisitions that are categorised as Business Combinations.
Deferred tax is recognised at acquisition as part of the
assessment of the fair value of assets and liabilities acquired.
Any deferred tax is charged or credited in the income
statement as the underlying temporary difference is reversed.
Petroleum Revenue Tax (PRT) is treated as an income tax and
deferred PRT is accounted for under the temporary difference
method. Current UK PRT is charged as a tax expense on
chargeable field profits included in the income statement and
is deductible for UK corporation tax.
(t) Pensions
Contributions to the Group’s defined contribution pension
schemes are charged to operating profit on an accruals basis.
(u) Derivative financial instruments
The Group uses derivative financial instruments to manage
its exposure to fluctuations in foreign exchange rates,
interest rates and movements in oil and gas prices.
Derivative financial instruments are stated at fair value.
The purpose for which a derivative is used is established
at inception. To qualify for hedge accounting, the derivative
must be highly effective in achieving its objective and
this effectiveness must be documented at inception and
throughout the period of the hedge relationship. The hedge
must be assessed on an ongoing basis and determined to
have been highly effective throughout the financial reporting
periods for which the hedge was designated.
(q) Finance costs and debt
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to
get ready for their intended use or sale, are added to the cost
of those assets, until such time as the assets are substantially
ready for their intended use or sale.
For the purpose of hedge accounting, hedges are classified
as either fair value hedges, when they hedge the exposure
to changes in the fair value of a recognised asset or liability,
or cash flow hedges, where they hedge exposure to variability
in cash flows that is either attributable to a particular risk
associated with a recognised asset or liability or
forecast transaction.
Finance costs of debt are allocated to periods over the term
of the related debt at a constant rate on the carrying amount.
Arrangement fees and issue costs are deducted from the
debt proceeds on initial recognition of the liability and are
amortised and charged to the income statement as finance
costs over the term of the debt.
For cash flow hedges, the portion of the gains and losses on
the hedging instrument that is determined to be an effective
hedge is taken to other comprehensive income and the
ineffective portion, as well as any change in time value, is
recognised in the income statement. The gains and losses
taken to other comprehensive income are subsequently
transferred to the income statement during the period in
which the hedged transaction affects the income statement.
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(u) Derivative financial instruments continued
that will eventually vest as a result of non-market conditions,
A similar treatment applies to foreign currency loans which
is expensed uniformly over the vesting period.
are hedges of the Group’s net investment in the net assets
of a foreign operation.
The fair values were calculated using a binomial option
pricing model with suitable modifications to allow for
Gains or losses on derivatives that do not qualify for hedge
employee turnover after vesting and early exercise. Where
accounting treatment (either from inception or during the life
necessary, this model is supplemented with a Monte Carlo
of the instrument) are taken directly to the income statement
model. The inputs to the models include: the share price at
in the period.
(v) Convertible bonds
Where bonds issued with certain conversion rights are
identified as compound instruments, the liability and equity
components are separately recognised.
date of grant; exercise price; expected volatility; expected
dividends; risk-free rate of interest; and patterns of exercise
of the plan participants.
For cash settled awards, a liability is recognised for the goods
or service acquired, measured initially at the fair value of the
liability. At each balance sheet date until the liability is settled,
The fair value of the liability component on initial recognition
and at the date of settlement, the fair value of the liability is
is calculated by discounting the contractual stream of future
remeasured, with any changes in fair value recognised in the
cash flows using the prevailing market interest rate for
income statement.
similar non-convertible debt.
The difference between the fair value of the liability
component and the fair value of the whole instrument is
recorded as equity.
(y) Financial assets
All financial assets are recognised and derecognised on a
trade date where the purchase or sale of a financial asset
is under a contract whose terms require delivery of the
Transaction costs are apportioned between the liability and
investment within the timeframe established by the market
the equity components of the instrument based on the
concerned, and are initially measured at fair value, plus
amounts initially recognised.
transaction costs.
The liability component is subsequently measured at
Financial assets are classified into the following specified
amortised cost using the effective interest rate method,
categories: financial assets ‘at fair value through profit
in line with our other financial liabilities.
The equity component is not remeasured.
or loss’ (FVTPL); ‘held-to-maturity’ investments; ‘available-
for-sale’ (AFS) financial assets; and ‘loans and receivables’.
The classification depends on the nature and purpose
On conversion of the instrument, equity is issued and the
of the financial assets and is determined at the time of
liability component is derecognised. The original equity
initial recognition.
component recognised at inception remains in equity.
No gain or loss is recognised on conversion.
(w) Leases
(z) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, demand
deposits and other short-term highly liquid investments that
Leases are classified as finance leases whenever the
are readily convertible to a known amount of cash and are
terms of the lease transfer substantially all the risks and
subject to an insignificant risk of changes in value.
rewards of ownership to the lessee. A finance lease is
recognised when the Group enters the uncancellable lease
(aa) Loans and receivables
period and obtains the right to use the asset as intended.
Trade receivables, loans and other receivables that have fixed
All other leases are classified as operating leases and are
or determinable payments that are not quoted in
charged to the income statement on a straight line basis
an active market are classified as loans and receivables.
over the term of the lease.
From the commencement of the lease assets held under
finance leases are recognised as assets of the Group at their
fair value or, if lower, at the present value of the minimum
lease payments, each determined at the inception of the
lease. The corresponding liability to the lessor is included in
the balance sheet as a finance lease obligation. Lease
payments are apportioned between finance charges and
reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income, unless
they are directly attributable to qualifying assets, in which case
they are capitalised in accordance with the Group’s policy on
borrowing costs.
Loans and receivables are measured at amortised cost using
the effective interest method, less any impairment. Interest
income is recognised by applying the effective interest rate,
except for short-term receivables when the recognition of
interest would be immaterial.
(ab) Effective interest method
The effective interest method is a method of calculating
the amortised cost of a financial asset and of allocating
interest income over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash
receipts (including all fees on points paid or received that
form an integral part of the effective interest rate, transaction
costs and other premiums or discounts) through the expected
life of the financial asset, or, where appropriate, a shorter period.
(x) Share-based payments
Income is recognised on an effective interest basis for debt
The Group has applied the requirements of IFRS 2 Share-
instruments other than those financial assets classified as
based Payments. The Group has share-based awards that are
at FVTPL. The Group chooses not to disclose the effective
equity settled and cash settled as defined by IFRS 2. The fair
interest rate for debt instruments that are classified as at
value of the equity settled awards has been determined at the
fair value through profit or loss.
date of grant of the award allowing for the effect of any
market-based performance conditions. This fair value,
adjusted by the Group’s estimate of the number of awards
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
ACCOUNTING POLICIES CONTINUED
YEAR ENDED 31 DECEMBER 2016
(n) Depletion and amortisation continued
(r) Share issue expenses and share premium account
Where there has been a change in economic conditions
Costs of share issues are written off against the premium
that indicates a possible impairment in a discovery field,
arising on the issues of share capital.
the recoverability of the net book value relating to that field
is assessed by comparison with the estimated discounted
(s) Taxation
future cash flows based on management’s expectations of
Current and deferred tax, including UK corporation tax
future oil and gas prices and future costs.
In order to discount the future cash flows the Group
calculates CGU-specific discount rates. The discount rates
are based on an assessment of the Group’s and a relevant
peer group’s post-tax Weighted Average Cost of Capital
(WACC). The post-tax WACC is subsequently grossed up to a
pre-tax rate. The Group then deducts any exploration risk
premium which is implicit within the Group’s and peer group’s
WACC and subsequently applies additional country risk
premium for CGUs in Gabon and Congo, an element of which
is determined by whether the assets are onshore or offshore.
and overseas corporation tax, are provided at amounts
expected to be paid using the tax rates and laws that have
been enacted or substantively enacted by the balance
sheet date. Deferred corporation tax is recognised on
all temporary differences that have originated but not
reversed at the balance sheet date where transactions
or events that result in an obligation to pay more, or right to
pay less, tax in the future have occurred at the balance sheet
date. Deferred tax assets are recognised only to the extent
that it is considered more likely than not that there will be
suitable taxable profits from which the underlying temporary
differences can be deducted. Deferred tax is measured on a
Where there is evidence of economic interdependency
non-discounted basis.
between fields, such as common infrastructure, the fields
are grouped as a single CGU for impairment purposes.
Deferred tax is provided on temporary differences arising on
acquisitions that are categorised as Business Combinations.
Where conditions giving rise to impairment subsequently
Deferred tax is recognised at acquisition as part of the
reverse, the effect of the impairment charge is also reversed
assessment of the fair value of assets and liabilities acquired.
as a credit to the income statement, net of any amortisation
Any deferred tax is charged or credited in the income
that would have been charged since the impairment.
statement as the underlying temporary difference is reversed.
(o) Decommissioning
Provision for decommissioning is recognised in full when
the related facilities are installed. A corresponding amount
equivalent to the provision is also recognised as part of the
cost of the related property, plant and equipment. The amount
recognised is the estimated cost of decommissioning,
discounted to its net present value, and is reassessed each
year in accordance with local conditions and requirements.
Changes in the estimated timing of decommissioning or
decommissioning cost estimates are dealt with prospectively
by recording an adjustment to the provision, and a
corresponding adjustment to property, plant and equipment.
The unwinding of the discount on the decommissioning
provision is included as a finance cost.
(p) Property, plant and equipment
Property, plant and equipment is stated in the balance sheet
at cost less accumulated depreciation and any recognised
impairment loss. Depreciation on property, plant and
equipment other than production assets is provided at rates
calculated to write off the cost less the estimated residual
value of each asset on a straight line basis over its expected
useful economic life of between three and five years.
Petroleum Revenue Tax (PRT) is treated as an income tax and
deferred PRT is accounted for under the temporary difference
method. Current UK PRT is charged as a tax expense on
chargeable field profits included in the income statement and
is deductible for UK corporation tax.
(t) Pensions
Contributions to the Group’s defined contribution pension
schemes are charged to operating profit on an accruals basis.
(u) Derivative financial instruments
The Group uses derivative financial instruments to manage
its exposure to fluctuations in foreign exchange rates,
interest rates and movements in oil and gas prices.
Derivative financial instruments are stated at fair value.
The purpose for which a derivative is used is established
at inception. To qualify for hedge accounting, the derivative
must be highly effective in achieving its objective and
this effectiveness must be documented at inception and
throughout the period of the hedge relationship. The hedge
must be assessed on an ongoing basis and determined to
have been highly effective throughout the financial reporting
periods for which the hedge was designated.
(q) Finance costs and debt
Borrowing costs directly attributable to the acquisition,
For the purpose of hedge accounting, hedges are classified
as either fair value hedges, when they hedge the exposure
construction or production of qualifying assets, which are
to changes in the fair value of a recognised asset or liability,
assets that necessarily take a substantial period of time to
or cash flow hedges, where they hedge exposure to variability
get ready for their intended use or sale, are added to the cost
in cash flows that is either attributable to a particular risk
of those assets, until such time as the assets are substantially
associated with a recognised asset or liability or
ready for their intended use or sale.
forecast transaction.
Finance costs of debt are allocated to periods over the term
For cash flow hedges, the portion of the gains and losses on
of the related debt at a constant rate on the carrying amount.
the hedging instrument that is determined to be an effective
Arrangement fees and issue costs are deducted from the
hedge is taken to other comprehensive income and the
debt proceeds on initial recognition of the liability and are
ineffective portion, as well as any change in time value, is
amortised and charged to the income statement as finance
recognised in the income statement. The gains and losses
costs over the term of the debt.
taken to other comprehensive income are subsequently
transferred to the income statement during the period in
which the hedged transaction affects the income statement.
122 Tullow Oil plc 2016 Annual Report and Accounts
(u) Derivative financial instruments continued
A similar treatment applies to foreign currency loans which
are hedges of the Group’s net investment in the net assets
of a foreign operation.
Gains or losses on derivatives that do not qualify for hedge
accounting treatment (either from inception or during the life
of the instrument) are taken directly to the income statement
in the period.
(v) Convertible bonds
Where bonds issued with certain conversion rights are
identified as compound instruments, the liability and equity
components are separately recognised.
The fair value of the liability component on initial recognition
is calculated by discounting the contractual stream of future
cash flows using the prevailing market interest rate for
similar non-convertible debt.
The difference between the fair value of the liability
component and the fair value of the whole instrument is
recorded as equity.
Transaction costs are apportioned between the liability and
the equity components of the instrument based on the
amounts initially recognised.
The liability component is subsequently measured at
amortised cost using the effective interest rate method,
in line with our other financial liabilities.
The equity component is not remeasured.
On conversion of the instrument, equity is issued and the
liability component is derecognised. The original equity
component recognised at inception remains in equity.
No gain or loss is recognised on conversion.
(w) Leases
Leases are classified as finance leases whenever the
terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. A finance lease is
recognised when the Group enters the uncancellable lease
period and obtains the right to use the asset as intended.
All other leases are classified as operating leases and are
charged to the income statement on a straight line basis
over the term of the lease.
From the commencement of the lease assets held under
finance leases are recognised as assets of the Group at their
fair value or, if lower, at the present value of the minimum
lease payments, each determined at the inception of the
lease. The corresponding liability to the lessor is included in
the balance sheet as a finance lease obligation. Lease
payments are apportioned between finance charges and
reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income, unless
they are directly attributable to qualifying assets, in which case
they are capitalised in accordance with the Group’s policy on
borrowing costs.
(x) Share-based payments
The Group has applied the requirements of IFRS 2 Share-
based Payments. The Group has share-based awards that are
equity settled and cash settled as defined by IFRS 2. The fair
value of the equity settled awards has been determined at the
date of grant of the award allowing for the effect of any
market-based performance conditions. This fair value,
adjusted by the Group’s estimate of the number of awards
that will eventually vest as a result of non-market conditions,
is expensed uniformly over the vesting period.
The fair values were calculated using a binomial option
pricing model with suitable modifications to allow for
employee turnover after vesting and early exercise. Where
necessary, this model is supplemented with a Monte Carlo
model. The inputs to the models include: the share price at
date of grant; exercise price; expected volatility; expected
dividends; risk-free rate of interest; and patterns of exercise
of the plan participants.
For cash settled awards, a liability is recognised for the goods
or service acquired, measured initially at the fair value of the
liability. At each balance sheet date until the liability is settled,
and at the date of settlement, the fair value of the liability is
remeasured, with any changes in fair value recognised in the
income statement.
(y) Financial assets
All financial assets are recognised and derecognised on a
trade date where the purchase or sale of a financial asset
is under a contract whose terms require delivery of the
investment within the timeframe established by the market
concerned, and are initially measured at fair value, plus
transaction costs.
Financial assets are classified into the following specified
categories: financial assets ‘at fair value through profit
or loss’ (FVTPL); ‘held-to-maturity’ investments; ‘available-
for-sale’ (AFS) financial assets; and ‘loans and receivables’.
The classification depends on the nature and purpose
of the financial assets and is determined at the time of
initial recognition.
(z) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, demand
deposits and other short-term highly liquid investments that
are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value.
(aa) Loans and receivables
Trade receivables, loans and other receivables that have fixed
or determinable payments that are not quoted in
an active market are classified as loans and receivables.
Loans and receivables are measured at amortised cost using
the effective interest method, less any impairment. Interest
income is recognised by applying the effective interest rate,
except for short-term receivables when the recognition of
interest would be immaterial.
(ab) Effective interest method
The effective interest method is a method of calculating
the amortised cost of a financial asset and of allocating
interest income over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash
receipts (including all fees on points paid or received that
form an integral part of the effective interest rate, transaction
costs and other premiums or discounts) through the expected
life of the financial asset, or, where appropriate, a shorter period.
Income is recognised on an effective interest basis for debt
instruments other than those financial assets classified as
at FVTPL. The Group chooses not to disclose the effective
interest rate for debt instruments that are classified as at
fair value through profit or loss.
123
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ACCOUNTING POLICIES CONTINUED
ACCOUNTING POLICIES CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
(ac) Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into.
(ad) Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its
liabilities. Equity instruments issued by the Group are
recorded at the proceeds received, net of direct
issue costs.
(ae) Other financial liabilities
Other financial liabilities, including borrowings, are initially
measured at fair value, net of transaction costs. Other
financial liabilities are subsequently measured at amortised
cost using the effective interest method, with interest expense
recognised on an effective yield basis.
(af) Insurance proceeds
Insurance proceeds related to lost production under the
Business Interruption insurance policy are recorded as other
operating income in the income statement. Proceeds related
to compensation for incremental operating costs under the
Business Interruption and Hull and Machinery insurance
policies are recorded within the operating costs line of cost of
sales. Proceeds related to compensation for capital costs
under the Hull and Machinery insurance policy where no asset
is disposed are recorded within additions to property, plant
and equipment.
(ag) Critical accounting judgements
The Group assesses critical accounting judgements annually.
The following are the critical judgements, apart from those
involving estimations which are dealt with in policy (ah),
that the Directors have made in the process of applying the
Group’s accounting policies and that have the most significant
effect on the amounts recognised in the Financial Statements.
• Recognition of finance lease liabilities:
The Group has a contract with a supplier for the lease of
the TEN field (Ghana) FPSO. Management was required to
exercise judgement determining whether the FPSO should be
recognised as a finance lease in accordance with IAS 17 as at
31 December 2016.
The key judgement involved in determining that a finance
lease should not be recognised was assessment of key
contractual clauses that due to the delays in commissioning
and the fact that the Certificate of Offshore Completion was
not issued before 31 December 2016 the non-cancellable
lease period had not commenced and the Group had not
obtained the right of use of the vessel in its intended form.
Therefore commencement of the lease had not occurred and
the finance lease asset and liability were not recognised at the
balance sheet date. If management had concluded the
recognition criteria had been met then a $1.6 billion finance
lease would have been recognised on the balance sheet.
•
Recognition of assets held for sale (note 18):
The Group signed a sales and purchase agreement for farm-
down of a portion of its interest in Uganda to Total on 9
January 2017. Management has exercised judgement in
determining that this disposal met the requirements of IFRS 5
and that the associated assets and liabilities should be
transferred to held for sale.
124
124 Tullow Oil plc 2016 Annual Report and Accounts
The critical judgement in determining that the assets were
held for sale was regarding the point that management were
committed to the sale. The sales and purchase agreement
was signed after the balance sheet date on 9 January 2017;
however, the Board had approved the transaction in
December 2016, at which point the sale was highly probable.
If management had concluded that the sale was not highly
probable this would result in the reclassification of $829.7
million assets held for sale back into intangible exploration
and evaluations assets.
(ah) Key sources of estimation uncertainty
The key assumptions concerning the future, and other
key sources of estimation uncertainty at the balance
sheet date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities
within the next financial year, are discussed below.
•
Carrying value of intangible exploration and evaluation
assets (note 11):
The amounts for intangible exploration and evaluation assets
represent active exploration projects. These amounts will be
written off to the income statement as exploration costs
unless commercial reserves are established or the
determination process is not completed and there are no
indications of impairment in accordance with the Group’s
accounting policy. The process of determining whether there
is an indicator for impairment or calculating the impairment
requires critical estimation.
The key areas in which management has applied judgement
and estimation are as follows: the Group’s intention to
proceed with a future work programme for a prospect or
licence; the likelihood of licence renewal or extension; and the
success of a well result or geological or geophysical survey.
• Carrying value of property, plant and equipment
(note 12):
Management performs impairment reviews on the Group’s
property, plant and equipment assets at least annually
with reference to indicators in IAS 36 Impairment of
Assets. Where indicators are present and an impairment
test is required, the calculation of the recoverable amount
requires estimation of future cash flows within complex
impairment models.
Key assumptions and estimates in the impairment models
relate to: commodity prices that are based on forward curves
for two years, the mid-term price assumption for three years
after this and the long-term corporate economic assumptions
thereafter, pre-tax discount rates that are adjusted to reflect
risks specific to individual assets, commercial reserves and
the related cost profiles.
•
Commercial reserves estimates used in the calculation of
DD&A and impairment of property, plant and equipment
(note 12):
Proven and probable reserves are estimates of the amount of
oil and gas that can be economically extracted from
the Group’s oil and gas assets. The Group estimates
its reserves using standard recognised evaluation techniques.
The estimate is reviewed at least twice annually by
management and is regularly reviewed
by independent consultants.
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(ah) Key sources of estimation uncertainty continued
Proven and probable reserves are determined using
estimates of oil and gas in place, recovery factors and future
commodity prices, the latter having an impact on the total
amount of recoverable reserves and the proportion of the
gross reserves which are attributable to host governments
under the terms of the Production Sharing Contracts. Future
development costs are estimated taking into account the level
of development required to produce the reserves by reference
to operators, where applicable, and internal engineers.
•
Presumption of going concern:
The Group closely monitors and manages its liquidity risk.
Cash forecasts are regularly produced and sensitivities run
for different scenarios including, but not limited to, changes in
commodity prices and different production rates from the
Group’s producing assets. In the currently low commodity
price environment, the Group has taken appropriate action to
reduce its cost base and had $1.0 billion of debt liquidity
headroom and free cash at the end of 2016. The Group’s
forecasts show that the Group will be able to operate within
its current debt facilities and have sufficient financial
headroom for the 12 months from the date of approval of the
2016 Annual Report and Accounts.
Notwithstanding our forecasts of liquidity headroom
throughout the 12-month period, risk remains in relation to
the volatility of the oil price environment, operational
performance of the Group’s assets, their impact on operating
cash flows and the Group‘s currently contracted debt maturity
profiles, such that the Group’s liquidity position may
deteriorate within the assessment period.
To mitigate these risks and to fulfil the Group’s objective to
reduce net debt, the Group continues to closely monitor cash
flow projections and will take mitigating actions in advance to
maintain our liquidity. Actions available to the Group include
additional funding options, further rationalisation of our cost
base, including cuts to discretionary capital expenditure, and
portfolio management.
Based on the analysis above and the level of mitigating actions
available, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational
existence for the foreseeable future. Thus they continue to
adopt the going concern basis of accounting in preparing the
annual Financial Statements.
• Decommissioning costs (note 23):
Decommissioning costs are uncertain and cost estimates can
vary in response to many factors, including changes
to the relevant legal requirements, the emergence of new
technology or experience at other assets. The expected
timing, work scope, amount of expenditure and risk weighting
may also change. Therefore significant estimates and
assumptions are made in determining the provision
for decommissioning.
The estimated decommissioning costs are reviewed annually
by an internal expert and the results of this
review are then assessed alongside estimates from
Operators. Provision for environmental clean-up and
remediation costs is based on current legal and contractual
requirements, technology and price levels.
•
Provisions for onerous service contracts (note 23):
Due to the reduction in planned future work programmes the
Group has identified a number of onerous service contracts. In
order to calculate the provisions management has estimated
the expected future usage of the contracts and its estimated
liability under the contract.
www.tullowoil.com 125
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
•
Provisions for onerous service contracts (note 23):
Due to the reduction in planned future work programmes the
Group has identified a number of onerous service contracts. In
order to calculate the provisions management has estimated
the expected future usage of the contracts and its estimated
liability under the contract.
ACCOUNTING POLICIES CONTINUED
YEAR ENDED 31 DECEMBER 2016
(ac) Financial liabilities and equity instruments
The critical judgement in determining that the assets were
Financial liabilities and equity instruments are classified
held for sale was regarding the point that management were
according to the substance of the contractual arrangements
committed to the sale. The sales and purchase agreement
entered into.
(ad) Equity instruments
was signed after the balance sheet date on 9 January 2017;
however, the Board had approved the transaction in
December 2016, at which point the sale was highly probable.
An equity instrument is any contract that evidences a residual
If management had concluded that the sale was not highly
interest in the assets of the Group after deducting all of its
probable this would result in the reclassification of $829.7
liabilities. Equity instruments issued by the Group are
million assets held for sale back into intangible exploration
recorded at the proceeds received, net of direct
and evaluations assets.
issue costs.
(ae) Other financial liabilities
(ah) Key sources of estimation uncertainty
The key assumptions concerning the future, and other
Other financial liabilities, including borrowings, are initially
key sources of estimation uncertainty at the balance
measured at fair value, net of transaction costs. Other
sheet date, that have a significant risk of causing a material
financial liabilities are subsequently measured at amortised
adjustment to the carrying amounts of assets and liabilities
cost using the effective interest method, with interest expense
within the next financial year, are discussed below.
recognised on an effective yield basis.
(af) Insurance proceeds
•
Carrying value of intangible exploration and evaluation
assets (note 11):
Insurance proceeds related to lost production under the
The amounts for intangible exploration and evaluation assets
Business Interruption insurance policy are recorded as other
represent active exploration projects. These amounts will be
operating income in the income statement. Proceeds related
written off to the income statement as exploration costs
to compensation for incremental operating costs under the
unless commercial reserves are established or the
Business Interruption and Hull and Machinery insurance
determination process is not completed and there are no
policies are recorded within the operating costs line of cost of
indications of impairment in accordance with the Group’s
sales. Proceeds related to compensation for capital costs
accounting policy. The process of determining whether there
under the Hull and Machinery insurance policy where no asset
is an indicator for impairment or calculating the impairment
is disposed are recorded within additions to property, plant
requires critical estimation.
and equipment.
(ag) Critical accounting judgements
The Group assesses critical accounting judgements annually.
The following are the critical judgements, apart from those
involving estimations which are dealt with in policy (ah),
that the Directors have made in the process of applying the
Group’s accounting policies and that have the most significant
(note 12):
effect on the amounts recognised in the Financial Statements.
• Recognition of finance lease liabilities:
The Group has a contract with a supplier for the lease of
the TEN field (Ghana) FPSO. Management was required to
exercise judgement determining whether the FPSO should be
recognised as a finance lease in accordance with IAS 17 as at
31 December 2016.
The key judgement involved in determining that a finance
lease should not be recognised was assessment of key
contractual clauses that due to the delays in commissioning
and the fact that the Certificate of Offshore Completion was
not issued before 31 December 2016 the non-cancellable
lease period had not commenced and the Group had not
obtained the right of use of the vessel in its intended form.
The key areas in which management has applied judgement
and estimation are as follows: the Group’s intention to
proceed with a future work programme for a prospect or
licence; the likelihood of licence renewal or extension; and the
success of a well result or geological or geophysical survey.
• Carrying value of property, plant and equipment
Management performs impairment reviews on the Group’s
property, plant and equipment assets at least annually
with reference to indicators in IAS 36 Impairment of
Assets. Where indicators are present and an impairment
test is required, the calculation of the recoverable amount
requires estimation of future cash flows within complex
impairment models.
Key assumptions and estimates in the impairment models
relate to: commodity prices that are based on forward curves
for two years, the mid-term price assumption for three years
after this and the long-term corporate economic assumptions
thereafter, pre-tax discount rates that are adjusted to reflect
risks specific to individual assets, commercial reserves and
the related cost profiles.
Therefore commencement of the lease had not occurred and
the finance lease asset and liability were not recognised at the
Commercial reserves estimates used in the calculation of
DD&A and impairment of property, plant and equipment
•
balance sheet date. If management had concluded the
(note 12):
recognition criteria had been met then a $1.6 billion finance
lease would have been recognised on the balance sheet.
•
Recognition of assets held for sale (note 18):
The Group signed a sales and purchase agreement for farm-
down of a portion of its interest in Uganda to Total on 9
January 2017. Management has exercised judgement in
determining that this disposal met the requirements of IFRS 5
and that the associated assets and liabilities should be
transferred to held for sale.
Proven and probable reserves are estimates of the amount of
oil and gas that can be economically extracted from
the Group’s oil and gas assets. The Group estimates
its reserves using standard recognised evaluation techniques.
The estimate is reviewed at least twice annually by
management and is regularly reviewed
by independent consultants.
(ah) Key sources of estimation uncertainty continued
Proven and probable reserves are determined using
estimates of oil and gas in place, recovery factors and future
commodity prices, the latter having an impact on the total
amount of recoverable reserves and the proportion of the
gross reserves which are attributable to host governments
under the terms of the Production Sharing Contracts. Future
development costs are estimated taking into account the level
of development required to produce the reserves by reference
to operators, where applicable, and internal engineers.
•
Presumption of going concern:
The Group closely monitors and manages its liquidity risk.
Cash forecasts are regularly produced and sensitivities run
for different scenarios including, but not limited to, changes in
commodity prices and different production rates from the
Group’s producing assets. In the currently low commodity
price environment, the Group has taken appropriate action to
reduce its cost base and had $1.0 billion of debt liquidity
headroom and free cash at the end of 2016. The Group’s
forecasts show that the Group will be able to operate within
its current debt facilities and have sufficient financial
headroom for the 12 months from the date of approval of the
2016 Annual Report and Accounts.
Notwithstanding our forecasts of liquidity headroom
throughout the 12-month period, risk remains in relation to
the volatility of the oil price environment, operational
performance of the Group’s assets, their impact on operating
cash flows and the Group‘s currently contracted debt maturity
profiles, such that the Group’s liquidity position may
deteriorate within the assessment period.
To mitigate these risks and to fulfil the Group’s objective to
reduce net debt, the Group continues to closely monitor cash
flow projections and will take mitigating actions in advance to
maintain our liquidity. Actions available to the Group include
additional funding options, further rationalisation of our cost
base, including cuts to discretionary capital expenditure, and
portfolio management.
Based on the analysis above and the level of mitigating actions
available, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational
existence for the foreseeable future. Thus they continue to
adopt the going concern basis of accounting in preparing the
annual Financial Statements.
• Decommissioning costs (note 23):
Decommissioning costs are uncertain and cost estimates can
vary in response to many factors, including changes
to the relevant legal requirements, the emergence of new
technology or experience at other assets. The expected
timing, work scope, amount of expenditure and risk weighting
may also change. Therefore significant estimates and
assumptions are made in determining the provision
for decommissioning.
The estimated decommissioning costs are reviewed annually
by an internal expert and the results of this
review are then assessed alongside estimates from
Operators. Provision for environmental clean-up and
remediation costs is based on current legal and contractual
requirements, technology and price levels.
124 Tullow Oil plc 2016 Annual Report and Accounts
125
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NOTES TO GROUP FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 1. Segmental reporting
The information reported to the Group’s Chief Executive Officer for the purposes of resource allocation and assessment of
segment performance is focused on three Business Delivery Teams, West Africa (including non-operated producing European
assets), East Africa and New Ventures. Therefore the Group’s reportable segments under IFRS 8 are West Africa; East Africa;
and New Ventures. The following tables present revenue, loss and certain asset and liability information regarding the Group’s
reportable business segments for the years ended 31 December 2016 and 31 December 2015.
2016
Sales revenue by origin
Other operating income – lost production
insurance proceeds
Segment result
Loss on disposal
Unallocated corporate expenses
Operating loss
Gain on hedging instruments
Finance revenue
Finance costs
Loss before tax
Income tax credit
Loss after tax
Total assets
Total liabilities
Notes
West Africa
$m
East Africa
$m
New Ventures
$m
Unallocated
$m
Total
$m
1,269.9
–
–
–
–
–
–
1,269.9
90.1
90.1
269.9
(341.0)
(512.3)
(39.2)
(622.6)
(3.4)
(128.7)
(754.7)
18.2
26.4
(198.2)
(908.3)
311.0
(597.3)
7,701.7
2,383.5
467.2
249.3
10,801.7
(3,200.9)
(157.6)
(142.0)
(5,058.7)
(8,559.2)
Other segment information
Capital expenditure:
Property, plant and equipment
Intangible exploration and evaluation assets
Depreciation, depletion and amortisation
Impairment of property, plant and equipment
Exploration costs written off
Goodwill impairment
12
11
12
12
11
10
817.0
9.9
(450.4)
(167.2)
(7.7)
–
0.3
137.4
(0.9)
–
(341.0)
–
0.4
144.1
(1.0)
(0.4)
(374.3)
(164.0)
0.8
–
(14.6)
–
–
–
818.5
291.4
(466.9)
(167.6)
(723.0)
(164.0)
All sales are to external customers. Included in revenue arising from West Africa are revenues of approximately
$213.0 million and $92.7 million relating to the Group’s largest customers (2015: $314.9 million and $164.2 million relating to
the Group’s largest customers). As the sales of oil and gas are made on global markets and are highly liquid, the Group does
not place reliance on the largest customers mentioned above.
Unallocated expenditure and net liabilities include amounts of a corporate nature and not specifically attributable
to a reportable segment. The liabilities comprise the Group’s external debt and other non-attributable corporate liabilities. The
unallocated capital expenditure for the period comprises the acquisition of non-attributable
corporate assets.
Note 1. Segmental reporting continued
2015
Sales revenue by origin
Segment result
Loss on disposal
Unallocated corporate expenses
Operating loss
Loss on hedging instruments
Finance revenue
Finance costs
Loss before tax
Income tax credit
Loss after tax
Total assets
Total liabilities
Congo
Côte d’Ivoire
Equatorial Guinea
Gabon
Ghana
Mauritania
Netherlands
UK
Other
Kenya
Uganda
Norway
Other
Total West Africa
Total East Africa
Total New Ventures
Unallocated
West Africa
East Africa
New Ventures
Unallocated
Notes
$m
1,606.6
$m
–
$m
–
$m
Total
$m
–
1,606.6
(189.7)
(28.3)
(461.2)
(123.6)
(802.8)
(56.5)
(234.4)
(1,093.7)
(58.8)
4.2
(149.0)
(1,297.3)
260.4
(1,036.9)
626.3
(580.1)
(406.0)
(748.9)
(53.7)
assets
2015
$m
12.2
159.1
218.6
234.5
–
115.5
6.0
0.5
5,637.4
880.6
1,593.5
2,474.1
474.8
297.7
772.5
108.8
7,510.5
2,601.6
1,011.2
224.5
11,347.8
(3,085.8)
(341.4)
(331.8)
(4,414.1)
(8,173.1)
11.2
1,258.2
0.5
399.6
(1.1)
–
(28.3)
–
2016
$m
22.8
61.3
141.4
241.2
666.6
23.9
31.5
81.2
–
–
–
–
–
–
–
–
1.5
203.6
(1.2)
–
(340.6)
(53.7)
2015
$m
39.7
91.8
176.1
284.3
869.1
18.9
57.5
69.2
–
–
–
–
–
–
–
–
(24.6)
–
–
–
–
assets
2016
$m
–
108.6
166.1
206.0
–
113.0
0.4
–
936.9
489.1
1,426.0
12.1
264.1
276.2
80.3
1,269.9
1,606.6
5,782.9
5,188.8
4,891.0
Other segment information
Capital expenditure:
Property, plant and equipment
Intangible exploration and evaluation assets
Depreciation, depletion and amortisation
Impairment of property, plant and equipment
Exploration costs written off
Goodwill impairment
12
11
12
12
11
10
1,245.0
23.1
(553.2)
(406.0)
(380.0)
–
Sales revenue and non-current assets by origin
Sales revenue
Sales revenue
Non-current
Non-current
Total revenue / non-current assets
1,269.9
1,606.6
7,565.4
8,992.8
Non-current assets excludes derivative financial instruments and deferred tax assets.
126
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 2016
Note 1. Segmental reporting
The information reported to the Group’s Chief Executive Officer for the purposes of resource allocation and assessment of
segment performance is focused on three Business Delivery Teams, West Africa (including non-operated producing European
assets), East Africa and New Ventures. Therefore the Group’s reportable segments under IFRS 8 are West Africa; East Africa;
and New Ventures. The following tables present revenue, loss and certain asset and liability information regarding the Group’s
reportable business segments for the years ended 31 December 2016 and 31 December 2015.
West Africa
East Africa
New Ventures
Unallocated
Notes
$m
$m
$m
$m
Total
$m
1,269.9
–
–
–
–
–
–
1,269.9
90.1
90.1
269.9
(341.0)
(512.3)
(39.2)
2016
Sales revenue by origin
Other operating income – lost production
insurance proceeds
Segment result
Loss on disposal
Unallocated corporate expenses
Operating loss
Gain on hedging instruments
Finance revenue
Finance costs
Loss before tax
Income tax credit
Loss after tax
Total assets
Total liabilities
7,701.7
2,383.5
467.2
249.3
10,801.7
(3,200.9)
(157.6)
(142.0)
(5,058.7)
(8,559.2)
Other segment information
Capital expenditure:
Property, plant and equipment
Intangible exploration and evaluation assets
Depreciation, depletion and amortisation
Impairment of property, plant and equipment
Exploration costs written off
Goodwill impairment
12
11
12
12
11
10
817.0
9.9
(450.4)
(167.2)
(7.7)
–
0.3
137.4
(0.9)
–
(341.0)
–
0.4
144.1
(1.0)
(0.4)
(374.3)
(164.0)
0.8
–
(14.6)
–
–
–
818.5
291.4
(466.9)
(167.6)
(723.0)
(164.0)
All sales are to external customers. Included in revenue arising from West Africa are revenues of approximately
$213.0 million and $92.7 million relating to the Group’s largest customers (2015: $314.9 million and $164.2 million relating to
the Group’s largest customers). As the sales of oil and gas are made on global markets and are highly liquid, the Group does
not place reliance on the largest customers mentioned above.
Unallocated expenditure and net liabilities include amounts of a corporate nature and not specifically attributable
to a reportable segment. The liabilities comprise the Group’s external debt and other non-attributable corporate liabilities. The
unallocated capital expenditure for the period comprises the acquisition of non-attributable
corporate assets.
(622.6)
(3.4)
(128.7)
(754.7)
18.2
26.4
(198.2)
(908.3)
311.0
(597.3)
Note 1. Segmental reporting continued
2015
Sales revenue by origin
Segment result
Loss on disposal
Unallocated corporate expenses
Operating loss
Loss on hedging instruments
Finance revenue
Finance costs
Loss before tax
Income tax credit
Loss after tax
Total assets
Total liabilities
Other segment information
Capital expenditure:
Property, plant and equipment
Intangible exploration and evaluation assets
Depreciation, depletion and amortisation
Impairment of property, plant and equipment
Exploration costs written off
Goodwill impairment
Sales revenue and non-current assets by origin
Congo
Côte d’Ivoire
Equatorial Guinea
Gabon
Ghana
Mauritania
Netherlands
UK
Other
Total West Africa
Kenya
Uganda
Total East Africa
Norway
Other
Total New Ventures
Unallocated
Notes
West Africa
$m
East Africa
$m
New Ventures
$m
Unallocated
$m
Total
$m
1,606.6
–
–
–
1,606.6
(189.7)
(28.3)
(461.2)
(123.6)
(802.8)
(56.5)
(234.4)
(1,093.7)
(58.8)
4.2
(149.0)
(1,297.3)
260.4
(1,036.9)
7,510.5
2,601.6
1,011.2
224.5
11,347.8
(3,085.8)
(341.4)
(331.8)
(4,414.1)
(8,173.1)
12
11
12
12
11
10
1,245.0
23.1
(553.2)
(406.0)
(380.0)
–
0.5
399.6
(1.1)
–
(28.3)
–
1.5
203.6
(1.2)
–
(340.6)
(53.7)
11.2
–
(24.6)
–
–
–
1,258.2
626.3
(580.1)
(406.0)
(748.9)
(53.7)
Sales revenue
2016
$m
Sales revenue
2015
$m
Non-current
assets
2016
$m
Non-current
assets
2015
$m
22.8
61.3
141.4
241.2
666.6
23.9
31.5
81.2
–
1,269.9
–
–
–
–
–
–
–
39.7
91.8
176.1
284.3
869.1
18.9
57.5
69.2
–
1,606.6
–
–
–
–
–
–
–
–
108.6
166.1
206.0
5,188.8
–
113.0
0.4
–
5,782.9
936.9
489.1
1,426.0
12.1
264.1
276.2
80.3
12.2
159.1
218.6
234.5
4,891.0
–
115.5
6.0
0.5
5,637.4
880.6
1,593.5
2,474.1
474.8
297.7
772.5
108.8
Total revenue / non-current assets
1,269.9
1,606.6
7,565.4
8,992.8
Non-current assets excludes derivative financial instruments and deferred tax assets.
126 Tullow Oil plc 2016 Annual Report and Accounts
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NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 2. Total revenue
Sales revenue (excluding tariff income)
Oil and gas revenue from the sale of goods
Gain on realisation of cash flow hedges
Tariff income
Total sales revenue
Other operating income – lost production insurance proceeds
Finance revenue
Total revenue
Notes
2016
$m
2015
$m
21
6
886.2
363.0
1,249.2
20.7
1,269.9
90.1
26.4
1,225.6
365.2
1,590.8
15.8
1,606.6
–
4.2
1,386.4
1,610.8
Note 3. Staff costs
The average monthly number of employees and contractors (including Executive Directors) employed by the Group worldwide was:
Administration
Technical
Total
Staff costs in respect of those employees were as follows:
Salaries
Social security costs
Pension costs
2016
Number
2015
Number
628
710
785
928
1,338
1,713
2016
$m
203.3
7.5
16.6
2015
$m
325.5
13.0
20.9
227.4
359.4
The decrease in staff costs is due to decreased employee numbers as a result of the Major Simplification Project. A proportion
of the Group’s staff costs shown above is recharged to the Group’s Joint Venture partners, a proportion is allocated to operating
costs and a proportion is capitalised into the cost of fixed assets under the Group’s accounting policy for exploration, evaluation
and production assets with the remainder classified as an administrative overhead cost in the income statement. The net staff
cost recognised in the income statement was $59.8 million (2015: $124.7 million).
Details of Directors’ remuneration, Directors’ transactions and Directors’ interests are set out in the part of the
Directors’ Remuneration Report described as having been audited, which forms part of these Financial Statements.
Note 4. Other costs
Operating loss is stated after charging:
Operating costs
Operating lease payments
Depletion and amortisation of oil and gas assets
Underlift, overlift and oil stock movements
Share-based payment charge included in cost of sales
Other cost of sales
Total cost of sales
Share-based payment charge included in administrative expenses
Depreciation of other fixed assets
Relocation costs associated with Major Simplification Project
Cash administrative costs
Total administrative expenses
Total restructuring costs
Fees payable to the Company’s auditor for:
The audit of the Company’s annual accounts
The audit of the Company’s subsidiaries pursuant to legislation
Audit-related assurance services – half-year review
Total audit services
Non-audit services:
Tax compliance services
Corporate finance services
Other services
Total non-audit services
Total
128
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Notes
2016
$m
2015
$m
12
27
27
12
23
813.1
1,015.3
377.2
21.0
448.5
(76.5)
2.7
40.2
41.2
18.4
(0.5)
57.3
116.4
12.3
0.3
1.8
2.1
0.4
–
–
0.2
0.6
2.7
406.3
–
551.2
(1.5)
0.8
58.5
47.9
28.9
5.9
110.9
193.6
40.8
0.4
2.1
2.5
0.4
0.1
0.1
0.2
0.8
3.3
Notes
11,12
2016
$m
304.7
1.8
306.5
(138.8)
167.7
5.4
–
–
2015
$m
246.3
2.0
248.3
(160.1)
88.2
16.8
2.7
13.0
28.3
198.2
149.0
www.tullowoil.com 129
Fees payable to Deloitte LLP and their associates for non-audit services to the Company are not required to be
disclosed because the consolidated Financial Statements are required to disclose such fees on a consolidated basis.
Tax compliance services include assistance in connection with enquiries from local fiscal authorities. Other services include ad-
hoc assurance services in relation to the Group’s JV agreements. The ratio of audit services to non-audit services is 3.5:1.
Details of the Company’s policy on the use of the auditor for non-audit services, the reasons why the auditor was used
rather than another supplier and how the auditor’s independence and objectivity are safeguarded are set out in the
Audit Committee Report on pages 69 to 73. No services were provided pursuant to contingent fee arrangements.
Note 5. Finance costs
Interest on bank overdrafts and borrowings
Interest on obligations under finance leases
Total borrowing costs
Less amounts included in the cost of qualifying assets
Finance and arrangement fees
Other interest expense
Foreign exchange losses
Total finance costs
Unwinding of discount on decommissioning provisions
23
25.1
Borrowing costs included in the cost of qualifying assets during the year arose on the general borrowing pool and
are calculated by applying a capitalisation rate of 6.5% (2015: 6.15%) to cumulative expenditure on such assets.
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Note 2. Total revenue
Sales revenue (excluding tariff income)
Oil and gas revenue from the sale of goods
Gain on realisation of cash flow hedges
Other operating income – lost production insurance proceeds
Tariff income
Total sales revenue
Finance revenue
Total revenue
Note 3. Staff costs
Administration
Technical
Total
Salaries
Social security costs
Pension costs
Staff costs in respect of those employees were as follows:
Notes
2016
$m
2015
$m
21
6
886.2
363.0
1,225.6
365.2
1,249.2
1,590.8
20.7
15.8
1,269.9
1,606.6
90.1
26.4
–
4.2
1,386.4
1,610.8
2016
Number
2015
Number
628
710
785
928
1,338
1,713
2016
$m
203.3
7.5
16.6
2015
$m
325.5
13.0
20.9
227.4
359.4
The average monthly number of employees and contractors (including Executive Directors) employed by the Group worldwide was:
The decrease in staff costs is due to decreased employee numbers as a result of the Major Simplification Project. A proportion
of the Group’s staff costs shown above is recharged to the Group’s Joint Venture partners, a proportion is allocated to operating
costs and a proportion is capitalised into the cost of fixed assets under the Group’s accounting policy for exploration, evaluation
and production assets with the remainder classified as an administrative overhead cost in the income statement. The net staff
cost recognised in the income statement was $59.8 million (2015: $124.7 million).
Details of Directors’ remuneration, Directors’ transactions and Directors’ interests are set out in the part of the
Directors’ Remuneration Report described as having been audited, which forms part of these Financial Statements.
Note 4. Other costs
Operating loss is stated after charging:
Operating costs
Operating lease payments
Depletion and amortisation of oil and gas assets
Underlift, overlift and oil stock movements
Share-based payment charge included in cost of sales
Other cost of sales
Total cost of sales
Share-based payment charge included in administrative expenses
Depreciation of other fixed assets
Relocation costs associated with Major Simplification Project
Cash administrative costs
Total administrative expenses
Total restructuring costs
Fees payable to the Company’s auditor for:
The audit of the Company’s annual accounts
The audit of the Company’s subsidiaries pursuant to legislation
Total audit services
Non-audit services:
Audit-related assurance services – half-year review
Tax compliance services
Corporate finance services
Other services
Total non-audit services
Total
Notes
2016
$m
2015
$m
377.2
21.0
448.5
(76.5)
2.7
40.2
813.1
41.2
18.4
(0.5)
57.3
116.4
12.3
406.3
–
551.2
(1.5)
0.8
58.5
1,015.3
47.9
28.9
5.9
110.9
193.6
40.8
12
27
27
12
23
0.3
1.8
2.1
0.4
–
–
0.2
0.6
2.7
0.4
2.1
2.5
0.4
0.1
0.1
0.2
0.8
3.3
Fees payable to Deloitte LLP and their associates for non-audit services to the Company are not required to be
disclosed because the consolidated Financial Statements are required to disclose such fees on a consolidated basis.
Tax compliance services include assistance in connection with enquiries from local fiscal authorities. Other services include ad-
hoc assurance services in relation to the Group’s JV agreements. The ratio of audit services to non-audit services is 3.5:1.
Details of the Company’s policy on the use of the auditor for non-audit services, the reasons why the auditor was used
rather than another supplier and how the auditor’s independence and objectivity are safeguarded are set out in the
Audit Committee Report on pages 69 to 73. No services were provided pursuant to contingent fee arrangements.
Note 5. Finance costs
Interest on bank overdrafts and borrowings
Interest on obligations under finance leases
Total borrowing costs
Less amounts included in the cost of qualifying assets
Finance and arrangement fees
Other interest expense
Foreign exchange losses
Unwinding of discount on decommissioning provisions
Total finance costs
Notes
11,12
23
2016
$m
304.7
1.8
306.5
(138.8)
167.7
5.4
–
–
25.1
2015
$m
246.3
2.0
248.3
(160.1)
88.2
16.8
2.7
13.0
28.3
198.2
149.0
Borrowing costs included in the cost of qualifying assets during the year arose on the general borrowing pool and
are calculated by applying a capitalisation rate of 6.5% (2015: 6.15%) to cumulative expenditure on such assets.
128 Tullow Oil plc 2016 Annual Report and Accounts
129
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NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 6. Insurance proceeds
During 2016 the Group issued insurance claims in respect of the Jubilee turret remediation project. Insurance proceeds of
$145.0 million were recorded in the year ended 31 December 2016 (2015: $nil). Proceeds related to lost production under the
Business Interruption insurance policy of $90.1 million (2015 $nil) were recorded as other operating income – lost production
insurance proceeds in the income statement. Proceeds related to compensation for incremental operating costs under the
Business Interruption and Hull and Machinery insurance policies of $31.8 million (2015: $nil) were recorded within the
operating costs line of cost of sales (see note 4). Proceeds related to compensation for capital costs under the Hull and
Machinery insurance policy of $23.1 million (2015: $nil) were recorded within additions to property, plant and equipment
(see note 12).
Note 7. Taxation on loss on ordinary activities continued
Factors affecting tax credit for the period
The tax rate applied to profit on ordinary activities in preparing the reconciliation below is the UK corporation tax rate applicable
to the Group’s non-upstream UK profits. The difference between the total current tax credit shown above and the amount
calculated by applying the standard rate of UK corporation tax applicable to UK profits of 20% (2015: 20%) to the loss before tax
is as follows:
Note 7. Taxation on loss on ordinary activities
Analysis of credit for the year
Notes
2016
$m
2015
$m
Tax on Group loss on ordinary activities at the standard UK corporation
tax rate of 20% (2015: 20%)
Group loss on ordinary activities before tax
Current tax
UK corporation tax
Foreign tax
Total corporate tax
UK petroleum revenue tax
Total current tax
Deferred tax
UK corporation tax
Foreign tax
Total deferred corporate tax
Deferred UK petroleum revenue tax
Total deferred tax
Total tax credit
67.3
(18.5)
48.8
(1.1)
(3.5)
94.9
91.4
(0.3)
47.7
91.1
9.4
(369.8)
(360.4)
1.7
6.9
(354.0)
(347.1)
(4.4)
24
(358.7)
(351.5)
(311.0)
(260.4)
Effects of:
Non-deductible exploration expenditure
Other non-deductible expenses
Derecognition of deferred tax previously recognised
Impairment of goodwill
Utilisation – tax losses not previously recognised
Net losses not recognised
Petroleum revenue tax (PRT)
UK corporation tax deductions for current PRT
Adjustment relating to prior years
Adjustments to deferred tax relating to change in tax rates
Higher rate of taxation on Norway losses
Other tax rates applicable outside the UK and Norway
PSC income not subject to corporation tax
Uganda capital gains tax
Tax incentives for investment
Group total tax credit for the year
2016
$m
2015
$m
(908.3)
(1,297.3)
(181.7)
(259.5)
25.8
22.7
30.2
127.9
(9.5)
61.7
(6.7)
–
(2.1)
(0.8)
(286.4)
(86.8)
(1.6)
–
(3.7)
114.7
97.7
10.7
–
–
15.8
(4.4)
2.2
(14.9)
(1.0)
(132.7)
(164.6)
(28.5)
108.2
(4.1)
(311.0)
(260.4)
The Finance Act 2016 further reduced the main rate of UK corporation tax applicable to all companies subject to corporation
tax, except for those within the oil and gas ring fence, to 19% from 1 April 2017 and 17% from 1 April 2020. These changes were
substantively enacted on 6 September 2016 and hence the effect of the change on the deferred tax balances has been included,
depending upon when deferred tax is expected to reverse.
The Group’s profit before taxation will continue to arise in jurisdictions where the effective rate of taxation differs from that in
the UK. Furthermore, unsuccessful exploration expenditure is often incurred in jurisdictions where the Group
has no taxable profits, such that no related tax benefit arises. Accordingly, the Group’s tax charge will continue to
vary according to the jurisdictions in which pre-tax profits and exploration costs written off arise.
The Group has tax losses of $2,844.0 million (2015: $1,802.0 million) that are available for offset against future taxable profits in
the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they may
not be used to offset taxable profits elsewhere in the Group due to uncertainty of recovery.
No deferred tax liability is recognised on temporary differences of $8.2 million (2015: $8.5 million) relating to unremitted
earnings of overseas subsidiaries as the Group is able to control the timing of the reversal of these temporary differences and it
is probable that they will not reverse in the foreseeable future.
Tax relating to components of other comprehensive income
During 2016 $108.8 million (2015: $42.3 million) of tax has been recognised through other comprehensive income
of which $107.8 million (2015: $43.2 million) is current and $0.9 million (2015: $0.9 million) is deferred tax relating
to all credits (2015: charges) on cash flow hedges arising in the year.
As at 31 December 2016, current tax assets were $138.3 million (2015: $127.6 million) of which $90.0 million
(2015: $55.0 million) relates to Norway, where 78% of exploration expenditure is refunded as a tax refund in the year following
Current tax assets
the incurrence of such expenditure.
130
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Note 6. Insurance proceeds
During 2016 the Group issued insurance claims in respect of the Jubilee turret remediation project. Insurance proceeds of
$145.0 million were recorded in the year ended 31 December 2016 (2015: $nil). Proceeds related to lost production under the
Business Interruption insurance policy of $90.1 million (2015 $nil) were recorded as other operating income – lost production
insurance proceeds in the income statement. Proceeds related to compensation for incremental operating costs under the
Business Interruption and Hull and Machinery insurance policies of $31.8 million (2015: $nil) were recorded within the
operating costs line of cost of sales (see note 4). Proceeds related to compensation for capital costs under the Hull and
Machinery insurance policy of $23.1 million (2015: $nil) were recorded within additions to property, plant and equipment
(see note 12).
Note 7. Taxation on loss on ordinary activities
Analysis of credit for the year
Current tax
UK corporation tax
Foreign tax
Total corporate tax
UK petroleum revenue tax
Total current tax
Deferred tax
UK corporation tax
Foreign tax
Total deferred corporate tax
Deferred UK petroleum revenue tax
Total deferred tax
Total tax credit
67.3
(18.5)
48.8
(1.1)
(3.5)
94.9
91.4
(0.3)
47.7
91.1
9.4
(369.8)
(360.4)
1.7
6.9
(354.0)
(347.1)
(4.4)
24
(358.7)
(351.5)
(311.0)
(260.4)
Note 7. Taxation on loss on ordinary activities continued
Factors affecting tax credit for the period
The tax rate applied to profit on ordinary activities in preparing the reconciliation below is the UK corporation tax rate applicable
to the Group’s non-upstream UK profits. The difference between the total current tax credit shown above and the amount
calculated by applying the standard rate of UK corporation tax applicable to UK profits of 20% (2015: 20%) to the loss before tax
is as follows:
Notes
2016
$m
2015
$m
Tax on Group loss on ordinary activities at the standard UK corporation
tax rate of 20% (2015: 20%)
Group loss on ordinary activities before tax
Effects of:
Non-deductible exploration expenditure
Other non-deductible expenses
Derecognition of deferred tax previously recognised
Impairment of goodwill
Utilisation – tax losses not previously recognised
Net losses not recognised
Petroleum revenue tax (PRT)
UK corporation tax deductions for current PRT
Adjustment relating to prior years
Adjustments to deferred tax relating to change in tax rates
Higher rate of taxation on Norway losses
Other tax rates applicable outside the UK and Norway
PSC income not subject to corporation tax
Uganda capital gains tax
Tax incentives for investment
2016
$m
2015
$m
(908.3)
(1,297.3)
(181.7)
(259.5)
25.8
22.7
30.2
127.9
(9.5)
61.7
(6.7)
–
(2.1)
(0.8)
(286.4)
(86.8)
(1.6)
–
(3.7)
114.7
97.7
–
10.7
–
15.8
(4.4)
2.2
(14.9)
(1.0)
(132.7)
(164.6)
(28.5)
108.2
(4.1)
Group total tax credit for the year
(311.0)
(260.4)
The Finance Act 2016 further reduced the main rate of UK corporation tax applicable to all companies subject to corporation
tax, except for those within the oil and gas ring fence, to 19% from 1 April 2017 and 17% from 1 April 2020. These changes were
substantively enacted on 6 September 2016 and hence the effect of the change on the deferred tax balances has been included,
depending upon when deferred tax is expected to reverse.
The Group’s profit before taxation will continue to arise in jurisdictions where the effective rate of taxation differs from that in
the UK. Furthermore, unsuccessful exploration expenditure is often incurred in jurisdictions where the Group
has no taxable profits, such that no related tax benefit arises. Accordingly, the Group’s tax charge will continue to
vary according to the jurisdictions in which pre-tax profits and exploration costs written off arise.
The Group has tax losses of $2,844.0 million (2015: $1,802.0 million) that are available for offset against future taxable profits in
the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they may
not be used to offset taxable profits elsewhere in the Group due to uncertainty of recovery.
No deferred tax liability is recognised on temporary differences of $8.2 million (2015: $8.5 million) relating to unremitted
earnings of overseas subsidiaries as the Group is able to control the timing of the reversal of these temporary differences and it
is probable that they will not reverse in the foreseeable future.
Tax relating to components of other comprehensive income
During 2016 $108.8 million (2015: $42.3 million) of tax has been recognised through other comprehensive income
of which $107.8 million (2015: $43.2 million) is current and $0.9 million (2015: $0.9 million) is deferred tax relating
to all credits (2015: charges) on cash flow hedges arising in the year.
Current tax assets
As at 31 December 2016, current tax assets were $138.3 million (2015: $127.6 million) of which $90.0 million
(2015: $55.0 million) relates to Norway, where 78% of exploration expenditure is refunded as a tax refund in the year following
the incurrence of such expenditure.
130 Tullow Oil plc 2016 Annual Report and Accounts
131
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NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 8. Loss per ordinary share
Basic loss per ordinary share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders of
the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted loss per ordinary share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders of
the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number
of ordinary shares that would be issued if employee and other share options or the convertible bonds were converted into
ordinary shares. Due to losses made in 2016 and 2015 all potential ordinary shares are antidilutive.
Note 10. Goodwill continued
Key assumptions
During 2016, sales agreements were signed for a number of the Group’s Norwegian licences with the remainder being
relinquished. As a result, the related exploration and evaluation assets were written down to their fair values, which were equal
to the consideration per the sales agreements, at 31 December 2016. These fair values did not support the remaining goodwill
recorded that arose from the acquisition of Spring Energy.
Note 11. Intangible exploration and evaluation assets
Loss
Net loss attributable to equity shareholders
Effect of dilutive potential ordinary shares
Diluted net loss attributable to equity shareholders
Number of shares
Basic weighted average number of shares
Dilutive potential ordinary shares
Diluted weighted average number of shares
2016
$m
2015
$m
(599.9)
–
(1,034.8)
–
(599.9)
(1,034.8)
2016
Number
2015
Number
911,936,308
121,082,933
911,252,238
25,070,398
1,033,019,241
936,322,636
Note 9. Disposals
The divestment of the Norway business is progressing well with two deals completed before year end and one in January 2017.
Four licences, including the Wisting oil discovery, have been sold to Statoil, eight licences, including the Oda asset, have been
sold to Aker BP ASA and two further licences have been sold to ConocoPhillips. A further two sales were executed in December
2016 with two separate parties. These sales, covering a further 13 licences and which include the 2016 Cara oil and gas
discovery, are on track to complete in the first quarter of 2017. In aggregate, the Norway asset sales are expected to yield
proceeds of up to $0.2 billion. Once completed, the Group will no longer hold any licences on the Norwegian Continental Shelf.
These plus other disposals result in an income statement loss of $3.4 million and a cash inflow of $62.8 million.
On 30 April 2015, Tullow completed the sale of its operated and non-operated interests in the L12/15 area and Blocks Q4 and Q5
to AU Energy. The consideration was €64 million ($53.5 million), producing a profit after tax of $7.4 million and a loss before tax
of $46.3 million. On 5 June 2015, Tullow completed the farm-down to GDF Suez E&P Nederland of 30% equity and the
operatorship of Exploration Licences E10, E11 (including Tullow’s Vincent discovery), E14, E15c and E18b. These plus other
disposals result in an income statement loss of $56.5 million and a cash inflow of $55.8 million.
Note 10. Goodwill
At 1 January
Impairment
At 31 December
Related deferred tax at 31 December
Goodwill net of associated deferred tax
2016
$m
164.0
(164.0)
–
–
–
2015
$m
217.7
(53.7)
164.0
(89.0)
75.0
The Group’s goodwill of $350.5 million arose from the acquisition of Spring Energy in 2013 and is allocated to the group
of cash-generating units (CGUs) that represent the assets acquired. Goodwill is tested for impairment annually as at
31 December and when circumstances indicate that the carrying value may be impaired. The goodwill balance results solely
from the requirement to recognise a deferred tax liability on an acquisition, calculated as the difference between the tax effect
of the fair value of the acquired assets and liabilities and their tax bases. As a result, for the purposes of testing goodwill for
impairment, the related deferred tax liabilities recognised on acquisition are included in the group
of CGUs. The above table details the net impact of goodwill and the related deferred tax on the CGU.
In assessing goodwill for impairment the Group has compared the carrying value of goodwill and the carrying value of the
related group of CGUs with the recoverable amounts of those CGUs. The carrying value of goodwill and the related group of
CGUs together was $171.4 million (2015: $264.5 million) and the recoverable amount, assessed as fair value less cost to sell, of
the CGUs was $7.4 million (2015: $210.8 million), resulting in an impairment of $164.0 million (2015: $53.7 million). The
cumulative impairment is $350.5 million (2015: $186.5 million).
Write-off associated with Norway-contingent consideration provision
At 1 January
Additions
Disposals
Amounts written-off
Net transfer to assets held for sale
Transfer to property, plant and equipment
Currency translation adjustments
At 31 December
Notes
2016
$m
2015
$m
3,400.0
3,660.8
1
9
18
12
291.4
–
(723.0)
(36.5)
(912.3)
–
6.2
626.3
(5.2)
(748.9)
–
–
(63.6)
(69.4)
2,025.8
3,400.0
Included within 2016 additions is $50.2 million (note 5) of capitalised interest (2015: $49.7 million). The Group only capitalises
interest in respect of intangible exploration and evaluation assets where it is considered that development is ongoing.
The below table provides a summary of the exploration costs written off on a pre and post-tax basis by country.
Country
Ethiopia
Gabon
Ghana
Guinea
Greenland
Kenya
Madagascar
Mauritania
Mozambique
Netherlands
Norway
Pakistan
Suriname
Uganda
Other
New Ventures
Total write-off
CGU
Country
Arouwe licence
New Ventures
Blocks 10A & L8
Blocks C6, C7 & C18
Licence E18 & F16
Country
Country
Country
Country
Country
Kup well
Country
Various
Various
a, b, c, d, e
Block 31 & Coronie
b, c
2016
2016
Current year
Prior year
Rationale for
expenditure
expenditure
written off
written off
2016
write-off
$m
2016
Post-tax
write-off
2016
Pre-tax
write-off
Remaining
recoverable
amount
2016
$m
b, d
b, c
b
b
f
b
b
b
b
b
a
e
b
f
$m
1.9
1.0
2.3
5.6
1.0
(2.6)
4.1
0.2
(1.0)
0.8
17.8
1.9
1.3
–
4.9
18.4
–
–
–
–
–
–
–
–
–
–
21.5
9.3
61.0
8.8
18.0
$m
1.9
1.0
2.3
5.6
1.0
(2.6)
25.6
9.5
(1.0)
0.8
78.8
10.7
19.3
4.9
18.4
$m
1.9
1.6
3.5
5.6
1.0
(2.6)
25.6
9.5
(1.0)
1.5
286.9
10.7
19.3
4.9
24.2
57.6
366.4
424.0
723.0
–
–
–
–
–
–
–
–
–
–
–
–
–
49.0
7.1
247.8
247.8
330.4
453.1
a. Current year unsuccessful drilling results.
b. Current year expenditure and actualisation of accruals associated with CGUs previously written off.
c. Licence relinquishments.
d. Country exit.
e. Revision of value based on disposal/farm-down activities (note 18).
f. New Ventures expenditure is written off as incurred.
132
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Note 8. Loss per ordinary share
Basic loss per ordinary share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders of
the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted loss per ordinary share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders of
the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number
of ordinary shares that would be issued if employee and other share options or the convertible bonds were converted into
ordinary shares. Due to losses made in 2016 and 2015 all potential ordinary shares are antidilutive.
Loss
Net loss attributable to equity shareholders
Effect of dilutive potential ordinary shares
Diluted net loss attributable to equity shareholders
Number of shares
Basic weighted average number of shares
Dilutive potential ordinary shares
Diluted weighted average number of shares
Note 9. Disposals
Note 10. Goodwill
At 1 January
Impairment
At 31 December
Related deferred tax at 31 December
Goodwill net of associated deferred tax
The divestment of the Norway business is progressing well with two deals completed before year end and one in January 2017.
Four licences, including the Wisting oil discovery, have been sold to Statoil, eight licences, including the Oda asset, have been
sold to Aker BP ASA and two further licences have been sold to ConocoPhillips. A further two sales were executed in December
2016 with two separate parties. These sales, covering a further 13 licences and which include the 2016 Cara oil and gas
discovery, are on track to complete in the first quarter of 2017. In aggregate, the Norway asset sales are expected to yield
proceeds of up to $0.2 billion. Once completed, the Group will no longer hold any licences on the Norwegian Continental Shelf.
These plus other disposals result in an income statement loss of $3.4 million and a cash inflow of $62.8 million.
On 30 April 2015, Tullow completed the sale of its operated and non-operated interests in the L12/15 area and Blocks Q4 and Q5
to AU Energy. The consideration was €64 million ($53.5 million), producing a profit after tax of $7.4 million and a loss before tax
of $46.3 million. On 5 June 2015, Tullow completed the farm-down to GDF Suez E&P Nederland of 30% equity and the
operatorship of Exploration Licences E10, E11 (including Tullow’s Vincent discovery), E14, E15c and E18b. These plus other
disposals result in an income statement loss of $56.5 million and a cash inflow of $55.8 million.
2016
$m
2015
$m
(599.9)
(1,034.8)
–
–
(599.9)
(1,034.8)
2016
Number
2015
Number
911,936,308
911,252,238
121,082,933
25,070,398
1,033,019,241
936,322,636
2016
$m
164.0
(164.0)
–
–
–
2015
$m
217.7
(53.7)
164.0
(89.0)
75.0
The Group’s goodwill of $350.5 million arose from the acquisition of Spring Energy in 2013 and is allocated to the group
of cash-generating units (CGUs) that represent the assets acquired. Goodwill is tested for impairment annually as at
31 December and when circumstances indicate that the carrying value may be impaired. The goodwill balance results solely
from the requirement to recognise a deferred tax liability on an acquisition, calculated as the difference between the tax effect
of the fair value of the acquired assets and liabilities and their tax bases. As a result, for the purposes of testing goodwill for
impairment, the related deferred tax liabilities recognised on acquisition are included in the group
of CGUs. The above table details the net impact of goodwill and the related deferred tax on the CGU.
In assessing goodwill for impairment the Group has compared the carrying value of goodwill and the carrying value of the
related group of CGUs with the recoverable amounts of those CGUs. The carrying value of goodwill and the related group of
CGUs together was $171.4 million (2015: $264.5 million) and the recoverable amount, assessed as fair value less cost to sell, of
the CGUs was $7.4 million (2015: $210.8 million), resulting in an impairment of $164.0 million (2015: $53.7 million). The
cumulative impairment is $350.5 million (2015: $186.5 million).
Note 10. Goodwill continued
Key assumptions
During 2016, sales agreements were signed for a number of the Group’s Norwegian licences with the remainder being
relinquished. As a result, the related exploration and evaluation assets were written down to their fair values, which were equal
to the consideration per the sales agreements, at 31 December 2016. These fair values did not support the remaining goodwill
recorded that arose from the acquisition of Spring Energy.
Note 11. Intangible exploration and evaluation assets
At 1 January
Additions
Disposals
Amounts written-off
Write-off associated with Norway-contingent consideration provision
Net transfer to assets held for sale
Transfer to property, plant and equipment
Currency translation adjustments
At 31 December
Notes
1
9
18
12
2016
$m
3,400.0
291.4
–
(723.0)
(36.5)
(912.3)
–
6.2
2015
$m
3,660.8
626.3
(5.2)
(748.9)
–
–
(63.6)
(69.4)
2,025.8
3,400.0
Included within 2016 additions is $50.2 million (note 5) of capitalised interest (2015: $49.7 million). The Group only capitalises
interest in respect of intangible exploration and evaluation assets where it is considered that development is ongoing.
The below table provides a summary of the exploration costs written off on a pre and post-tax basis by country.
Country
Ethiopia
Gabon
Ghana
Guinea
Greenland
Kenya
Madagascar
Mauritania
Mozambique
Netherlands
Norway
Pakistan
Suriname
Uganda
Other
New Ventures
Total write-off
CGU
Country
Arouwe licence
New Ventures
Country
Country
Blocks 10A & L8
Country
Blocks C6, C7 & C18
Country
Licence E18 & F16
Country
Kup well
Block 31 & Coronie
Country
Various
Various
Rationale for
2016
write-off
b
b
f
b
b
b
b, d
b, c
b
b
a, b, c, d, e
a
b, c
e
b
f
2016
Current year
expenditure
written off
$m
2016
Prior year
expenditure
written off
$m
2016
Post-tax
write-off
$m
2016
Pre-tax
write-off
$m
2016
Remaining
recoverable
amount
$m
1.9
1.0
2.3
5.6
1.0
(2.6)
4.1
0.2
(1.0)
0.8
17.8
1.9
1.3
–
4.9
18.4
–
–
–
–
–
–
21.5
9.3
–
–
61.0
8.8
18.0
247.8
–
–
1.9
1.0
2.3
5.6
1.0
(2.6)
25.6
9.5
(1.0)
0.8
78.8
10.7
19.3
247.8
4.9
18.4
1.9
1.6
3.5
5.6
1.0
(2.6)
25.6
9.5
(1.0)
1.5
286.9
10.7
19.3
330.4
4.9
24.2
57.6
366.4
424.0
723.0
–
–
–
–
–
–
–
–
–
49.0
7.1
–
–
453.1
–
–
a. Current year unsuccessful drilling results.
b. Current year expenditure and actualisation of accruals associated with CGUs previously written off.
c. Licence relinquishments.
d. Country exit.
e. Revision of value based on disposal/farm-down activities (note 18).
f. New Ventures expenditure is written off as incurred.
132 Tullow Oil plc 2016 Annual Report and Accounts
133
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3www.tullowoil.com
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 12. Property, plant and equipment
Cost
At 1 January
Additions
Disposals
Transfer from intangible assets
Currency translation adjustments
At 31 December
Depreciation, depletion and amortisation
At 1 January
Charge for the year
Impairment loss
Reversal of impairment loss
Disposal
Currency translation adjustments
At 31 December
Net book value at 31 December
2016
Oil and gas
assets
$m
2016
Other fixed
assets
$m
Notes
2016
Total
$m
2015
Oil and gas
assets
$m
2015
Other fixed
assets
$m
2015
Total
$m
1,5
11
4
10,439.9
816.9
(276.1)
–
(208.2)
10,772.5
(5,360.0)
(448.5)
(184.3)
10.9
276.1
205.0
(5,500.8)
5,271.7
289.5
1.6
(2.7)
–
(36.5)
251.9
10,729.4
818.5
(278.8)
–
(244.7)
11,024.4
9,240.3
1,235.1
(6.2)
63.6
(92.9)
10,439.9
(165.0)
(18.4)
(0.4)
–
2.6
20.5
(160.7)
91.2
(5,525.0)
(466.9)
(184.7)
10.9
278.7
225.5
(5,661.5)
5,362.9
(4,489.1)
(551.2)
(467.2)
61.2
6.4
79.9
(5,360.0)
5,079.9
283.7
23.1
(3.6)
–
(13.7)
289.5
(147.9)
(28.9)
–
–
3.6
8.2
(165.0)
124.5
9,524.0
1,258.2
(9.8)
63.6
(106.6)
10,729.4
(4,637.0)
(580.1)
(467.2)
61.2
10.0
88.1
(5,525.0)
5,204.4
The 2016 additions include capitalised interest of $88.6 million (note 5) in respect of the TEN development project
(2015: $110.4 million). The carrying amount of the Group’s oil and gas assets includes an amount of $17.8 million
(2015: $27.4 million) in respect of assets held under finance leases. The currency translation adjustments arose due to the
movement against the Group’s presentation currency, USD, of the Group’s UK and Dutch assets which have functional currencies
of GBP and EUR respectively. The 2016 income statement impairment charge includes $6.2 million of insurance proceeds.
UK “CGU”d
Limande CGUe (Gabon)
Echira CGUe (Gabon)
Etame CGUe (Gabon)
Oba CGU e (Gabon)
M’boundi (Congo)
Espoir (Côte d’Ivoire)
TEN (Ghana)
Jubilee (Ghana)
Chinguetti (Mauritania)
Impairment
Trigger for
2016
impairment
2016
Impairment
$m
Pre-tax
discount rate
assumption Short-term price assumption
Mid-term
price
assumption
Long-term
price
assumption
b
a
a
a
a
a
a
a
c
b
48.0
3.1
2.2
1.5
(10.9)
6.4
12.3
97.0
3.7
10.1
173.4
n/a
13%
15%
13%
15%
12%
10%
10%
n/a
n/a
n/a
2 yr forward curve
2 yr forward curve
2 yr forward curve
2 yr forward curve
2 yr forward curve
2 yr forward curve
2 yr forward curve
n/a
n/a
n/a
$70/bbl
$70/bbl
$70/bbl
$70/bbl
$70/bbl
$70/bbl
$70/bbl
n/a
n/a
n/a
$90/bbl
$90/bbl
$90/bbl
$90/bbl
$90/bbl
$90/bbl
$90/bbl
n/a
n/a
a. Delay in estimated step up to oil and gas mid-term and long-term price assumptions (refer to accounting policy on significant estimates).
b. Increase in decommissioning estimate.
c. Impairment of a component of the asset which is covered by insurance proceeds.
d. The fields in the UK are grouped into one CGU as all fields within those countries share critical gas infrastructure.
e. The Limande, Echira, Etame and Oba CGUs in Gabon comprise a number of fields which share export infrastructure.
All impairment assessments are prepared on a value-in-use basis using discounted future cash flows based on
2P reserves profiles. The principal assumptions are oil price and the pre-tax discount rate, which are nominal. Oil prices
stated above are benchmark prices to which an individual field price differential is applied.
Based on the approximate volatility of the 2016 oil price, a reduction in the forward curve of $20/bbl is considered to be a
reasonably possible change for the purposes of sensitivity analysis. This would increase the impairment charge by $487.8 million.
A $15/bbl reduction in both the mid-term and the long-term price assumption assumed, which is based on the range seen
in external oil price market forecasts, would increase the impairment charge by $744.4 million.
A 1% increase in the pre-tax discount rate would increase the impairment by $129.3 million. The Group believes a 1% increase
in the pre-tax discount rate to be a reasonable possibility based on historical analysis of the Group’s and a peer group of
companies’ impairment discount rates.
The fair value of these investments is not materially different from their carrying value.
2016
$m
1.0
2015
$m
1.0
2016
$m
2015
$m
127.3
35.9
12.5
175.7
34.9
26.3
5.7
211.6
838.9
161.8
50.3
11.3
223.4
2.4
77.9
9.2
89.3
763.2
2016
$m
57.6
97.7
2015
$m
66.0
41.2
155.3
107.2
Note 13. Investments
Unlisted investments
Note 14. Other assets
Non-current
Amounts due from joint venture partners
Uganda VAT recoverable
Other non-current assets
Current
Underlifts
Prepayments
VAT and WHT recoverable
Other current assets
Note 15. Inventories
Warehouse stocks and materials
Oil stocks
included in exploration costs written off).
Note 16. Trade receivables
Note 17. Cash and cash equivalents
Cash at bank
Amounts due from joint venture partners
560.4
584.4
The decrease in amounts due from joint venture partners relates to the decrease in operated current liabilities, which
are recorded gross with the corresponding debit recognised as an amount due from joint venture partners, in Kenya
and Ghana. Other current assets have increased due to accrued insurance proceeds.
Inventories include a provision of $31.4 million (2015: $65.2 million) for warehouse stock and materials where it is considered
that the net realisable value is lower than the original cost. The decrease in the provision during 2016 is associated with
disposal of inventory provided for in previous periods, resulting in an income statement charge of $nil (2015: $22.2 million,
Trade receivables comprise amounts due for the sale of oil and gas. No current receivables are overdue, therefore none have
been impaired and no allowance for doubtful debt has been recognised (2015: $nil).
Cash and cash equivalents includes an amount of $140.9 million (2015: $169.5 million) which the Group holds as operator in
joint venture bank accounts. In addition to the cash held in joint venture bank accounts the Group has $20.3 million (2015: $16.1
million) held in restricted bank accounts.
Notes
2016
$m
21
281.9
2015
$m
355.7
134
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Note 12. Property, plant and equipment
Cost
At 1 January
Additions
Disposals
Transfer from intangible assets
Currency translation adjustments
At 31 December
Depreciation, depletion and amortisation
At 1 January
Charge for the year
Impairment loss
Reversal of impairment loss
Disposal
Currency translation adjustments
At 31 December
Net book value at 31 December
2016
2016
Oil and gas
Other fixed
assets
$m
assets
$m
Notes
2016
Total
$m
2015
2015
Oil and gas
Other fixed
assets
$m
assets
$m
2015
Total
$m
10,439.9
289.5
10,729.4
1,5
11
816.9
(276.1)
–
1.6
(2.7)
–
818.5
(278.8)
–
(208.2)
(36.5)
(244.7)
9,240.3
1,235.1
283.7
9,524.0
23.1
1,258.2
(6.2)
63.6
(92.9)
(3.6)
–
(9.8)
63.6
(13.7)
(106.6)
10,772.5
251.9
11,024.4
10,439.9
289.5
10,729.4
(5,360.0)
(165.0)
(5,525.0)
(4,489.1)
(147.9)
(4,637.0)
(448.5)
(184.3)
10.9
276.1
205.0
(18.4)
(0.4)
–
2.6
20.5
(466.9)
(184.7)
10.9
278.7
225.5
(551.2)
(467.2)
61.2
6.4
79.9
(28.9)
–
–
3.6
8.2
(580.1)
(467.2)
61.2
10.0
88.1
(5,500.8)
(160.7)
(5,661.5)
5,271.7
91.2
5,362.9
(5,360.0)
5,079.9
(165.0)
(5,525.0)
124.5
5,204.4
The 2016 additions include capitalised interest of $88.6 million (note 5) in respect of the TEN development project
(2015: $110.4 million). The carrying amount of the Group’s oil and gas assets includes an amount of $17.8 million
(2015: $27.4 million) in respect of assets held under finance leases. The currency translation adjustments arose due to the
movement against the Group’s presentation currency, USD, of the Group’s UK and Dutch assets which have functional currencies
of GBP and EUR respectively. The 2016 income statement impairment charge includes $6.2 million of insurance proceeds.
Trigger for
2016
Pre-tax
2016
Impairment
discount rate
Mid-term
Long-term
price
price
impairment
$m
assumption Short-term price assumption
assumption
assumption
UK “CGU”d
Limande CGUe (Gabon)
Echira CGUe (Gabon)
Etame CGUe (Gabon)
Oba CGU e (Gabon)
M’boundi (Congo)
Espoir (Côte d’Ivoire)
TEN (Ghana)
Jubilee (Ghana)
Chinguetti (Mauritania)
Impairment
48.0
3.1
2.2
1.5
(10.9)
6.4
12.3
97.0
3.7
10.1
173.4
n/a
13%
15%
13%
15%
12%
10%
10%
n/a
n/a
n/a
2 yr forward curve
2 yr forward curve
2 yr forward curve
2 yr forward curve
2 yr forward curve
2 yr forward curve
2 yr forward curve
n/a
n/a
n/a
$70/bbl
$70/bbl
$70/bbl
$70/bbl
$70/bbl
$70/bbl
$70/bbl
n/a
n/a
n/a
$90/bbl
$90/bbl
$90/bbl
$90/bbl
$90/bbl
$90/bbl
$90/bbl
n/a
n/a
4
b
a
a
a
a
a
a
a
c
b
a. Delay in estimated step up to oil and gas mid-term and long-term price assumptions (refer to accounting policy on significant estimates).
b. Increase in decommissioning estimate.
c. Impairment of a component of the asset which is covered by insurance proceeds.
d. The fields in the UK are grouped into one CGU as all fields within those countries share critical gas infrastructure.
e. The Limande, Echira, Etame and Oba CGUs in Gabon comprise a number of fields which share export infrastructure.
All impairment assessments are prepared on a value-in-use basis using discounted future cash flows based on
2P reserves profiles. The principal assumptions are oil price and the pre-tax discount rate, which are nominal. Oil prices
stated above are benchmark prices to which an individual field price differential is applied.
Based on the approximate volatility of the 2016 oil price, a reduction in the forward curve of $20/bbl is considered to be a
reasonably possible change for the purposes of sensitivity analysis. This would increase the impairment charge by $487.8 million.
A $15/bbl reduction in both the mid-term and the long-term price assumption assumed, which is based on the range seen
in external oil price market forecasts, would increase the impairment charge by $744.4 million.
A 1% increase in the pre-tax discount rate would increase the impairment by $129.3 million. The Group believes a 1% increase
in the pre-tax discount rate to be a reasonable possibility based on historical analysis of the Group’s and a peer group of
companies’ impairment discount rates.
Note 13. Investments
Unlisted investments
The fair value of these investments is not materially different from their carrying value.
Note 14. Other assets
Non-current
Amounts due from joint venture partners
Uganda VAT recoverable
Other non-current assets
Current
Amounts due from joint venture partners
Underlifts
Prepayments
VAT and WHT recoverable
Other current assets
2016
$m
1.0
2015
$m
1.0
2016
$m
2015
$m
127.3
35.9
12.5
175.7
560.4
34.9
26.3
5.7
211.6
838.9
161.8
50.3
11.3
223.4
584.4
2.4
77.9
9.2
89.3
763.2
The decrease in amounts due from joint venture partners relates to the decrease in operated current liabilities, which
are recorded gross with the corresponding debit recognised as an amount due from joint venture partners, in Kenya
and Ghana. Other current assets have increased due to accrued insurance proceeds.
Note 15. Inventories
Warehouse stocks and materials
Oil stocks
2016
$m
57.6
97.7
2015
$m
66.0
41.2
155.3
107.2
Inventories include a provision of $31.4 million (2015: $65.2 million) for warehouse stock and materials where it is considered
that the net realisable value is lower than the original cost. The decrease in the provision during 2016 is associated with
disposal of inventory provided for in previous periods, resulting in an income statement charge of $nil (2015: $22.2 million,
included in exploration costs written off).
Note 16. Trade receivables
Trade receivables comprise amounts due for the sale of oil and gas. No current receivables are overdue, therefore none have
been impaired and no allowance for doubtful debt has been recognised (2015: $nil).
Note 17. Cash and cash equivalents
Cash at bank
Notes
2016
$m
21
281.9
2015
$m
355.7
Cash and cash equivalents includes an amount of $140.9 million (2015: $169.5 million) which the Group holds as operator in
joint venture bank accounts. In addition to the cash held in joint venture bank accounts the Group has $20.3 million (2015: $16.1
million) held in restricted bank accounts.
134 Tullow Oil plc 2016 Annual Report and Accounts
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NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 18. Assets classified as held for sale
On 9 January 2017, Tullow announced that it had agreed a substantial farm-down of its assets in Uganda to Total. Under the
Sale and Purchase Agreement, Tullow has agreed to transfer 21.57% of its 33.33% Uganda interests to Total for a total
consideration of $900 million. Upon completion, the farm-down will leave Tullow with an 11.76% interest in the upstream and
pipeline projects. This is expected to reduce to a 10% interest in the upstream project when the Government of Uganda formally
exercises its back-in right. Although it has not yet been determined what interests the Governments of Uganda and Tanzania
will take in the pipeline project, Tullow expects its interests in the upstream and pipeline projects to be aligned.
The consideration is split into $200 million in cash, consisting of $100 million payable on completion of the transaction, $50
million payable at FID and $50 million payable at first oil. The remaining $700 million is in deferred consideration and
represents reimbursement by Total in cash of a proportion of Tullow’s past exploration and development costs. The deferred
consideration is payable to Tullow as the upstream and pipeline projects progress and these payments will be used by Tullow to
fund its share of the development costs. Tullow expects the deferred consideration to cover its share of upstream and pipeline
development capex to first oil and beyond. Completion of the transaction is subject to certain conditions, including the approval
of the Government of Uganda, after which Tullow will cease to be an operator in Uganda. The disposal is expected to complete
in 2017.
The estimated fair value of the consideration is $829.7 million which, when compared to the carrying value of the Group’s
interest in Uganda, resulted in an exploration write-off of $330.4 million. The fair value of the deferred consideration was
calculated using expected timing of receipts based on management’s best estimate of the expected capital profile of the project
discounted at Total’s cost of borrowing. This represents a level 3 financial asset.
The divestment of the Norway business is progressing well with two deals completed before year end and one in January 2017.
Four licences, including the Wisting oil discovery, have been sold to Statoil, eight licences, including the Oda asset, have been
sold to Aker BP ASA and two further licences have been sold to ConocoPhillips. A further two sales were executed in December
2016 with two separate parties. These sales, covering a further 13 licences and which include the 2016 Cara oil and gas
discovery, are on track to complete in the first quarter of 2017. In aggregate, the Norway asset sales are expected to yield
proceeds of up to $0.2 billion. Once completed, the Group will no longer hold any licences on the Norwegian Continental Shelf.
Combined with the transactions that completed in 2016, transfer to assets held for sale of the Norwegian assets was $82.6
million of which $7.4 million remained as held for sale at 31 December 2016.
The major classes of assets and liabilities comprising the assets classified as held for sale as at 31 December 2016 are as follows:
Intangible exploration and evaluation assets
Total assets classified as held for sale
Net assets of disposal groups
Note 19. Trade and other payables
Current liabilities
Trade payables
Other payables
Overlifts
Accruals
VAT and other similar taxes
Current portion of finance lease
Uganda
2016
$m
829.7
829.7
829.7
Notes
22
Norway
2016
$m
7.4
7.4
7.4
2016
$m
46.9
124.6
6.9
721.2
14.6
1.9
916.1
Total
2016
$m
837.1
837.1
837.1
2015
$m
24.0
61.2
3.7
993.3
26.9
1.5
1,110.6
Payables related to operated joint ventures (primarily related to Ghana and Kenya) are recorded gross with the debit
representing the partners’ share recognised in amounts due from joint venture partners (note 14). The increase in
trade payables and in other payables predominantly represents timing differences.
Non-current liabilities
Other non-current liabilities
Non-current portion of finance lease
Trade and other payables are non-interest bearing except for finance leases (note 22).
Notes
22
2016
$m
87.7
24.6
112.3
2015
$m
72.8
26.5
99.3
Note 20. Borrowings
Current
Short-term borrowings – Revolving Norwegian Exploration Finance facility
Bank loans – Reserve-Based lending credit facility
Non-current
Bank borrowings – after one year but within two years
Reserve-Based lending credit facility
Revolving credit facility
Bank borrowings – after two years but within five years
Reserve-Based lending credit facility
6.0% Senior Notes due 2020
6.25% Senior Notes due 2022
6.625% Convertible bonds due 2021
Carrying value of total borrowings
2016
$m
2015
$m
83.4
508.1
591.5
59.6
14.2
73.8
906.2
364.6
800.0
–
1,561.7
2,165.6
647.6
651.0
257.3
646.4
650.4
–
4,388.4
4,979.9
4,262.4
4,336.2
The Group has provided security in respect of certain of these borrowings in the form of share pledges, as well as fixed and
floating charges over the assets of the Group.
During the year, the commitments on the Reserve-Based lending credit facility (RBL) were reduced from $3,700 million to
$3,255 million in line with the amortisation schedule. The Company also secured $345 million of new commitments on this
facility from our existing lenders which will take effect from 1 April 2017 by exercising an accordion facility.
The facility incurs interest on outstanding debt at Sterling or US dollar LIBOR plus an applicable margin. The outstanding debt
is repayable in line with the amortisation of bank commitments over the period to the final maturity date of 6 November 2019,
or such time as is determined by reference to the remaining reserves of the assets, whichever is earlier.
In April 2016, the Company agreed a 12 month extension to the maturity of the Revolving credit facility (RCF) to April 2018.
The commitments remain at $1 billion until April 2017, when commitments reduce to $800 million. The facility incurs interest
on outstanding debt at US dollar LIBOR plus an applicable margin.
In July 2016, the Company completed an offering of $300 million of convertible bonds due in 2021, with a coupon of 6.625% per
annum payable semi-annually. The net proceeds were used for general corporate purposes and to fund capital investment.
The bonds are convertible into fully paid ordinary shares of the Company at a fixed exchange price of $3.52 during the
conversion period, subject to customary adjustment provisions.
At initial recognition, the liability and equity component of the convertible bonds have been separately recognised, and the
carrying value of the liability component as at 31 December 2016 is $257.3 million. The equity component at initial recognition
is $48.4 million, and is not subsequently remeasured. Transaction costs are apportioned between the liability and the equity
components of the instrument based on the amounts initially recognised.
In December 2016, the commitments on the Revolving Norwegian Exploration Finance facility (EFF) were reduced from NOK
2,250 million to NOK 1,000 million. The facility is used to finance certain exploration activities on the Norwegian Continental
Shelf which are eligible for a tax refund. The facility is available for drawings until 31 December 2017, and its final maturity date
is either the date when the 2017 tax reimbursement claims are received or 31 December 2018, whichever is the earlier. The
facility incurs interest on outstanding debt at NIBOR plus an applicable margin.
At 31 December 2016, the undrawn borrowings under the three facilities amounted to $875 million; $255 million under the RBL,
$620 million under the RCF and $nil under the EFF. At 31 December 2015, the available headroom under the three facilities
amounted to $1,686 million; $686 million under the RBL, $1,000 million under the RCF and $nil under the EFF.
Capital management
The Group defines capital as the total equity and net debt of the Group. Capital is managed in order to provide returns for
shareholders and benefits to stakeholders and to safeguard the Group’s ability to continue as a going concern. Tullow is not
subject to any externally imposed capital requirements. To maintain or adjust the capital structure, the Group may put in place
new debt facilities, issue new shares for cash, repay debt, engage in active portfolio management, adjust the dividend payment
to shareholders, or undertake other such restructuring activities as appropriate. No significant changes were made to the
capital management objectives, policies or processes during the year ended 31 December 2016. The Group monitors capital
on the basis of the net debt to adjusted EBITDAX ratio; a summary of this calculation can be found in the finance review on
page 36.
136
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
On 9 January 2017, Tullow announced that it had agreed a substantial farm-down of its assets in Uganda to Total. Under the
Sale and Purchase Agreement, Tullow has agreed to transfer 21.57% of its 33.33% Uganda interests to Total for a total
consideration of $900 million. Upon completion, the farm-down will leave Tullow with an 11.76% interest in the upstream and
pipeline projects. This is expected to reduce to a 10% interest in the upstream project when the Government of Uganda formally
exercises its back-in right. Although it has not yet been determined what interests the Governments of Uganda and Tanzania
will take in the pipeline project, Tullow expects its interests in the upstream and pipeline projects to be aligned.
The consideration is split into $200 million in cash, consisting of $100 million payable on completion of the transaction, $50
million payable at FID and $50 million payable at first oil. The remaining $700 million is in deferred consideration and
represents reimbursement by Total in cash of a proportion of Tullow’s past exploration and development costs. The deferred
consideration is payable to Tullow as the upstream and pipeline projects progress and these payments will be used by Tullow to
fund its share of the development costs. Tullow expects the deferred consideration to cover its share of upstream and pipeline
development capex to first oil and beyond. Completion of the transaction is subject to certain conditions, including the approval
of the Government of Uganda, after which Tullow will cease to be an operator in Uganda. The disposal is expected to complete
in 2017.
The estimated fair value of the consideration is $829.7 million which, when compared to the carrying value of the Group’s
interest in Uganda, resulted in an exploration write-off of $330.4 million. The fair value of the deferred consideration was
calculated using expected timing of receipts based on management’s best estimate of the expected capital profile of the project
discounted at Total’s cost of borrowing. This represents a level 3 financial asset.
The divestment of the Norway business is progressing well with two deals completed before year end and one in January 2017.
Four licences, including the Wisting oil discovery, have been sold to Statoil, eight licences, including the Oda asset, have been
sold to Aker BP ASA and two further licences have been sold to ConocoPhillips. A further two sales were executed in December
2016 with two separate parties. These sales, covering a further 13 licences and which include the 2016 Cara oil and gas
discovery, are on track to complete in the first quarter of 2017. In aggregate, the Norway asset sales are expected to yield
proceeds of up to $0.2 billion. Once completed, the Group will no longer hold any licences on the Norwegian Continental Shelf.
Combined with the transactions that completed in 2016, transfer to assets held for sale of the Norwegian assets was $82.6
million of which $7.4 million remained as held for sale at 31 December 2016.
The major classes of assets and liabilities comprising the assets classified as held for sale as at 31 December 2016 are as follows:
Intangible exploration and evaluation assets
Total assets classified as held for sale
Net assets of disposal groups
Note 19. Trade and other payables
Current liabilities
Trade payables
Other payables
Overlifts
Accruals
VAT and other similar taxes
Current portion of finance lease
Non-current liabilities
Other non-current liabilities
Non-current portion of finance lease
Payables related to operated joint ventures (primarily related to Ghana and Kenya) are recorded gross with the debit
representing the partners’ share recognised in amounts due from joint venture partners (note 14). The increase in
trade payables and in other payables predominantly represents timing differences.
Trade and other payables are non-interest bearing except for finance leases (note 22).
Uganda
Norway
2016
$m
829.7
829.7
829.7
Notes
2016
$m
7.4
7.4
7.4
2016
$m
46.9
124.6
6.9
721.2
14.6
1.9
Total
2016
$m
837.1
837.1
837.1
2015
$m
24.0
61.2
3.7
993.3
26.9
1.5
22
916.1
1,110.6
Notes
22
2016
$m
87.7
24.6
112.3
2015
$m
72.8
26.5
99.3
Note 18. Assets classified as held for sale
Note 20. Borrowings
Current
Short-term borrowings – Revolving Norwegian Exploration Finance facility
Bank loans – Reserve-Based lending credit facility
Non-current
Bank borrowings – after one year but within two years
Reserve-Based lending credit facility
Revolving credit facility
Bank borrowings – after two years but within five years
Reserve-Based lending credit facility
6.0% Senior Notes due 2020
6.25% Senior Notes due 2022
6.625% Convertible bonds due 2021
Carrying value of total borrowings
2016
$m
2015
$m
83.4
508.1
591.5
59.6
14.2
73.8
906.2
364.6
800.0
–
1,561.7
647.6
651.0
257.3
4,388.4
4,979.9
2,165.6
646.4
650.4
–
4,262.4
4,336.2
The Group has provided security in respect of certain of these borrowings in the form of share pledges, as well as fixed and
floating charges over the assets of the Group.
During the year, the commitments on the Reserve-Based lending credit facility (RBL) were reduced from $3,700 million to
$3,255 million in line with the amortisation schedule. The Company also secured $345 million of new commitments on this
facility from our existing lenders which will take effect from 1 April 2017 by exercising an accordion facility.
The facility incurs interest on outstanding debt at Sterling or US dollar LIBOR plus an applicable margin. The outstanding debt
is repayable in line with the amortisation of bank commitments over the period to the final maturity date of 6 November 2019,
or such time as is determined by reference to the remaining reserves of the assets, whichever is earlier.
In April 2016, the Company agreed a 12 month extension to the maturity of the Revolving credit facility (RCF) to April 2018.
The commitments remain at $1 billion until April 2017, when commitments reduce to $800 million. The facility incurs interest
on outstanding debt at US dollar LIBOR plus an applicable margin.
In July 2016, the Company completed an offering of $300 million of convertible bonds due in 2021, with a coupon of 6.625% per
annum payable semi-annually. The net proceeds were used for general corporate purposes and to fund capital investment.
The bonds are convertible into fully paid ordinary shares of the Company at a fixed exchange price of $3.52 during the
conversion period, subject to customary adjustment provisions.
At initial recognition, the liability and equity component of the convertible bonds have been separately recognised, and the
carrying value of the liability component as at 31 December 2016 is $257.3 million. The equity component at initial recognition
is $48.4 million, and is not subsequently remeasured. Transaction costs are apportioned between the liability and the equity
components of the instrument based on the amounts initially recognised.
In December 2016, the commitments on the Revolving Norwegian Exploration Finance facility (EFF) were reduced from NOK
2,250 million to NOK 1,000 million. The facility is used to finance certain exploration activities on the Norwegian Continental
Shelf which are eligible for a tax refund. The facility is available for drawings until 31 December 2017, and its final maturity date
is either the date when the 2017 tax reimbursement claims are received or 31 December 2018, whichever is the earlier. The
facility incurs interest on outstanding debt at NIBOR plus an applicable margin.
At 31 December 2016, the undrawn borrowings under the three facilities amounted to $875 million; $255 million under the RBL,
$620 million under the RCF and $nil under the EFF. At 31 December 2015, the available headroom under the three facilities
amounted to $1,686 million; $686 million under the RBL, $1,000 million under the RCF and $nil under the EFF.
Capital management
The Group defines capital as the total equity and net debt of the Group. Capital is managed in order to provide returns for
shareholders and benefits to stakeholders and to safeguard the Group’s ability to continue as a going concern. Tullow is not
subject to any externally imposed capital requirements. To maintain or adjust the capital structure, the Group may put in place
new debt facilities, issue new shares for cash, repay debt, engage in active portfolio management, adjust the dividend payment
to shareholders, or undertake other such restructuring activities as appropriate. No significant changes were made to the
capital management objectives, policies or processes during the year ended 31 December 2016. The Group monitors capital
on the basis of the net debt to adjusted EBITDAX ratio; a summary of this calculation can be found in the finance review on
page 36.
136 Tullow Oil plc 2016 Annual Report and Accounts
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Note 21. Financial instruments continued
Offset of financial assets and financial liabilities
Deferred premiums on derivatives are settled at the same time as the maturity of the derivative contracts, with the cash flows
settled on a net basis. Netting agreements are also in place to enable the Group and its counterparties to set-off liabilities
against available assets in the event that either party is unable to fulfil its contractual obligations. The following table provides
the offsetting relationship within assets and liabilities in the balance sheet.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 21. Financial instruments
Financial risk management objectives
The Group is exposed to a variety of risks including commodity price risk, interest rate risk, credit risk, foreign currency risk
and liquidity risk. The Group holds a portfolio of commodity derivative contracts, with various counterparties, covering its
underlying oil and gas businesses. The Group holds a mix of fixed and floating rate debt as well as a portfolio of interest rate
derivatives. The use of derivative financial instruments (derivatives) is governed by the Group’s policies approved by the Board
of Directors. Compliance with policies and exposure limits are monitored and reviewed internally on a regular basis. The Group
does not enter into or trade financial instruments, including derivatives, for speculative purposes.
Fair values of financial assets and liabilities
With the exception of the Senior Notes and the convertible bonds, the Group considers the carrying value of all its financial
assets and liabilities to be materially the same as their fair value. The fair value of the Senior Notes, as determined using
market values at 31 December 2016, was $1,223.1 million (2015: $884.0 million) compared to carrying values of $1,555.9 million
(2015: $1,296.8 million).
The fair value of the convertible bonds, as determined using market values, as at 31 December 2016, was $395.5 million (2015: $nil)
compared to the carrying value of $257.3 million.
The Group has no material financial assets that are past due. No financial assets are impaired at the balance sheet date. All
financial assets and liabilities with the exception of derivatives are measured at amortised cost.
Fair values of derivative instruments
All derivatives are recognised at fair value on the balance sheet with valuation changes recognised immediately in the income
statement, unless the derivatives have been designated as a cash flow hedge. Fair value is the amount for which the asset or
liability could be exchanged in an arm’s length transaction at the relevant date. Where available, fair values are determined
using quoted prices in active markets. To the extent that market prices are not available, fair values are estimated by reference
to market-based transactions, or using standard valuation techniques for the applicable instruments and commodities involved.
The Group’s derivative carrying and fair values were as follows:
31 December 2016
Derivative assets
Derivative liabilities
Deferred premiums
31 December 2015
Derivative assets
Derivative liabilities
Deferred premiums
Commodity price risk
Assets/liabilities
Cash flow hedges
Oil derivatives
Gas derivatives
Interest rate derivatives
Deferred premium
Oil derivatives
Total assets
Total liabilities
2016
Less than
1 year
$m
139.7
(1.4)
(1.0)
137.3
2016
1-3
years
$m
40.2
–
0.6
40.8
2016
Total
$m
2015
Less than
1 year
$m
179.9
(1.4)
(0.4)
178.1
458.9
1.1
(2.1)
457.9
2015
1-3
years
$m
265.2
–
1.1
266.3
2015
Total
$m
724.1
1.1
(1.0)
724.2
(51.5)
(51.5)
(35.9)
(35.9)
(87.4)
(87.4)
(53.5)
(53.5)
(47.6)
(47.6)
(101.1)
(101.1)
91.7
15.8
107.5
406.5
218.7
625.2
Oil volume (bopd)
(5.9)
(10.9)
(16.8)
(2.1)
–
(2.1)
Derivatives’ maturity and the timing of their recycling into income or expense coincide.
The following provides an analysis of the Group’s financial instruments measured at fair value, grouped into Levels
1 to 3 based on the degree to which the fair value is observable:
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1
which are observable for the asset or liability, either directly or indirectly; and
Level 3: fair value measurements are those derived from valuation techniques which include inputs for the asset
or liability that are not based on observable market data.
All the Group’s derivatives are Level 2 (2015: Level 2). There were no transfers between fair value levels during the year.
For financial instruments which are recognised on a recurring basis, the Group determines whether transfers have occurred
between levels by reassessing categorisation (based on the lowest-level input which is significant to the fair value
measurement as a whole) at the end of each reporting period.
Hedging position as at 31 December 2016
Average floor price protected ($/bbl)
Gas volume (mmscfd)
Average floor price protected (p/therm)
Hedging position as at 31 December 2015
Oil volume (bopd)
Average floor price protected ($/bbl)
Gas volume (mmscfd)
Average floor price protected (p/therm)
Brent oil price
Brent oil price
UK D-1 Heren and M-1 Heren natural gas price
UK D-1 Heren and M-1 Heren natural gas price
138
138 Tullow Oil plc 2016 Annual Report and Accounts
_1Q_Statement_Directors_Response_TLW_AR16_CG_2.indd 33
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The Group uses a number of derivatives to mitigate the commodity price risk associated with its underlying oil and gas
revenues. Such commodity derivatives will tend to be priced using benchmarks, such as Dated Brent, D-1 Heren and M-1
Heren, which correlate as far as possible to the underlying oil and gas revenues respectively. The Group hedges its estimated
oil and gas revenues on a portfolio basis, aggregating its oil revenues from substantially all of its African oil interests and its
gas revenues from substantially all of its UK gas interests.
As at 31 December 2016 and 31 December 2015, all of the Group’s oil and gas derivatives have been designated as cash flow
hedges. The Group’s oil and gas hedges have been assessed to be ‘highly effective’ within the range prescribed under IAS 39
using regression analysis. There is, however, the potential for a degree of ineffectiveness inherent in the Group’s oil hedges
arising from, among other factors, the discount on the Group’s underlying African crude relative to Brent and the timing of oil
liftings relative to the hedges. There is also the potential for a degree of ineffectiveness inherent in the Group’s gas hedges
which arises from, among other factors, daily field production performance.
The following table demonstrates the timing, volumes and the average floor price protected for the Group’s commodity hedges:
The following table demonstrates the sensitivity of the Group’s derivative financial instruments to reasonable possible
movements in Dated Brent oil price and UK D-1 Heren and M-1 Heren natural gas prices:
recognised
balance sheet
balance sheet
Gross
amounts
Net amounts
offset in
presented in
Group
Group
$m
(58.2)
(29.2)
87.4
$m
107.5
(16.8)
–
Gross
amounts
$m
165.7
12.4
(87.4)
Gross
amounts
offset in
Group
Net amounts
presented in
Group
Gross
amounts
recognised
balance sheet
balance sheet
$m
$m
726.3
(2.1)
(101.1)
(101.1)
–
101.1
$m
625.2
(2.1)
–
2017
2018
22,000
51.88
2016
2017
23,000
72.94
42,500
60.23
3.67
40.47
36,511
75.15
0.61
63.00
–
–
–
–
2019
7,979
45.53
–
–
2018
9,500
62.09
–
–
Market
movement
25%
(25%)
25%
(25%)
Effect on equity
2016
$m
(145.0)
183.6
(2.3)
2.3
2015
$m
(256.5)
286.0
(0.3)
0.3
www.tullowoil.com 139
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Note 21. Financial instruments
Financial risk management objectives
The Group is exposed to a variety of risks including commodity price risk, interest rate risk, credit risk, foreign currency risk
and liquidity risk. The Group holds a portfolio of commodity derivative contracts, with various counterparties, covering its
underlying oil and gas businesses. The Group holds a mix of fixed and floating rate debt as well as a portfolio of interest rate
derivatives. The use of derivative financial instruments (derivatives) is governed by the Group’s policies approved by the Board
of Directors. Compliance with policies and exposure limits are monitored and reviewed internally on a regular basis. The Group
does not enter into or trade financial instruments, including derivatives, for speculative purposes.
Fair values of financial assets and liabilities
With the exception of the Senior Notes and the convertible bonds, the Group considers the carrying value of all its financial
assets and liabilities to be materially the same as their fair value. The fair value of the Senior Notes, as determined using
market values at 31 December 2016, was $1,223.1 million (2015: $884.0 million) compared to carrying values of $1,555.9 million
(2015: $1,296.8 million).
The fair value of the convertible bonds, as determined using market values, as at 31 December 2016, was $395.5 million (2015: $nil)
compared to the carrying value of $257.3 million.
The Group has no material financial assets that are past due. No financial assets are impaired at the balance sheet date. All
financial assets and liabilities with the exception of derivatives are measured at amortised cost.
Fair values of derivative instruments
All derivatives are recognised at fair value on the balance sheet with valuation changes recognised immediately in the income
statement, unless the derivatives have been designated as a cash flow hedge. Fair value is the amount for which the asset or
liability could be exchanged in an arm’s length transaction at the relevant date. Where available, fair values are determined
using quoted prices in active markets. To the extent that market prices are not available, fair values are estimated by reference
to market-based transactions, or using standard valuation techniques for the applicable instruments and commodities involved.
The Group’s derivative carrying and fair values were as follows:
Assets/liabilities
Cash flow hedges
Oil derivatives
Gas derivatives
Interest rate derivatives
Deferred premium
Oil derivatives
Total assets
Total liabilities
2016
Less than
1 year
$m
2016
1-3
years
$m
2016
Total
$m
2015
Less than
1 year
$m
2015
1-3
years
$m
2015
Total
$m
139.7
40.2
179.9
458.9
265.2
724.1
(1.4)
(1.0)
–
0.6
(1.4)
(0.4)
1.1
(2.1)
–
1.1
1.1
(1.0)
137.3
40.8
178.1
457.9
266.3
724.2
(51.5)
(51.5)
(35.9)
(35.9)
(87.4)
(87.4)
(53.5)
(53.5)
(47.6)
(47.6)
(101.1)
(101.1)
91.7
15.8
107.5
406.5
218.7
625.2
(5.9)
(10.9)
(16.8)
(2.1)
–
(2.1)
Derivatives’ maturity and the timing of their recycling into income or expense coincide.
The following provides an analysis of the Group’s financial instruments measured at fair value, grouped into Levels
1 to 3 based on the degree to which the fair value is observable:
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1
which are observable for the asset or liability, either directly or indirectly; and
Level 3: fair value measurements are those derived from valuation techniques which include inputs for the asset
or liability that are not based on observable market data.
All the Group’s derivatives are Level 2 (2015: Level 2). There were no transfers between fair value levels during the year.
For financial instruments which are recognised on a recurring basis, the Group determines whether transfers have occurred
between levels by reassessing categorisation (based on the lowest-level input which is significant to the fair value
measurement as a whole) at the end of each reporting period.
138 Tullow Oil plc 2016 Annual Report and Accounts
Note 21. Financial instruments continued
Offset of financial assets and financial liabilities
Deferred premiums on derivatives are settled at the same time as the maturity of the derivative contracts, with the cash flows
settled on a net basis. Netting agreements are also in place to enable the Group and its counterparties to set-off liabilities
against available assets in the event that either party is unable to fulfil its contractual obligations. The following table provides
the offsetting relationship within assets and liabilities in the balance sheet.
31 December 2016
Derivative assets
Derivative liabilities
Deferred premiums
31 December 2015
Derivative assets
Derivative liabilities
Deferred premiums
Gross
amounts
offset in
Group
balance sheet
$m
Net amounts
presented in
Group
balance sheet
$m
Gross
amounts
recognised
$m
165.7
12.4
(87.4)
(58.2)
(29.2)
87.4
107.5
(16.8)
–
Gross
amounts
offset in
Group
balance sheet
$m
Net amounts
presented in
Group
balance sheet
$m
Gross
amounts
recognised
$m
726.3
(2.1)
(101.1)
(101.1)
–
101.1
625.2
(2.1)
–
Commodity price risk
The Group uses a number of derivatives to mitigate the commodity price risk associated with its underlying oil and gas
revenues. Such commodity derivatives will tend to be priced using benchmarks, such as Dated Brent, D-1 Heren and M-1
Heren, which correlate as far as possible to the underlying oil and gas revenues respectively. The Group hedges its estimated
oil and gas revenues on a portfolio basis, aggregating its oil revenues from substantially all of its African oil interests and its
gas revenues from substantially all of its UK gas interests.
As at 31 December 2016 and 31 December 2015, all of the Group’s oil and gas derivatives have been designated as cash flow
hedges. The Group’s oil and gas hedges have been assessed to be ‘highly effective’ within the range prescribed under IAS 39
using regression analysis. There is, however, the potential for a degree of ineffectiveness inherent in the Group’s oil hedges
arising from, among other factors, the discount on the Group’s underlying African crude relative to Brent and the timing of oil
liftings relative to the hedges. There is also the potential for a degree of ineffectiveness inherent in the Group’s gas hedges
which arises from, among other factors, daily field production performance.
The following table demonstrates the timing, volumes and the average floor price protected for the Group’s commodity hedges:
Hedging position as at 31 December 2016
Oil volume (bopd)
Average floor price protected ($/bbl)
Gas volume (mmscfd)
Average floor price protected (p/therm)
Hedging position as at 31 December 2015
Oil volume (bopd)
Average floor price protected ($/bbl)
Gas volume (mmscfd)
Average floor price protected (p/therm)
2017
2018
42,500
60.23
3.67
40.47
22,000
51.88
–
–
2016
2017
36,511
75.15
0.61
63.00
23,000
72.94
–
–
2019
7,979
45.53
–
–
2018
9,500
62.09
–
–
The following table demonstrates the sensitivity of the Group’s derivative financial instruments to reasonable possible
movements in Dated Brent oil price and UK D-1 Heren and M-1 Heren natural gas prices:
Brent oil price
Brent oil price
UK D-1 Heren and M-1 Heren natural gas price
UK D-1 Heren and M-1 Heren natural gas price
Market
movement
25%
(25%)
25%
(25%)
Effect on equity
2016
$m
(145.0)
183.6
(2.3)
2.3
2015
$m
(256.5)
286.0
(0.3)
0.3
139
www.tullowoil.com 139
_1Q_Statement_Directors_Response_TLW_AR16_CG_2.indd 34
28/02/2017 14:01:54
3www.tullowoil.com
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 21. Financial instruments continued
Commodity price risk continued
The following assumptions have been used in calculating the sensitivity in movement of oil and gas prices: the pricing
adjustments relate only to the point forward mark-to-market (MTM) valuations, the price sensitivities assume there is no
ineffectiveness related to the oil and gas hedges and the sensitivities have been run only on the intrinsic element of the hedge
as management considers this to be the material component of oil and gas hedge valuations.
Fair value movements recognised in the income statement
Fair value movements relating to the non-intrinsic element of the commodity derivatives have been immediately recognised in
the income statement during the year, and were as follows:
table below.
Profit/(loss) on hedging instruments
Cash flow hedges
Gas derivatives
Time value
Oil derivatives
Time value
Total net profit/(loss) for the year in the income statement
2016
$m
2015
$m
–
–
(0.2)
(0.2)
18.2
18.2
18.2
(58.6)
(58.6)
(58.8)
Hedge reserve summary
The hedge reserve represents the portion of deferred gains and losses on hedging instruments deemed to be effective cash
flow hedges. The movement in the reserve for the period is recognised in other comprehensive income.
The following table summarises the hedge reserve by type of derivative, net of tax effects:
Hedge reserve by derivative type
Cash flow hedges
Gas derivatives
Oil derivatives
Interest rate derivatives
2016
$m
2015
$m
(1.1)
129.7
(0.4)
128.2
0.4
570.6
(1.1)
569.9
The deferred gains and losses in the hedge reserve are subsequently transferred to the income statement during the period in
which the hedged transaction affects the income statement. The tables below show the impact on the hedge reserve and on
sales revenue during the year:
Deferred amounts in the hedge reserve
At 1 January
Reclassification adjustments for items included in the income statement on realisation:
Gas derivatives – transferred to sales revenue
Oil derivatives – transferred to sales revenue
Interest rate derivatives – transferred to finance costs
Subtotal
Revaluation (losses)/gains arising in the year
Movement in current and deferred tax
At 31 December
Reconciliation to sales revenue
Gas derivatives – transferred to sales revenue
Oil derivatives – transferred to sales revenue
Deferred premium paid
Net gains from commodity derivatives in sales revenue (note 2)
140
140 Tullow Oil plc 2016 Annual Report and Accounts
2016
$m
2015
$m
569.9
401.6
(0.9)
(416.7)
2.4
(415.2)
(135.3)
108.8
(441.7)
128.2
2016
$m
(0.9)
(416.7)
54.6
(363.0)
(3.4)
(412.9)
3.5
(412.8)
623.4
(42.3)
168.3
569.9
2015
$m
(3.4)
(412.9)
51.1
(365.2)
_1Q_Statement_Directors_Response_TLW_AR16_CG_2.indd 35
28/02/2017 14:01:54
Note 21. Financial instruments continued
Cash flow and interest rate risk
Subject to parameters set by management the Group seeks to minimise interest costs by using a mixture of fixed and floating
debt. Floating rate debt comprises bank borrowings at interest rates fixed in advance from overnight to three months at rates
determined by US dollar LIBOR, Sterling LIBOR and Norwegian NIBOR. Fixed rate debt comprises Senior Notes, convertible
bonds, bank borrowings at interest rates fixed in advance for periods greater than three months or bank borrowings where the
interest rate has been fixed through interest rate hedging. The Group hedges its floating interest rate exposure on an ongoing
basis through the use of interest rate swaps. The mark-to-market position of the Group’s interest rate portfolio as at 31
December 2016 is a liability of $0.4 million (2015: $1.0 million liability). Interest rate hedges are included in fixed rate debt in the
The interest rate profile of the Group’s financial assets and liabilities, excluding trade and other receivables and trade and other
payables, at 31 December 2016 and 2015 was as follows:
2016
Fixed rate
Floating rate
2015
Fixed rate
Floating rate
2016
Total
$m
Cash at bank
$m
2015
debt
$m
2015
debt
$m
2015
Total
$m
200.8
(1,900.0)
(3,080.0)
(4,779.2)
258.2
(1,600.0)
(2,557.3)
(3,899.1)
Cash at bank
$m
8.6
33.1
39.4
2016
debt
$m
–
–
–
2016
debt
$m
–
–
(83.8)
8.6
33.1
(44.4)
28.4
19.1
50.0
–
–
–
–
(156.9)
(60.8)
28.4
(137.8)
(10.8)
281.9
(1,900.0)
(3,163.8)
(4,781.9)
355.7
(1,600.0)
(2,775.0)
(4,019.3)
Cash at bank consisted mainly of deposits which earn interest at rates set in advance for periods ranging from overnight to one
month by reference to market rates.
The following table demonstrates the sensitivity of the Group’s financial instruments to reasonably possible movements in
Market movement
100 basis points
(25) basis points
Effect on finance costs
Effect on equity
2016
$m
(31.6)
7.9
2015
$m
(27.7)
6.9
2016
$m
(26.5)
6.1
2015
$m
(20.3)
3.5
US$
Euro
Sterling
Other
interest rates:
Interest rate
Interest rate
Credit risk
The Group has a credit policy that governs the management of credit risk, including the establishment of counterparty credit
limits and specific transaction approvals. The primary credit exposures for the Group are its receivables generated by the
marketing of crude oil and amounts due from JV partners. These exposures are managed at the corporate level. The Group’s
crude sales are predominantly made to international oil market participants including the oil majors, trading houses and
refineries. JV partners are predominantly international major oil and gas market participants. Counterparty evaluations are
conducted utilising international credit rating agency and financial assessments. Where considered appropriate, security in the
form of trade finance instruments from financial institutions with an appropriate credit ratings, such as letters of credit,
guarantees and credit insurance, are obtained to mitigate the risks.
The Group generally enters into derivative agreements with banks who are lenders under the Reserve-Based lending credit
facility. Security is provided under the facility agreement which mitigates non-performance risk. The Group does not have any
significant credit risk exposure to any single counterparty or any group of counterparties. The maximum financial exposure due
to credit risk on the Group’s financial assets, representing the sum of cash and cash equivalents, investments, derivative
assets, trade receivables, current tax assets and other current assets, as at 31 December 2016 was $1,661.7 million (2015:
$2,176.9 million).
Foreign currency risk
The Group conducts and manages its business predominately in US dollars, the operating currency of the industry in which it
operates. The Group also purchases the operating currencies of the countries in which it operates routinely on the spot market.
From time to time the Group undertakes certain transactions denominated in other currencies. These exposures are often
managed by executing foreign currency financial derivatives. There were no material foreign currency financial derivatives in
place at the 2016 year end (2015: $nil). Cash balances are held in other currencies to meet immediate operating and
administrative expenses or to comply with local currency regulations.
As at 31 December 2016, the only material monetary assets or liabilities of the Group that were not denominated in the
functional currency of the respective subsidiaries involved were $16.9 million in non-US-dollar denominated cash and cash
equivalents (2015: $49.7 million) and £nil cash drawings under the Group’s borrowing facilities (2015: £106.0 million). The
carrying amounts of the Group’s foreign currency-denominated monetary assets and monetary liabilities at the reporting date
are net assets of $16.9 million (2015: net liabilities of $107.2 million).
The following table demonstrates the sensitivity of the Group’s financial instruments to reasonably possible movements in US
dollar exchange rates:
www.tullowoil.com 141
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Note 21. Financial instruments continued
Commodity price risk continued
The following assumptions have been used in calculating the sensitivity in movement of oil and gas prices: the pricing
adjustments relate only to the point forward mark-to-market (MTM) valuations, the price sensitivities assume there is no
ineffectiveness related to the oil and gas hedges and the sensitivities have been run only on the intrinsic element of the hedge
as management considers this to be the material component of oil and gas hedge valuations.
Fair value movements recognised in the income statement
the income statement during the year, and were as follows:
Fair value movements relating to the non-intrinsic element of the commodity derivatives have been immediately recognised in
Note 21. Financial instruments continued
Cash flow and interest rate risk
Subject to parameters set by management the Group seeks to minimise interest costs by using a mixture of fixed and floating
debt. Floating rate debt comprises bank borrowings at interest rates fixed in advance from overnight to three months at rates
determined by US dollar LIBOR, Sterling LIBOR and Norwegian NIBOR. Fixed rate debt comprises Senior Notes, convertible
bonds, bank borrowings at interest rates fixed in advance for periods greater than three months or bank borrowings where the
interest rate has been fixed through interest rate hedging. The Group hedges its floating interest rate exposure on an ongoing
basis through the use of interest rate swaps. The mark-to-market position of the Group’s interest rate portfolio as at 31
December 2016 is a liability of $0.4 million (2015: $1.0 million liability). Interest rate hedges are included in fixed rate debt in the
table below.
2016
$m
2015
$m
The interest rate profile of the Group’s financial assets and liabilities, excluding trade and other receivables and trade and other
payables, at 31 December 2016 and 2015 was as follows:
US$
Euro
Sterling
Other
2016
Cash at bank
$m
2016
Fixed rate
debt
$m
2016
Floating rate
debt
$m
2016
Total
$m
2015
Cash at bank
$m
200.8
8.6
33.1
39.4
281.9
(1,900.0)
–
–
–
(1,900.0)
(3,080.0)
–
–
(83.8)
(3,163.8)
(4,779.2)
8.6
33.1
(44.4)
(4,781.9)
258.2
28.4
19.1
50.0
355.7
2015
Fixed rate
debt
$m
2015
Floating rate
debt
$m
(1,600.0)
–
–
–
(1,600.0)
(2,557.3)
–
(156.9)
(60.8)
(2,775.0)
2015
Total
$m
(3,899.1)
28.4
(137.8)
(10.8)
(4,019.3)
Cash at bank consisted mainly of deposits which earn interest at rates set in advance for periods ranging from overnight to one
month by reference to market rates.
The following table demonstrates the sensitivity of the Group’s financial instruments to reasonably possible movements in
interest rates:
Interest rate
Interest rate
Market movement
100 basis points
(25) basis points
Effect on finance costs
Effect on equity
2016
$m
(31.6)
7.9
2015
$m
(27.7)
6.9
2016
$m
(26.5)
6.1
2015
$m
(20.3)
3.5
Credit risk
The Group has a credit policy that governs the management of credit risk, including the establishment of counterparty credit
limits and specific transaction approvals. The primary credit exposures for the Group are its receivables generated by the
marketing of crude oil and amounts due from JV partners. These exposures are managed at the corporate level. The Group’s
crude sales are predominantly made to international oil market participants including the oil majors, trading houses and
refineries. JV partners are predominantly international major oil and gas market participants. Counterparty evaluations are
conducted utilising international credit rating agency and financial assessments. Where considered appropriate, security in the
form of trade finance instruments from financial institutions with an appropriate credit ratings, such as letters of credit,
guarantees and credit insurance, are obtained to mitigate the risks.
The Group generally enters into derivative agreements with banks who are lenders under the Reserve-Based lending credit
facility. Security is provided under the facility agreement which mitigates non-performance risk. The Group does not have any
significant credit risk exposure to any single counterparty or any group of counterparties. The maximum financial exposure due
to credit risk on the Group’s financial assets, representing the sum of cash and cash equivalents, investments, derivative
assets, trade receivables, current tax assets and other current assets, as at 31 December 2016 was $1,661.7 million (2015:
$2,176.9 million).
Foreign currency risk
The Group conducts and manages its business predominately in US dollars, the operating currency of the industry in which it
operates. The Group also purchases the operating currencies of the countries in which it operates routinely on the spot market.
From time to time the Group undertakes certain transactions denominated in other currencies. These exposures are often
managed by executing foreign currency financial derivatives. There were no material foreign currency financial derivatives in
place at the 2016 year end (2015: $nil). Cash balances are held in other currencies to meet immediate operating and
administrative expenses or to comply with local currency regulations.
As at 31 December 2016, the only material monetary assets or liabilities of the Group that were not denominated in the
functional currency of the respective subsidiaries involved were $16.9 million in non-US-dollar denominated cash and cash
equivalents (2015: $49.7 million) and £nil cash drawings under the Group’s borrowing facilities (2015: £106.0 million). The
carrying amounts of the Group’s foreign currency-denominated monetary assets and monetary liabilities at the reporting date
are net assets of $16.9 million (2015: net liabilities of $107.2 million).
The following table demonstrates the sensitivity of the Group’s financial instruments to reasonably possible movements in US
dollar exchange rates:
141
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Profit/(loss) on hedging instruments
Cash flow hedges
Gas derivatives
Time value
Oil derivatives
Time value
Hedge reserve by derivative type
Cash flow hedges
Gas derivatives
Oil derivatives
Interest rate derivatives
Total net profit/(loss) for the year in the income statement
Hedge reserve summary
The hedge reserve represents the portion of deferred gains and losses on hedging instruments deemed to be effective cash
flow hedges. The movement in the reserve for the period is recognised in other comprehensive income.
The following table summarises the hedge reserve by type of derivative, net of tax effects:
The deferred gains and losses in the hedge reserve are subsequently transferred to the income statement during the period in
which the hedged transaction affects the income statement. The tables below show the impact on the hedge reserve and on
Reclassification adjustments for items included in the income statement on realisation:
sales revenue during the year:
Deferred amounts in the hedge reserve
At 1 January
Gas derivatives – transferred to sales revenue
Oil derivatives – transferred to sales revenue
Interest rate derivatives – transferred to finance costs
Subtotal
Revaluation (losses)/gains arising in the year
Movement in current and deferred tax
At 31 December
Reconciliation to sales revenue
Gas derivatives – transferred to sales revenue
Oil derivatives – transferred to sales revenue
Deferred premium paid
Net gains from commodity derivatives in sales revenue (note 2)
140 Tullow Oil plc 2016 Annual Report and Accounts
–
–
(0.2)
(0.2)
18.2
18.2
18.2
(58.6)
(58.6)
(58.8)
2016
$m
2015
$m
(1.1)
129.7
(0.4)
128.2
0.4
570.6
(1.1)
569.9
2016
$m
2015
$m
569.9
401.6
(0.9)
(416.7)
2.4
(415.2)
(135.3)
108.8
(441.7)
128.2
2016
$m
(0.9)
(416.7)
54.6
(363.0)
(3.4)
(412.9)
3.5
(412.8)
623.4
(42.3)
168.3
569.9
2015
$m
(3.4)
(412.9)
51.1
(365.2)
3www.tullowoil.com
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 21. Financial instruments continued
Foreign currency risk continued
US$/foreign currency exchange rates
US$/foreign currency exchange rates
Effect on profit before tax
Effect on equity
Market movement
20%
(20%)
2016
$m
(2.7)
4.0
2015
$m
(7.7)
11.5
2016
$m
(2.7)
4.0
2015
$m
23.7
(19.9)
Liquidity risk
The Group manages its liquidity risk using both short and long-term cash flow projections, supplemented by debt financing
plans and active portfolio management. Ultimate responsibility for liquidity risk management rests with the Board of Directors,
which has established an appropriate liquidity risk management framework covering the Group’s short, medium and long-term
funding and liquidity management requirements.
The Group closely monitors and manages its liquidity risk. Cash forecasts are regularly produced and sensitivities run for
different scenarios including, but not limited to, changes in commodity prices, different production rates from the Group’s
producing assets and delays to development projects. In addition to the Group’s operating cash flows, portfolio management
opportunities are reviewed to potentially enhance the financial capability and flexibility of the Group. The Group had $1.0 billion
(2015: $1.9 billion) of total facility headroom and free cash as at 31 December 2016. The Group’s forecast, taking into account
the risks described above, show that the Group will be able to operate within its current debt facilities and have sufficient
financial headroom for the 12 months from the date of approval of the 2016 Annual Report and Accounts.
The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed
repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the
earliest date on which the Group can be required to pay.
31 December 2016
Non-interest bearing
Finance lease liabilities
Fixed interest rate instruments
Principal repayments
Interest charge
Variable interest rate instruments
5.9%
Principal repayments
Interest charge
Weighted
average
effective
interest rate
n/a
6.5%
6.5%
31 December 2015
Non-interest bearing
Finance lease liabilities
Fixed interest rate instruments
Principal repayments
Interest charge
Variable interest rate instruments
6.0%
Principal repayments
Interest charge
Weighted
average
effective
interest rate
Less than
1 month
$m
1-3
months
$m
3 months
to 1 year
$m
n/a
6.5%
7.5%
21.0
0.3
167.3
0.8
4.7
2.4
1-5
years
$m
–
14.5
5+
years
$m
Total
$m
87.7
17.6
280.7
35.6
–
9.9
–
14.4
45.6
–
–
–
89.6
950.0
359.0
650.0
20.3
1,600.0
478.8
55.0
28.6
251.7
536.9
120.2
753.8
2,871.9
151.9
4,347.3
–
–
775.6
3,463.8
315.1
6,174.0
Less than
1 month
$m
1-3
months
$m
3 months
to 1 year
$m
1-5
years
$m
5+
years
$m
Total
$m
46.9
0.3
47.4
0.8
–
–
–
10.0
57.2
–
–
–
20.1
68.3
21.5
2.2
–
79.6
–
14.5
72.8
21.3
188.6
39.1
650.0
318.5
650.0
60.9
1,300.0
459.0
75.0
90.1
268.4
3,000.0
206.0
4,189.0
–
–
805.0
3,075.0
326.2
5,387.9
The Group has interest rate swaps that fix $300.0 million (2015: $300.0 million) of variable interest rate risk. The impact of these
derivatives on the classification of fixed and variable rate instruments has been excluded from the above tables.
142
142 Tullow Oil plc 2016 Annual Report and Accounts
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Note 22. Obligations under finance leases
Amounts payable under finance leases:
– Within one year
– Within two to five years
– After five years
Less future finance charges
Present value of lease obligations
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Notes
2016
$m
2015
$m
3.5
14.5
17.6
35.6
(9.1)
3.3
14.5
21.3
39.1
(11.1)
26.5
28.0
19
19
1.9
1.5
24.6
26.5
The Group’s only finance lease is the Espoir FPSO (2015: Espoir FPSO). The fair value of the Group’s lease obligations
approximates the carrying amount. The average remaining lease term as at 31 December 2016 was 10 years
(2015: 11 years). For the year ended 31 December 2016, the effective borrowing rate was 6.5% (2015: 6.15%).
Note 23. Provisions
New provisions and changes
At 1 January
in estimates
Disposals
Payments
Transfer to accruals
Unwinding of discount
Currency translation adjustment
At 31 December
Current provisions
Non-current provisions
Notes
5
Decommissioning
provisions
Decommissioning
provisions
1,008.8
243.3
1,252.1
1,192.9
67.5
1,260.4
Other
2016
$m
Total
2016
$m
71.4
128.5
–
(132.0)
(35.0)
–
(3.5)
–
(155.0)
(35.0)
25.1
(57.1)
2016
$m
57.1
–
(23.0)
–
25.1
(53.6)
2015
$m
(147.4)
0.8
(40.8)
–
28.3
(25.0)
Other
2015
$m
177.1
0.3
–
–
0.1
(1.7)
Total
2015
$m
29.7
1.1
(40.8)
–
28.4
(26.7)
1,014.4
144.2
1,158.6
1,008.8
243.3
1,252.1
49.0
2.9
51.9
965.4
141.3
1,106.7
–
1,008.8
187.0
56.3
187.0
1,065.1
Included within other provisions is provision for onerous service contracts and provision for restructuring costs. Due to the
reduction in planned future work programmes the Group has identified a number of onerous service contracts. The expected
unutilised capacity has been provided for in 2015 and 2016 resulting in an income statement charge of $114.9 million (2015:
$185.5 million). During 2016, the Group incurred $12.3 million (2015: $44.9 million) in respect of restructuring costs. A provision
in respect of contingent consideration due on the acquisition of Spring Energy has been released in 2016 ($43.5 million) as the
Group concluded that payment of such consideration is not probable.
The decommissioning provision represents the present value of decommissioning costs relating to the European
and African oil and gas interests.
Congo
Côte d’Ivoire
Equatorial Guinea
Gabon
Ghana
Mauritania
Netherlands
UK
Inflation
Discount rate
assumption
assumption
2%
2%
2%
2%
2%
2%
2%
2%
Cessation of
production
assumption
3%
3%
2027
2026
3% 2028-2029
3% 2021-2034
3% 2034-2036
3%
2017
3% 2020-2036
3% 2015-2018
2016
$m
18.3
48.1
130.0
54.2
267.6
130.9
100.7
264.6
2015
$m
15.2
53.3
126.2
61.0
257.7
121.4
90.5
283.5
1,014.4
1,008.8
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Note 21. Financial instruments continued
Foreign currency risk continued
US$/foreign currency exchange rates
US$/foreign currency exchange rates
Liquidity risk
Effect on profit before tax
Effect on equity
Market movement
20%
(20%)
2016
$m
(2.7)
4.0
2015
$m
(7.7)
11.5
2016
$m
(2.7)
4.0
2015
$m
23.7
(19.9)
The Group manages its liquidity risk using both short and long-term cash flow projections, supplemented by debt financing
plans and active portfolio management. Ultimate responsibility for liquidity risk management rests with the Board of Directors,
which has established an appropriate liquidity risk management framework covering the Group’s short, medium and long-term
funding and liquidity management requirements.
The Group closely monitors and manages its liquidity risk. Cash forecasts are regularly produced and sensitivities run for
different scenarios including, but not limited to, changes in commodity prices, different production rates from the Group’s
producing assets and delays to development projects. In addition to the Group’s operating cash flows, portfolio management
opportunities are reviewed to potentially enhance the financial capability and flexibility of the Group. The Group had $1.0 billion
(2015: $1.9 billion) of total facility headroom and free cash as at 31 December 2016. The Group’s forecast, taking into account
the risks described above, show that the Group will be able to operate within its current debt facilities and have sufficient
financial headroom for the 12 months from the date of approval of the 2016 Annual Report and Accounts.
31 December 2016
Non-interest bearing
Finance lease liabilities
Fixed interest rate instruments
Principal repayments
Interest charge
Principal repayments
Interest charge
Variable interest rate instruments
5.9%
31 December 2015
Non-interest bearing
Finance lease liabilities
Fixed interest rate instruments
Principal repayments
Interest charge
Principal repayments
Interest charge
Variable interest rate instruments
6.0%
Weighted
average
effective
interest rate
Less than
1 month
$m
months
1-3
$m
3 months
to 1 year
$m
n/a
6.5%
7.5%
21.0
0.3
167.3
0.8
4.7
2.4
1-5
years
$m
–
14.5
5+
years
$m
Total
$m
87.7
17.6
280.7
35.6
–
9.9
–
14.4
45.6
–
–
–
89.6
950.0
359.0
650.0
1,600.0
20.3
478.8
55.0
28.6
251.7
536.9
120.2
753.8
2,871.9
151.9
4,347.3
–
–
3,463.8
315.1
775.6
6,174.0
Weighted
average
effective
interest rate
n/a
6.5%
6.5%
Less than
1 month
$m
months
1-3
$m
3 months
to 1 year
$m
1-5
years
$m
5+
years
$m
Total
$m
21.5
2.2
–
79.6
–
–
–
–
–
–
650.0
318.5
650.0
1,300.0
60.9
459.0
10.0
57.2
20.1
68.3
75.0
90.1
3,000.0
206.0
–
–
3,075.0
326.2
268.4
4,189.0
805.0
5,387.9
The Group has interest rate swaps that fix $300.0 million (2015: $300.0 million) of variable interest rate risk. The impact of these
derivatives on the classification of fixed and variable rate instruments has been excluded from the above tables.
142 Tullow Oil plc 2016 Annual Report and Accounts
Note 22. Obligations under finance leases
Amounts payable under finance leases:
– Within one year
– Within two to five years
– After five years
Less future finance charges
Present value of lease obligations
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Notes
2016
$m
2015
$m
3.5
14.5
17.6
35.6
(9.1)
3.3
14.5
21.3
39.1
(11.1)
26.5
28.0
19
19
1.9
1.5
24.6
26.5
The Group’s only finance lease is the Espoir FPSO (2015: Espoir FPSO). The fair value of the Group’s lease obligations
approximates the carrying amount. The average remaining lease term as at 31 December 2016 was 10 years
(2015: 11 years). For the year ended 31 December 2016, the effective borrowing rate was 6.5% (2015: 6.15%).
The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed
repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the
Note 23. Provisions
earliest date on which the Group can be required to pay.
At 1 January
New provisions and changes
in estimates
Disposals
Payments
Transfer to accruals
Unwinding of discount
Currency translation adjustment
At 31 December
Current provisions
Non-current provisions
Decommissioning
2016
$m
Notes
Other
provisions
2016
$m
Total
2016
$m
Decommissioning
2015
$m
Other
provisions
2015
$m
Total
2015
$m
1,008.8
243.3
1,252.1
1,192.9
67.5
1,260.4
5
57.1
–
(23.0)
–
25.1
(53.6)
1,014.4
49.0
965.4
71.4
–
(132.0)
(35.0)
–
(3.5)
144.2
2.9
141.3
128.5
–
(155.0)
(35.0)
25.1
(57.1)
1,158.6
51.9
1,106.7
(147.4)
0.8
(40.8)
–
28.3
(25.0)
1,008.8
–
1,008.8
177.1
0.3
–
–
0.1
(1.7)
243.3
187.0
56.3
29.7
1.1
(40.8)
–
28.4
(26.7)
1,252.1
187.0
1,065.1
46.9
0.3
47.4
0.8
–
14.5
72.8
21.3
188.6
39.1
The decommissioning provision represents the present value of decommissioning costs relating to the European
and African oil and gas interests.
Included within other provisions is provision for onerous service contracts and provision for restructuring costs. Due to the
reduction in planned future work programmes the Group has identified a number of onerous service contracts. The expected
unutilised capacity has been provided for in 2015 and 2016 resulting in an income statement charge of $114.9 million (2015:
$185.5 million). During 2016, the Group incurred $12.3 million (2015: $44.9 million) in respect of restructuring costs. A provision
in respect of contingent consideration due on the acquisition of Spring Energy has been released in 2016 ($43.5 million) as the
Group concluded that payment of such consideration is not probable.
Congo
Côte d’Ivoire
Equatorial Guinea
Gabon
Ghana
Mauritania
Netherlands
UK
Inflation
assumption
Discount rate
assumption
Cessation of
production
assumption
2%
2%
2%
2%
2%
2%
2%
2%
3%
2027
2026
3%
3% 2028-2029
3% 2021-2034
3% 2034-2036
2017
3%
3% 2020-2036
3% 2015-2018
2016
$m
18.3
48.1
130.0
54.2
267.6
130.9
100.7
264.6
1,014.4
2015
$m
15.2
53.3
126.2
61.0
257.7
121.4
90.5
283.5
1,008.8
143
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3www.tullowoil.com
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 24. Deferred taxation
At 1 January 2015
Credit/(debit) to income
statement
Credit to other
comprehensive income
Exchange differences
At 1 January 2016
Credit/(debit) to income
statement
Credit to other
comprehensive income
Exchange differences
Accelerated
tax
depreciation
$m
Decommissioning
$m
Revaluation
of financial
assets
$m
Tax losses
$m
Other timing
differences
$m
Provision for
onerous
contracts
$m
Deferred
PRT
$m
Total
$m
(1,480.4)
131.8
(1.6)
95.5
(4.6)
217.8
73.1
0.2
139.7
(83.7)
–
37.8
(1,224.8)
–
(6.7)
198.2
0.9
–
(0.5)
–
0.2
235.4
–
0.2
(88.1)
–
–
–
–
6.7
(1,252.6)
4.4
351.5
–
(0.5)
10.6
0.9
31.0
(869.2)
10.2
(67.4)
–
300.0
72.9
44.7
(1.7)
358.7
–
(2.7)
–
(20.0)
1.0
–
–
(0.1)
–
0.4
–
–
–
(1.6)
1.0
(24.0)
At 31 December 2016
(1,217.3)
110.8
0.5
535.3
(14.8)
44.7
7.3
(533.5)
Deferred tax liabilities
Deferred tax assets
2016
$m
2015
$m
(1,292.4)
758.9
(1,164.5)
295.3
(533.5)
(869.2)
No deferred tax has been provided on unremitted earnings of overseas subsidiaries, as the Group has no plans to remit these to
the UK in the foreseeable future. Deferred tax assets are recognised only to the extent it is considered probable that those
assets will be recoverable. This involves an assessment of when those deferred tax assets are likely to reverse, and a
judgement as to whether or not there will be sufficient taxable profits available to offset the tax assets when they
do reverse. This requires assumptions regarding future profitability and is therefore inherently uncertain. To the extent
assumptions regarding future profitability change, there can be an increase or decrease in the level of deferred tax
assets recognised which can result in a charge or credit in the period in which the change occurs.
Note 25. Called up equity share capital and share premium account
Allotted equity share capital and share premium
Ordinary shares of 10 pence each
At 1 January 2015
Issued during the year
– Exercise of share options
At 1 January 2016
Issued during the year
– Exercise of share options
At 31 December 2016
Equity share capital
allotted and fully paid
Share
premium
Number
$m
$m
910,661,631
147.0
606.4
915,075
911,576,706
0.2
147.2
3.4
609.8
2,905,254
0.3
9.5
914,481,960
147.5
619.3
The Company does not have a maximum authorised share capital.
Note 26. Non-controlling interest
The non-controlling interest relates to Tulipe Oil SA (Tulipe), where the Group has a 50% controlling shareholding, whose place
of business is Gabon. Distributions to non-controlling interests were $10.0 million (2015: $2.4 million).
2010 Share Option Plan and 2000 Executive Share Option Scheme
UK & Irish Share Incentive
Note 27. Share-based payments
Analysis of share-based payment charge
Tullow Incentive Plan
2005 Performance Share Plan
2005 Deferred Share Bonus Plan
Employee Share Award Plan
Total share-based payment charge
Capitalised to intangible and tangible assets
Expensed to operating costs
Expensed as administrative cost
Total share-based payment charge
Tullow Incentive Plan (TIP)
Notes
4
4
2016
$m
9.3
0.9
–
38.3
1.5
0.9
50.9
7.0
2.7
41.2
2015
$m
12.3
7.9
1.0
30.8
14.8
0.5
67.3
18.6
0.8
47.9
50.9
67.3
Under the TIP, Senior Management can be granted nil exercise price options, normally exercisable from three (five years in the
case of the Company’s Directors) to 10 years following grant provided an individual remains in employment. The size of awards
depends on both annual performance measures and Total Shareholder Return (TSR) over a period of up to three years. There
are no post-grant performance conditions. No dividends are paid over the vesting period; however, an amount equivalent to the
dividends that would have been paid on the TIP shares during the vesting period if they were ‘real’ shares, will also be payable
on exercise of the award. There are further details of the TIP in the Remuneration Report on pages 80 to 100.
The weighted average remaining contractual life for TIP awards outstanding at 31 December 2016 was 7.7 years.
2005 Performance Share Plan (PSP)
Under the PSP, Senior Management could be granted nil exercise price options, normally exercisable between three and
10 years following grant. Awards made before 8 March 2010 were made as conditional awards to acquire free shares
on vesting. To provide flexibility to participants, those awards were converted into nil exercise price options. Awards vest subject
to a Total Shareholder Return (TSR) performance condition; 50% (70% for awards granted to Directors in 2013, 2012 and 2011)
of an award is tested against a comparator group of oil and gas companies. The remaining 50% (30% for awards granted
to Directors in 2013, 2012 and 2011) is tested against constituents of the FTSE 100 index (excluding investment trusts).
Performance is measured over a fixed three-year period starting on 1 January prior to grant, and an individual must normally
remain in employment for three years from grant for the shares to vest. No dividends are paid over the vesting period. There
are further details of PSP award performance measurement in the Remuneration Report on pages 80 to 100. From 2014,
Senior Executives participate in the TIP instead of the PSP.
The weighted average remaining contractual life for PSP awards outstanding at 31 December 2016 was 1.8 years.
144
144 Tullow Oil plc 2016 Annual Report and Accounts
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Note 24. Deferred taxation
At 1 January 2015
(1,480.4)
Credit/(debit) to income
statement
Credit to other
Accelerated
tax
$m
depreciation
Decommissioning
Revaluation
of financial
assets
$m
(1.6)
$m
131.8
Tax losses
Other timing
differences
$m
95.5
$m
(4.6)
Provision for
onerous
contracts
$m
Deferred
PRT
$m
Total
$m
6.7
(1,252.6)
217.8
73.1
0.2
139.7
(83.7)
4.4
351.5
comprehensive income
Exchange differences
–
37.8
–
(6.7)
–
0.2
–
0.2
–
(0.5)
0.9
31.0
At 1 January 2016
(1,224.8)
198.2
235.4
(88.1)
–
10.6
(869.2)
0.9
–
(0.5)
–
–
–
10.2
(67.4)
–
300.0
72.9
44.7
(1.7)
358.7
–
(2.7)
–
(20.0)
1.0
–
–
(0.1)
–
0.4
–
–
–
(1.6)
1.0
(24.0)
At 31 December 2016
(1,217.3)
110.8
0.5
535.3
(14.8)
44.7
7.3
(533.5)
Credit/(debit) to income
statement
Credit to other
comprehensive income
Exchange differences
Deferred tax liabilities
Deferred tax assets
2016
$m
2015
$m
(1,292.4)
(1,164.5)
758.9
295.3
(533.5)
(869.2)
No deferred tax has been provided on unremitted earnings of overseas subsidiaries, as the Group has no plans to remit these to
the UK in the foreseeable future. Deferred tax assets are recognised only to the extent it is considered probable that those
assets will be recoverable. This involves an assessment of when those deferred tax assets are likely to reverse, and a
judgement as to whether or not there will be sufficient taxable profits available to offset the tax assets when they
do reverse. This requires assumptions regarding future profitability and is therefore inherently uncertain. To the extent
assumptions regarding future profitability change, there can be an increase or decrease in the level of deferred tax
assets recognised which can result in a charge or credit in the period in which the change occurs.
Note 25. Called up equity share capital and share premium account
Allotted equity share capital and share premium
Ordinary shares of 10 pence each
At 1 January 2015
Issued during the year
– Exercise of share options
At 1 January 2016
Issued during the year
– Exercise of share options
At 31 December 2016
Equity share capital
allotted and fully paid
Share
premium
Number
$m
$m
910,661,631
147.0
606.4
915,075
911,576,706
0.2
147.2
3.4
609.8
2,905,254
0.3
9.5
914,481,960
147.5
619.3
The Company does not have a maximum authorised share capital.
Note 26. Non-controlling interest
The non-controlling interest relates to Tulipe Oil SA (Tulipe), where the Group has a 50% controlling shareholding, whose place
of business is Gabon. Distributions to non-controlling interests were $10.0 million (2015: $2.4 million).
Note 27. Share-based payments
Analysis of share-based payment charge
Tullow Incentive Plan
2005 Performance Share Plan
2005 Deferred Share Bonus Plan
Employee Share Award Plan
2010 Share Option Plan and 2000 Executive Share Option Scheme
UK & Irish Share Incentive
Total share-based payment charge
Capitalised to intangible and tangible assets
Expensed to operating costs
Expensed as administrative cost
Total share-based payment charge
Notes
4
4
2016
$m
9.3
0.9
–
38.3
1.5
0.9
50.9
7.0
2.7
41.2
2015
$m
12.3
7.9
1.0
30.8
14.8
0.5
67.3
18.6
0.8
47.9
50.9
67.3
Tullow Incentive Plan (TIP)
Under the TIP, Senior Management can be granted nil exercise price options, normally exercisable from three (five years in the
case of the Company’s Directors) to 10 years following grant provided an individual remains in employment. The size of awards
depends on both annual performance measures and Total Shareholder Return (TSR) over a period of up to three years. There
are no post-grant performance conditions. No dividends are paid over the vesting period; however, an amount equivalent to the
dividends that would have been paid on the TIP shares during the vesting period if they were ‘real’ shares, will also be payable
on exercise of the award. There are further details of the TIP in the Remuneration Report on pages 80 to 100.
The weighted average remaining contractual life for TIP awards outstanding at 31 December 2016 was 7.7 years.
2005 Performance Share Plan (PSP)
Under the PSP, Senior Management could be granted nil exercise price options, normally exercisable between three and
10 years following grant. Awards made before 8 March 2010 were made as conditional awards to acquire free shares
on vesting. To provide flexibility to participants, those awards were converted into nil exercise price options. Awards vest subject
to a Total Shareholder Return (TSR) performance condition; 50% (70% for awards granted to Directors in 2013, 2012 and 2011)
of an award is tested against a comparator group of oil and gas companies. The remaining 50% (30% for awards granted
to Directors in 2013, 2012 and 2011) is tested against constituents of the FTSE 100 index (excluding investment trusts).
Performance is measured over a fixed three-year period starting on 1 January prior to grant, and an individual must normally
remain in employment for three years from grant for the shares to vest. No dividends are paid over the vesting period. There
are further details of PSP award performance measurement in the Remuneration Report on pages 80 to 100. From 2014,
Senior Executives participate in the TIP instead of the PSP.
The weighted average remaining contractual life for PSP awards outstanding at 31 December 2016 was 1.8 years.
144 Tullow Oil plc 2016 Annual Report and Accounts
145
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NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 27. Share-based payments continued
2005 Deferred Share Bonus Plan (DSBP)
Under the DSBP, the portion of any annual bonus above 75% of the base salary of a Senior Executive nominated by the
Remuneration Committee was deferred into shares. Awards normally vest following the end of three financial years
commencing with that in which they were granted. They were granted as nil exercise price options, normally exercisable from
when they vest until 10 years from grant. Awards granted before 8 March 2010 as conditional awards to acquire
free shares were converted into nil exercise price options to provide flexibility to participants. A dividend equivalent is
paid over the period from grant to vesting. From 2014, Senior Executives participate in the TIP instead of the DSBP.
The weighted average remaining contractual life for DSBP awards outstanding at 31 December 2016 was 4.3 years.
Employee Share Award Plan (ESAP)
Most Group employees are eligible to be granted nil exercise price options under the ESAP. These are normally exercisable
from three to 10 years following grant. An individual must normally remain in employment for three years from grant for the
share to vest. Awards are not subject to post-grant performance conditions.
Phantom options that provide a cash bonus equivalent to the gain that could be made from a share option (being granted
over a notional number of shares) have also been granted under the ESAP in situations where the grant of share options
was not practicable.
The weighted average remaining contractual life for ESAP awards outstanding at 31 December 2016 was 7.7 years.
2010 Share Option Plan (2010 SOP) and 2000 Executive Share Option Scheme (2000 ESOS)
Participation in the 2010 SOP and 2000 ESOS was available to most of the Group’s employees. Options have an exercise price
equal to market value shortly before grant and are normally exercisable between three and 10 years from the date of the grant
subject to continuing employment.
Options granted prior to 2011 were granted under the 2000 ESOS where exercise was subject to a performance condition.
Performance was measured against constituents of the FTSE 100 index (excluding investment trusts). 100% of awards vested
if the Company’s TSR was above the median of the index companies over three years from grant. The 2010 SOP was replaced
by the ESAP for grants from 2014. During 2013 phantom options were granted under the 2010 SOP to replace certain options
granted under the 2000 ESOS that lapsed as a result of performance conditions not being satisfied. These replacement
phantom options provide a cash bonus equivalent to the gain that could be made from a share option (being granted over a
notional number of shares with a notional exercise price). Phantom options have also been granted under the 2010 SOP and
the 2000 ESOS in situations where the grant of share options was not practicable.
Options outstanding at 31 December 2016 had exercise prices of 365p to 1530p (2015: 349p to 1530p) and remaining contractual
lives between eight days and seven years. The weighted average remaining contractual life is 4.1 years.
UK & Irish Share Incentive Plans (SIPs)
These are all-employee plans set up in the UK and Ireland, to enable employees to save out of salary up to prescribed monthly
limits. Contributions are used by the SIP trustees to buy Tullow shares (‘Partnership Shares’) at the end of each three-month
accumulation period. The Company makes a matching contribution to acquire Tullow shares (‘Matching Shares’) on a one-for-
one basis. Under the UK SIP, Matching Shares are subject to time-based forfeiture over three
years on leaving employment in certain circumstances or if the related Partnership Shares are sold. The fair value
of a Matching Share is its market value when it is awarded.
Under the UK SIP: (i) Partnership Shares are purchased at the lower of their market values at the start of the accumulation
period and the purchase date (which is treated as a three-month share option for IFRS 2 purposes
and therefore results in an accounting charge), and (ii) Matching Shares vest over the three years after being awarded
(resulting in their accounting charge being spread over that period). Under the Irish SIP: (i) Partnership Shares are
bought at the market value at the purchase date (which does not result in any accounting charge), and (ii) Matching Shares vest
over the two years after being awarded (resulting in their accounting charge being spread over that period).
Note 27. Share-based payments continued
The following table illustrates the number and average weighted share price (WAEP) at grant or WAEP of, and movements in,
share options under the TIP, PSP, DSBP, ESAP and 2010 SOP / 2000 ESOS.
Outstanding
Forfeited/
as at
Granted during
Exercised
expired during
Outstanding at
Exercisable at
1 January
the year
during the year
the year
31 December
31 December
at grant
at grant
at grant
at grant
at grant
at grant
2016 TIP – number of shares
3,801,426 7,134,968
2016 TIP – average weighted share price at grant
547.3
147.7
2015 TIP – number of shares
1,580,577
2,436,183
2015 TIP – average weighted share price at grant
782.0
406.1
2016 PSP – number of shares
2016 PSP – average weighted share price
2015 PSP – number of shares
2015 PSP – average weighted share price
2016 DSBP – number of shares
2016 DSBP – average weighted share price
2015 DSBP – number of shares
2015 DSBP – average weighted share price
4,208,862
1,125.7
6,972,729
1,230.2
466,097
1,226.7
491,916
1,240.0
–
–
–
–
(10,127) 10,926,267
782.0
287.1
43,610
782.0
(215,334) 3,801,426
820,010
673.0
547.3
552.7
(283,867) (3,014,991)
910,004
910,004
962.0
1,214.7
882.0
882.0
(223,711)
(2,540,156) 4,208,862
1,814,024
892.4
1,433.0
1,125.7
997.7
(137,114)
(123,279)
205,704
1,338.2
1,121.4
1,215.5
205,704
1,215.5
(25,819)
1,480.0
–
–
466,097
1,226.7
315,589
1,219.9
2016 ESAP – number of shares
17,067,908 11,315,031
(2,495,408) (2,126,712) 23,760,819 3,330,615
2016 ESAP – average weighted share price
380.7
147.7
354.9
287.4
280.8
281.5
2015 ESAP – number of shares
3,306,981 15,516,608
(155,107)
(1,600,574) 17,067,908
651,595
2015 ESAP – average weighted share price
779.7
304.2
730.3
429.0
380.7
688.7
2016 SOP/ESOS – number of shares
2016 SOP/ESOS – WAEP
2015 SOP/ESOS – number of shares
2015 SOP/ESOS – WAEP
2016 Phantoms – number of phantom shares
2016 Phantoms – WAEP
2015 Phantoms – number of phantom shares
2015 Phantoms – WAEP
14,466,011
1,160.9
16,343,605
1,128.8
1,518,439
1,274.5
2,229,052
1,274.5
(3,362) (4,456,279) 10,006,370 10,006,370
1,219.0
1,088.9
1,192.9
1,192.9
(531,106)
(1,346,488) 14,466,011
9,894,040
201.8
1,149.6
1,160.9
1,139.3
–
–
–
–
(265,694) 1,252,745 1,252,745
1,274.4
1,274.4
1,274.4
(710,613) 1,518,439
1,518,439
1,274.6
1,274.5
1,274.5
The options granted during the year were valued using a proprietary binomial valuation.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
146
146 Tullow Oil plc 2016 Annual Report and Accounts
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Note 27. Share-based payments continued
2005 Deferred Share Bonus Plan (DSBP)
Under the DSBP, the portion of any annual bonus above 75% of the base salary of a Senior Executive nominated by the
Remuneration Committee was deferred into shares. Awards normally vest following the end of three financial years
commencing with that in which they were granted. They were granted as nil exercise price options, normally exercisable from
when they vest until 10 years from grant. Awards granted before 8 March 2010 as conditional awards to acquire
free shares were converted into nil exercise price options to provide flexibility to participants. A dividend equivalent is
paid over the period from grant to vesting. From 2014, Senior Executives participate in the TIP instead of the DSBP.
The weighted average remaining contractual life for DSBP awards outstanding at 31 December 2016 was 4.3 years.
Employee Share Award Plan (ESAP)
Most Group employees are eligible to be granted nil exercise price options under the ESAP. These are normally exercisable
from three to 10 years following grant. An individual must normally remain in employment for three years from grant for the
share to vest. Awards are not subject to post-grant performance conditions.
Phantom options that provide a cash bonus equivalent to the gain that could be made from a share option (being granted
over a notional number of shares) have also been granted under the ESAP in situations where the grant of share options
was not practicable.
The weighted average remaining contractual life for ESAP awards outstanding at 31 December 2016 was 7.7 years.
2010 Share Option Plan (2010 SOP) and 2000 Executive Share Option Scheme (2000 ESOS)
Participation in the 2010 SOP and 2000 ESOS was available to most of the Group’s employees. Options have an exercise price
equal to market value shortly before grant and are normally exercisable between three and 10 years from the date of the grant
subject to continuing employment.
Options granted prior to 2011 were granted under the 2000 ESOS where exercise was subject to a performance condition.
Performance was measured against constituents of the FTSE 100 index (excluding investment trusts). 100% of awards vested
if the Company’s TSR was above the median of the index companies over three years from grant. The 2010 SOP was replaced
by the ESAP for grants from 2014. During 2013 phantom options were granted under the 2010 SOP to replace certain options
granted under the 2000 ESOS that lapsed as a result of performance conditions not being satisfied. These replacement
phantom options provide a cash bonus equivalent to the gain that could be made from a share option (being granted over a
notional number of shares with a notional exercise price). Phantom options have also been granted under the 2010 SOP and
the 2000 ESOS in situations where the grant of share options was not practicable.
Options outstanding at 31 December 2016 had exercise prices of 365p to 1530p (2015: 349p to 1530p) and remaining contractual
lives between eight days and seven years. The weighted average remaining contractual life is 4.1 years.
UK & Irish Share Incentive Plans (SIPs)
These are all-employee plans set up in the UK and Ireland, to enable employees to save out of salary up to prescribed monthly
limits. Contributions are used by the SIP trustees to buy Tullow shares (‘Partnership Shares’) at the end of each three-month
accumulation period. The Company makes a matching contribution to acquire Tullow shares (‘Matching Shares’) on a one-for-
one basis. Under the UK SIP, Matching Shares are subject to time-based forfeiture over three
years on leaving employment in certain circumstances or if the related Partnership Shares are sold. The fair value
of a Matching Share is its market value when it is awarded.
Under the UK SIP: (i) Partnership Shares are purchased at the lower of their market values at the start of the accumulation
period and the purchase date (which is treated as a three-month share option for IFRS 2 purposes
and therefore results in an accounting charge), and (ii) Matching Shares vest over the three years after being awarded
(resulting in their accounting charge being spread over that period). Under the Irish SIP: (i) Partnership Shares are
bought at the market value at the purchase date (which does not result in any accounting charge), and (ii) Matching Shares vest
over the two years after being awarded (resulting in their accounting charge being spread over that period).
Note 27. Share-based payments continued
The following table illustrates the number and average weighted share price (WAEP) at grant or WAEP of, and movements in,
share options under the TIP, PSP, DSBP, ESAP and 2010 SOP / 2000 ESOS.
Outstanding
as at
1 January
Granted during
the year
Exercised
during the year
Forfeited/
expired during
the year
Outstanding at
31 December
Exercisable at
31 December
2016 TIP – number of shares
2016 TIP – average weighted share price at grant
2015 TIP – number of shares
2015 TIP – average weighted share price at grant
2016 PSP – number of shares
2016 PSP – average weighted share price
at grant
2015 PSP – number of shares
2015 PSP – average weighted share price
at grant
2016 DSBP – number of shares
2016 DSBP – average weighted share price
at grant
2015 DSBP – number of shares
2015 DSBP – average weighted share price
at grant
2016 ESAP – number of shares
2016 ESAP – average weighted share price
at grant
2015 ESAP – number of shares
2015 ESAP – average weighted share price
at grant
2016 SOP/ESOS – number of shares
2016 SOP/ESOS – WAEP
2015 SOP/ESOS – number of shares
2015 SOP/ESOS – WAEP
2016 Phantoms – number of phantom shares
2016 Phantoms – WAEP
2015 Phantoms – number of phantom shares
2015 Phantoms – WAEP
3,801,426 7,134,968
147.7
2,436,183
406.1
–
–
547.3
1,580,577
782.0
4,208,862
1,125.7
–
–
–
–
782.0
(10,127) 10,926,267
287.1
(215,334) 3,801,426
547.3
910,004
882.0
673.0
(283,867) (3,014,991)
1,214.7
962.0
43,610
782.0
820,010
552.7
910,004
882.0
6,972,729
1,230.2
466,097
1,226.7
491,916
1,240.0
–
–
–
–
–
–
(223,711)
892.4
(2,540,156) 4,208,862
1,125.7
1,433.0
1,814,024
997.7
(137,114)
1,338.2
(123,279)
1,121.4
205,704
1,215.5
205,704
1,215.5
(25,819)
1,480.0
–
–
466,097
1,226.7
315,589
1,219.9
17,067,908 11,315,031
147.7
380.7
(2,495,408) (2,126,712) 23,760,819 3,330,615
281.5
287.4
280.8
354.9
3,306,981 15,516,608
304.2
779.7
(155,107)
730.3
(1,600,574) 17,067,908
380.7
429.0
651,595
688.7
14,466,011
1,160.9
16,343,605
1,128.8
1,518,439
1,274.5
2,229,052
1,274.5
–
–
–
–
–
–
–
–
1,088.9
(3,362) (4,456,279) 10,006,370 10,006,370
1,192.9
1,219.0
1,192.9
9,894,040
(531,106)
(1,346,488) 14,466,011
201.8
1,139.3
1,160.9
(265,694) 1,252,745 1,252,745
–
1,274.4
1,274.4
–
1,274.4
1,518,439
(710,613) 1,518,439
–
1,274.5
1,274.5
–
1,149.6
1,274.6
The options granted during the year were valued using a proprietary binomial valuation.
146 Tullow Oil plc 2016 Annual Report and Accounts
147
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NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 27. Share-based payments continued
The following table details the weighted average fair value of awards granted and the assumptions used in the fair value
expense calculations.
Note 29. Related party transactions
Party Disclosures.
The Directors of Tullow Oil plc are considered to be the only key management personnel as defined by IAS 24 – Related
Weighted average fair value of awards granted
Weighted average share price at exercise for awards exercised
Principal inputs to options valuations model:
Weighted average share price at grant
Weighted average exercise price
Risk-free interest rate per annum
Expected volatility per annum1
Expected award life (years)2
Dividend yield per annum
Employee turnover before vesting per annum3
2016 TIP
2016 ESAP
2015 TIP
2015 ESAP
147.7p
–
147.7p
282.1p
406.1p
–
304.2p
319.0
147.7p
0.0p
0.4 – 0.7%
45 – 50%
3.5
n/a
5% / 0%
147.7p
304.2p
406.1p
0.0p
0.0p
0.0p
0.4% 0.9 – 1.3% 0.5 – 1.0%
50%
32 – 41%
3.0
2.2
0.0%
0.0%
5%
5%
32 – 36%
3.3
n/a
5% / 0%
1. Expected volatility was determined by calculating the historical volatility of the Company’s share price over a period commensurate with the expected
life of the awards.
2. The expected life is the average expected period from date of grant to exercise allowing for the Company’s best estimate of participants’
expected exercise behaviour.
3. Zero turnover is assumed for TIP awards made to executives and Directors, 5% per annum for TIP awards to Senior Management.
Weighted average share price at exercise for
awards exercised
1. Includes the replacement phantom awards made during 2013.
Note 28. Commitments and contingencies
Capital commitments
Operating lease commitments
Due within one year
After one year but within two years
After two years but within five years
Due after five years
Contingent liabilities
Performance guarantees
Other contingent liabilities
2016
PSP
2015
PSP
2016
DSBP
2015
DSBP
2016
SOP/ESOS1
2015
SOP/ESOS1
254.6p
294.5p
213.5p
384.6p
255.7p
409.0p
2016
$m
108.4
2015
$m
1,614.5
143.7
105.9
319.9
464.8
1,034.3
8.4
8.4
25.2
39.3
81.3
85.1
156.6
130.9
32.0
241.7
162.9
125 metres.
Where Tullow acts as operator of a joint venture the capital commitments reported represent Tullow’s net share of
these commitments.
Where Tullow is non-operator the value of capital commitments is based on committed future work programmes.
Operating lease payments represent rentals payable by the Group for certain of its office properties and a lease for
an FPSO vessel for use on TEN filed in Ghana. The TEN FPSO is expected to be recognised as a finance lease in the first half of
2017. Leases on office properties are negotiated for an average of six years and rentals are fixed for an average of six years.
Performance guarantees are in respect of abandonment obligations, committed work programmes and certain
financial obligations.
other payables.
Other contingent liabilities include amounts for ongoing legal disputes with third parties where we consider the likelihood of a
cash outflow to be higher than remote but not probable.
2016
$m
8.9
1.0
3.7
2.6
16.2
2015
$m
10.0
1.1
4.2
5.7
21.0
Short-term employee benefits
Post-employment benefits
Amounts awarded under long-term incentive schemes
Share-based payments
Short-term employee benefits
plus bonuses awarded for the year.
Post-employment benefits
These amounts comprise fees paid to the Directors in respect of salary and benefits earned during the relevant financial year,
These amounts comprise amounts paid into the pension schemes of the Directors.
Amounts awarded under long-term incentive schemes
These amounts relate to the shares granted under the annual bonus scheme that are deferred for three years under
the Deferred Share Bonus Plan (DSBP) and Tullow Incentive Plan (TIP).
Share-based payments
This is the cost to the Group of Directors’ participation in share-based payment plans, as measured by the fair value
of options and shares granted, accounted for in accordance with IFRS 2 Share-based Payments.
There are no other related party transactions. Further details regarding transactions with the Directors of Tullow Oil plc are
disclosed in the Remuneration Report on pages 80 to 100.
Note 30. Subsequent events
On 5 January 2017, Tullow announced that Ian Springett, CFO, has taken an extended leave of absence to undergo treatment for
a medical condition, with Les Wood, Vice President Finance and Commercial, appointed Interim CFO.
On 9 January 2017, Tullow announced that it had agreed a substantial farm-down of its assets in Uganda to Total. For further
details please see above.
On 11 January 2017, the Group announced that Paul McDade, currently Chief Operating Officer, will be appointed Chief
Executive Officer following Tullow’s Annual General Meeting on 26 April 2017. This follows an internal and external process
led by Tullow’s Nominations Committee. At the same time, after six years on Tullow’s Board and five as Chairman, Simon
Thompson will step down from the Board. Aidan Heavey, Chief Executive Officer and founder of Tullow Oil, will succeed Mr.
Thompson as Chairman of the Group for a transitional period of up to but not exceeding two years. Ann Grant, Senior
Independent Director, will retire at the AGM after nine years’ service on the Board. Jeremy Wilson, a non-executive Director of
Tullow and Chairman of the Remuneration Committee, will succeed Ms Grant as Senior Independent Director.
On 17 January 2017, the Group announced that the Erut-1 well in Block 13T, Northern Kenya, had discovered a gross oil interval
of 55 metres with 25 metres of net oil pay at a depth of 700 metres. The overall oil column for the field is estimated to be 100 to
On 7 February 2017, Tullow agreed a one year maturity extension of its Corporate Facility to April 2019, with commitments of
$500 million from April 2018 reducing to $400 million in October 2018. The extension has been significantly over subscribed,
demonstrating the continued support from Tullow’s relationship banks.
Note 31. Pension schemes
The Group operates defined contribution pension schemes for staff and Executive Directors. The contributions are payable
to external funds which are administered by independent trustees. Contributions during the year amounted to $16.6 million
(2015: $20.5 million). As at 31 December 2016, there was a liability of $nil (2015: $nil) for contributions payable included in
148
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Weighted average fair value of awards granted
Weighted average share price at exercise for awards exercised
Principal inputs to options valuations model:
Weighted average share price at grant
Weighted average exercise price
Risk-free interest rate per annum
Expected volatility per annum1
Expected award life (years)2
Dividend yield per annum
Employee turnover before vesting per annum3
2016 TIP
2016 ESAP
2015 TIP
2015 ESAP
147.7p
–
147.7p
282.1p
406.1p
–
304.2p
319.0
147.7p
147.7p
406.1p
304.2p
0.0p
0.0p
0.0p
0.0p
0.4 – 0.7%
45 – 50%
3.5
n/a
5% / 0%
0.4% 0.9 – 1.3% 0.5 – 1.0%
32 – 36%
32 – 41%
3.3
n/a
5% / 0%
2.2
0.0%
5%
50%
3.0
0.0%
5%
1. Expected volatility was determined by calculating the historical volatility of the Company’s share price over a period commensurate with the expected
life of the awards.
expected exercise behaviour.
2. The expected life is the average expected period from date of grant to exercise allowing for the Company’s best estimate of participants’
3. Zero turnover is assumed for TIP awards made to executives and Directors, 5% per annum for TIP awards to Senior Management.
2016
PSP
2015
PSP
2016
DSBP
2015
DSBP
2016
2015
SOP/ESOS1
SOP/ESOS1
254.6p
294.5p
213.5p
384.6p
255.7p
409.0p
Weighted average share price at exercise for
awards exercised
1. Includes the replacement phantom awards made during 2013.
Note 28. Commitments and contingencies
Capital commitments
Operating lease commitments
Due within one year
After one year but within two years
After two years but within five years
Due after five years
Contingent liabilities
Performance guarantees
Other contingent liabilities
2016
$m
108.4
2015
$m
1,614.5
143.7
105.9
319.9
464.8
1,034.3
8.4
8.4
25.2
39.3
81.3
85.1
156.6
130.9
32.0
241.7
162.9
Where Tullow acts as operator of a joint venture the capital commitments reported represent Tullow’s net share of
these commitments.
Where Tullow is non-operator the value of capital commitments is based on committed future work programmes.
Operating lease payments represent rentals payable by the Group for certain of its office properties and a lease for
an FPSO vessel for use on TEN filed in Ghana. The TEN FPSO is expected to be recognised as a finance lease in the first half of
2017. Leases on office properties are negotiated for an average of six years and rentals are fixed for an average of six years.
Performance guarantees are in respect of abandonment obligations, committed work programmes and certain
financial obligations.
Other contingent liabilities include amounts for ongoing legal disputes with third parties where we consider the likelihood of a
cash outflow to be higher than remote but not probable.
Note 27. Share-based payments continued
expense calculations.
The following table details the weighted average fair value of awards granted and the assumptions used in the fair value
Note 29. Related party transactions
The Directors of Tullow Oil plc are considered to be the only key management personnel as defined by IAS 24 – Related
Party Disclosures.
Short-term employee benefits
Post-employment benefits
Amounts awarded under long-term incentive schemes
Share-based payments
2016
$m
8.9
1.0
3.7
2.6
16.2
2015
$m
10.0
1.1
4.2
5.7
21.0
Short-term employee benefits
These amounts comprise fees paid to the Directors in respect of salary and benefits earned during the relevant financial year,
plus bonuses awarded for the year.
Post-employment benefits
These amounts comprise amounts paid into the pension schemes of the Directors.
Amounts awarded under long-term incentive schemes
These amounts relate to the shares granted under the annual bonus scheme that are deferred for three years under
the Deferred Share Bonus Plan (DSBP) and Tullow Incentive Plan (TIP).
Share-based payments
This is the cost to the Group of Directors’ participation in share-based payment plans, as measured by the fair value
of options and shares granted, accounted for in accordance with IFRS 2 Share-based Payments.
There are no other related party transactions. Further details regarding transactions with the Directors of Tullow Oil plc are
disclosed in the Remuneration Report on pages 80 to 100.
Note 30. Subsequent events
On 5 January 2017, Tullow announced that Ian Springett, CFO, has taken an extended leave of absence to undergo treatment for
a medical condition, with Les Wood, Vice President Finance and Commercial, appointed Interim CFO.
On 9 January 2017, Tullow announced that it had agreed a substantial farm-down of its assets in Uganda to Total. For further
details please see above.
On 11 January 2017, the Group announced that Paul McDade, currently Chief Operating Officer, will be appointed Chief
Executive Officer following Tullow’s Annual General Meeting on 26 April 2017. This follows an internal and external process
led by Tullow’s Nominations Committee. At the same time, after six years on Tullow’s Board and five as Chairman, Simon
Thompson will step down from the Board. Aidan Heavey, Chief Executive Officer and founder of Tullow Oil, will succeed Mr.
Thompson as Chairman of the Group for a transitional period of up to but not exceeding two years. Ann Grant, Senior
Independent Director, will retire at the AGM after nine years’ service on the Board. Jeremy Wilson, a non-executive Director of
Tullow and Chairman of the Remuneration Committee, will succeed Ms Grant as Senior Independent Director.
On 17 January 2017, the Group announced that the Erut-1 well in Block 13T, Northern Kenya, had discovered a gross oil interval
of 55 metres with 25 metres of net oil pay at a depth of 700 metres. The overall oil column for the field is estimated to be 100 to
125 metres.
On 7 February 2017, Tullow agreed a one year maturity extension of its Corporate Facility to April 2019, with commitments of
$500 million from April 2018 reducing to $400 million in October 2018. The extension has been significantly over subscribed,
demonstrating the continued support from Tullow’s relationship banks.
Note 31. Pension schemes
The Group operates defined contribution pension schemes for staff and Executive Directors. The contributions are payable
to external funds which are administered by independent trustees. Contributions during the year amounted to $16.6 million
(2015: $20.5 million). As at 31 December 2016, there was a liability of $nil (2015: $nil) for contributions payable included in
other payables.
148 Tullow Oil plc 2016 Annual Report and Accounts
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COMPANY BALANCE SHEET
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2016
AS AT 31 DECEMBER 2016
COMPANY STATEMENT OF CHANGES IN EQUITY
AS AT 31 DECEMBER 2016
At 1 January 2015
Loss for the year
Issue of employee share options
Vesting of PSP shares
Share-based payment charges
At 1 January 2016
Loss for the year
Issue of employee share options
Vesting of PSP shares
Share-based payment charges
Share
premium
$m
Other
reserves
$m
Retained
earnings
$m
Total
equity
$m
606.4
850.8
3,579.8
5,184.0
(1,264.8)
(1,264.8)
–
3.4
–
–
–
9.5
–
–
–
–
–
–
–
–
–
–
–
(1.9)
67.3
–
(9.4)
50.9
3.6
(1.9)
67.3
9.8
(9.4)
50.9
147.2
609.8
850.8
2,380.4
3,988.2
(253.4)
(253.4)
Share
capital
$m
147.0
–
0.2
–
–
–
0.3
–
–
At 31 December 2016
147.5
619.3
850.8
2,168.5
3,786.1
ASSETS
Non-current assets
Investments
Intercompany derivative asset
Current assets
Other current assets
Intercompany derivative asset
Cash at bank
Total assets
LIABILITIES
Current liabilities
Trade and other creditors
Borrowings
Intercompany derivative liability
Non-current liabilities
Borrowings
Intercompany derivative liability
Total liabilities
Net assets
Capital and reserves
Called-up share capital
Share premium
Other reserves
Retained earnings
Total equity
During the year the Company made a loss of $253.4 million (2015: $1,264.8 million loss).
Approved by the Board and authorised for issue on 7 February 2017.
Aidan Heavey
Chief Executive Officer
Les Wood
Interim Chief Financial Officer
Notes
2016
$m
2015
$m
1
6
3
6
4
5
6
5
6
7
7
7,398.0
–
7,398.0
4,885.4
217.6
5,103.0
1,431.4
–
6.7
1,438.1
3,475.5
405.4
3.4
3,884.3
8,836.1
8,987.3
(343.6)
(508.1)
(50.0)
(722.5)
(14.2)
–
(901.7)
(736.7)
(4,131.1)
(17.2)
(4,148.3)
(4,262.4)
–
(4,262.4)
(5,050.0)
(4,999.1)
3,786.1
3,988.2
147.5
619.3
850.8
2,168.5
147.2
609.8
850.8
2,380.4
3,786.1
3,988.2
150
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2016
COMPANY STATEMENT OF CHANGES IN EQUITY
COMPANY STATEMENT OF CHANGES IN EQUITY
AS AT 31 DECEMBER 2016
AS AT 31 DECEMBER 2016
At 1 January 2015
Loss for the year
Issue of employee share options
Vesting of PSP shares
Share-based payment charges
At 1 January 2016
Loss for the year
Issue of employee share options
Vesting of PSP shares
Share-based payment charges
Share
capital
$m
147.0
–
0.2
–
–
147.2
–
0.3
–
–
Share
premium
$m
Other
reserves
$m
606.4
–
3.4
–
–
609.8
–
9.5
–
–
850.8
–
–
–
–
850.8
–
–
–
–
Retained
earnings
$m
3,579.8
(1,264.8)
–
(1.9)
67.3
2,380.4
(253.4)
–
(9.4)
50.9
Total
equity
$m
5,184.0
(1,264.8)
3.6
(1.9)
67.3
3,988.2
(253.4)
9.8
(9.4)
50.9
At 31 December 2016
147.5
619.3
850.8
2,168.5
3,786.1
ASSETS
Non-current assets
Investments
Intercompany derivative asset
Current assets
Other current assets
Intercompany derivative asset
Cash at bank
Total assets
LIABILITIES
Current liabilities
Trade and other creditors
Borrowings
Intercompany derivative liability
Non-current liabilities
Borrowings
Intercompany derivative liability
Total liabilities
Net assets
Capital and reserves
Called-up share capital
Share premium
Other reserves
Retained earnings
Total equity
During the year the Company made a loss of $253.4 million (2015: $1,264.8 million loss).
Approved by the Board and authorised for issue on 7 February 2017.
Aidan Heavey
Les Wood
Chief Executive Officer
Interim Chief Financial Officer
Notes
2016
$m
2015
$m
1
6
3
6
4
5
6
5
6
7
7
7,398.0
–
7,398.0
4,885.4
217.6
5,103.0
1,431.4
3,475.5
–
6.7
405.4
3.4
1,438.1
3,884.3
8,836.1
8,987.3
(343.6)
(508.1)
(50.0)
(722.5)
(14.2)
–
(901.7)
(736.7)
(4,131.1)
(4,262.4)
(17.2)
–
(4,148.3)
(4,262.4)
(5,050.0)
(4,999.1)
3,786.1
3,988.2
147.5
619.3
850.8
147.2
609.8
850.8
2,168.5
2,380.4
3,786.1
3,988.2
150 Tullow Oil plc 2016 Annual Report and Accounts
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COMPANY ACCOUNTING POLICIES
COMPANY ACCOUNTING POLICIES
AS AT 31 DECEMBER 2016
AS AT 31 DECEMBER 2016
(a) General information
Tullow Oil plc is a company incorporated in the United
Kingdom under the Companies Act. The address of the
registered office is Tullow Oil plc, Building 9, Chiswick Park,
566 Chiswick High Road, London W4 5XT. The Financial
Statements are presented in US dollars and all values
are rounded to the nearest $0.1 million, except where
otherwise stated. Tullow Oil plc is the ultimate Parent
of the Tullow Oil Group.
(b) Basis of accounting
The Company meets the definition of a qualifying entity under
Financial Reporting Standard 100 (FRS 100) issued by the
Financial Reporting Council. The Financial Statements
have therefore been prepared in accordance with Financial
Reporting Standard 101 (FRS 101) ‘Reduced Disclosure
Framework’ as issued by the Financial Reporting Council.
As permitted by FRS 101, the Company has taken advantage
of the disclosure exemptions available under that standard
in relation to share-based payments, financial instruments,
capital management, presentation of comparative information
in respect of certain assets, presentation of an income
statement, presentation of a cash flow statement, standards
not yet effective, impairment of assets and related party
transactions. Where relevant, equivalent disclosures have
been given in the Group accounts.
The Financial Statements have been prepared on the
historical cost basis, except for derivative financial
instruments that have been measured at fair value.
During the year the Company made a loss of
$253.4 million (2015: $1,264.8 million loss).
(c) Going concern
The Group closely monitors and manages its liquidity risk.
Cash forecasts are regularly produced and sensitivities run
for different scenarios including, but not limited to, changes
in commodity prices and different production rates from the
Group’s producing assets. In the currently low commodity
price environment, the Group has taken appropriate action
to reduce its cost base and had $1.0 billion of debt liquidity
headroom and free cash at the end of 2016. The Group’s
forecasts show that the Group will be able to operate
within its current debt facilities and have sufficient financial
headroom for the 12 months from the date of approval of
the 2016 Annual Report and Accounts.
Notwithstanding our forecasts of liquidity headroom
throughout the 12-month period, risk remains in relation
to the volatility of the oil price environment, operational
performance of the Group’s assets, their impact on operating
cash flows and the Group’s currently contracted debt maturity
profiles, such that the Group’s liquidity position may
deteriorate within the assessment period.
To mitigate these risks and to fulfil the Group’s objective to
reduce net debt, the Group continues to closely monitor cash
flow projections and will take mitigating actions in advance to
maintain our liquidity. Actions available to the Group include
additional funding options, further rationalisation of our cost
base including cuts to discretionary capital expenditure and
portfolio management.
adopt the going concern basis of accounting in preparing
the annual Financial Statements.
(d) Foreign currencies
The US dollar is the reporting currency of the Company.
Transactions in foreign currencies are translated at the
rates of exchange ruling at the transaction date. Monetary
assets and liabilities denominated in foreign currencies are
translated into US dollars at the rates of exchange ruling
at the balance sheet date, with a corresponding charge
or credit to the income statement. However, exchange gains
and losses arising on long-term foreign currency borrowings,
which are a hedge against the Company’s overseas
investments, are dealt with in reserves.
(e) Investments
Fixed asset investments, including investments in
subsidiaries, are stated at cost and reviewed for impairment
if there are indications that the carrying
value may not be recoverable.
(f) Derivative financial instruments
The Company uses derivative financial instruments to manage
the Group’s exposure to fluctuations in movements in oil and
gas prices.
Derivative financial instruments are stated at fair value.
The purpose for which a derivative is used is established at
inception. To qualify for hedge accounting, the derivative
must be highly effective in achieving its objective and
this effectiveness must be documented at inception and
throughout the period of the hedge relationship. The hedge
must be assessed on an ongoing basis and determined to
have been highly effective throughout the financial reporting
periods for which the hedge was designated.
For the purpose of hedge accounting, hedges are classified
as either fair value hedges, when they hedge the exposure to
changes in the fair value of a recognised asset or liability, or
cash flow hedges, where they hedge exposure to variability
in cash flows that is either attributable to a particular
risk associated with a recognised asset or liability or
forecast transaction.
In relation to fair value hedges which meet the conditions for
hedge accounting, any gain or loss from remeasuring the
derivative and the hedged item at fair value is recognised
immediately in the income statement. Any gain or loss on
the hedged item attributable to the hedged risk is adjusted
against the carrying amount of the hedged item and
recognised in the income statement.
For cash flow hedges, the portion of the gains and losses on
the hedging instrument that is determined to be an effective
hedge is taken to other comprehensive income and the
ineffective portion, as well as any change in time value, is
recognised in the income statement. The gains and losses
taken to other comprehensive income are subsequently
transferred to the income statement during the period in
which the hedged transaction affects the income statement.
A similar treatment applies to foreign currency loans which
are hedges of the Group’s net investment in the net assets
of a foreign operation.
Based on the analysis above and the level of mitigating actions
available, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational
existence for the foreseeable future. Thus they continue to
Gains or losses on derivatives that do not qualify for hedge
accounting treatment (either from inception or during the life
of the instrument) are taken directly to the income statement
in the period.
(g) Financial liabilities and equity instruments
Financial liabilities and equity instruments are
classified according to the substance of the contractual
arrangements entered into. An equity instrument is any
contract that evidences a residual interest in the assets
of the Group after deducting all of its liabilities.
(h) Share issue expenses
arising on the issues of share capital.
(i) Finance costs of debt
(l) Critical accounting judgements and key sources of
estimation uncertainty
•
Financial instruments (note 6):
Some of the Company's assets and liabilities are measured at
fair value for financial reporting purposes. The Directors of
the Company have determined appropriate valuation
techniques and inputs for fair value measurements.
Company uses market-observable data to the extent it is
available. Where Level 1 inputs are not available, fair values
are estimated by reference to market-based transactions,
Costs of share issues are written off against the premium
In estimating the fair value of an asset or a liability, the
Finance costs of debt are recognised in the profit and loss
or using standard valuation techniques for the applicable
account over the term of the related debt at a constant rate
instruments and commodities involved.
on the carrying amount.
Interest-bearing borrowings are recorded as the proceeds
received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct
issue costs, are accounted for on an accruals basis in the
income statement using the effective interest method and are
added to the carrying amount of the instrument to the extent
that they are not settled in the period in which they arise.
(j) Taxation
Current and deferred tax, including UK corporation tax
and overseas corporation tax, are provided at amounts
expected to be paid using the tax rates and laws that have
been enacted or substantively enacted by the balance
sheet date. Deferred corporation tax is recognised on
all temporary differences that have originated but not
reversed at the balance sheet date where transactions
•
Investments (note 1):
The Company is required to assess the carrying values of
each of its investments in subsidiaries for impairment.
The net assets of certain of the Company’s subsidiaries are
predominantly intangible exploration and evaluation (E&E)
assets. Where facts and circumstances indicate that the
carrying amount of an E&E asset held by a subsidiary may
exceed its recoverable amount, by reference to the specific
indicators of impairment of E&E assets, an impairment test
of the asset is performed by the subsidiary undertaking and
the asset is impaired by any difference between its carrying
value and its recoverable amount. The recognition of such
an impairment by a subsidiary is used by the Company as
the primary basis for determining whether or not there
are indications that the investment in the related subsidiary
may also be impaired, and thus whether an impairment test
or events that result in an obligation to pay more, or right to
of the investment carrying value needs to be performed.
pay less, tax in the future have occurred at the balance sheet
The results of exploration activities are inherently uncertain
date. Deferred tax assets are recognised only to the extent
that it is considered more likely than not that there will be
and the assessment of impairment of E&E assets by the
subsidiary, and that of the related investment by the Company,
suitable taxable profits from which the underlying temporary
is judgemental.
differences can be deducted. Deferred tax is measured on a
non-discounted basis.
Deferred tax is provided on temporary differences arising on
acquisitions that are categorised as business combinations.
Deferred tax is recognised at acquisition as part of the
assessment of the fair value of assets and liabilities acquired.
Any deferred tax is charged or credited in the income
statement as the underlying temporary difference is reversed.
(k) Capital management
The Company defines capital as the total equity of the
Company. Capital is managed in order to provide returns for
shareholders and benefits to stakeholders and to safeguard
the Company’s ability to continue as a going concern. Tullow
is not subject to any externally imposed capital requirements.
To maintain or adjust the capital structure, the Company may
adjust the dividend payment to shareholders, return capital,
issue new shares for cash, repay debt, and put in place new
debt facilities.
152
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
COMPANY ACCOUNTING POLICIES
AS AT 31 DECEMBER 2016
registered office is Tullow Oil plc, Building 9, Chiswick Park,
(d) Foreign currencies
(a) General information
Tullow Oil plc is a company incorporated in the United
Kingdom under the Companies Act. The address of the
566 Chiswick High Road, London W4 5XT. The Financial
Statements are presented in US dollars and all values
are rounded to the nearest $0.1 million, except where
otherwise stated. Tullow Oil plc is the ultimate Parent
of the Tullow Oil Group.
(b) Basis of accounting
adopt the going concern basis of accounting in preparing
the annual Financial Statements.
The US dollar is the reporting currency of the Company.
Transactions in foreign currencies are translated at the
rates of exchange ruling at the transaction date. Monetary
assets and liabilities denominated in foreign currencies are
translated into US dollars at the rates of exchange ruling
at the balance sheet date, with a corresponding charge
or credit to the income statement. However, exchange gains
The Company meets the definition of a qualifying entity under
and losses arising on long-term foreign currency borrowings,
Financial Reporting Standard 100 (FRS 100) issued by the
which are a hedge against the Company’s overseas
Financial Reporting Council. The Financial Statements
investments, are dealt with in reserves.
have therefore been prepared in accordance with Financial
Reporting Standard 101 (FRS 101) ‘Reduced Disclosure
(e) Investments
Framework’ as issued by the Financial Reporting Council.
Fixed asset investments, including investments in
As permitted by FRS 101, the Company has taken advantage
of the disclosure exemptions available under that standard
in relation to share-based payments, financial instruments,
capital management, presentation of comparative information
in respect of certain assets, presentation of an income
statement, presentation of a cash flow statement, standards
not yet effective, impairment of assets and related party
transactions. Where relevant, equivalent disclosures have
subsidiaries, are stated at cost and reviewed for impairment
if there are indications that the carrying
value may not be recoverable.
(f) Derivative financial instruments
The Company uses derivative financial instruments to manage
the Group’s exposure to fluctuations in movements in oil and
gas prices.
been given in the Group accounts.
Derivative financial instruments are stated at fair value.
The Financial Statements have been prepared on the
The purpose for which a derivative is used is established at
historical cost basis, except for derivative financial
instruments that have been measured at fair value.
During the year the Company made a loss of
$253.4 million (2015: $1,264.8 million loss).
(c) Going concern
The Group closely monitors and manages its liquidity risk.
inception. To qualify for hedge accounting, the derivative
must be highly effective in achieving its objective and
this effectiveness must be documented at inception and
throughout the period of the hedge relationship. The hedge
must be assessed on an ongoing basis and determined to
have been highly effective throughout the financial reporting
periods for which the hedge was designated.
Cash forecasts are regularly produced and sensitivities run
For the purpose of hedge accounting, hedges are classified
for different scenarios including, but not limited to, changes
as either fair value hedges, when they hedge the exposure to
in commodity prices and different production rates from the
changes in the fair value of a recognised asset or liability, or
Group’s producing assets. In the currently low commodity
cash flow hedges, where they hedge exposure to variability
price environment, the Group has taken appropriate action
in cash flows that is either attributable to a particular
to reduce its cost base and had $1.0 billion of debt liquidity
risk associated with a recognised asset or liability or
headroom and free cash at the end of 2016. The Group’s
forecast transaction.
forecasts show that the Group will be able to operate
within its current debt facilities and have sufficient financial
headroom for the 12 months from the date of approval of
the 2016 Annual Report and Accounts.
In relation to fair value hedges which meet the conditions for
hedge accounting, any gain or loss from remeasuring the
derivative and the hedged item at fair value is recognised
immediately in the income statement. Any gain or loss on
Notwithstanding our forecasts of liquidity headroom
the hedged item attributable to the hedged risk is adjusted
throughout the 12-month period, risk remains in relation
against the carrying amount of the hedged item and
to the volatility of the oil price environment, operational
recognised in the income statement.
performance of the Group’s assets, their impact on operating
cash flows and the Group’s currently contracted debt maturity
profiles, such that the Group’s liquidity position may
deteriorate within the assessment period.
For cash flow hedges, the portion of the gains and losses on
the hedging instrument that is determined to be an effective
hedge is taken to other comprehensive income and the
ineffective portion, as well as any change in time value, is
To mitigate these risks and to fulfil the Group’s objective to
recognised in the income statement. The gains and losses
reduce net debt, the Group continues to closely monitor cash
taken to other comprehensive income are subsequently
flow projections and will take mitigating actions in advance to
transferred to the income statement during the period in
maintain our liquidity. Actions available to the Group include
which the hedged transaction affects the income statement.
additional funding options, further rationalisation of our cost
A similar treatment applies to foreign currency loans which
base including cuts to discretionary capital expenditure and
are hedges of the Group’s net investment in the net assets
portfolio management.
of a foreign operation.
Based on the analysis above and the level of mitigating actions
Gains or losses on derivatives that do not qualify for hedge
available, the Directors have a reasonable expectation that the
accounting treatment (either from inception or during the life
Company has adequate resources to continue in operational
of the instrument) are taken directly to the income statement
existence for the foreseeable future. Thus they continue to
in the period.
(l) Critical accounting judgements and key sources of
estimation uncertainty
•
Financial instruments (note 6):
Some of the Company's assets and liabilities are measured at
fair value for financial reporting purposes. The Directors of
the Company have determined appropriate valuation
techniques and inputs for fair value measurements.
In estimating the fair value of an asset or a liability, the
Company uses market-observable data to the extent it is
available. Where Level 1 inputs are not available, fair values
are estimated by reference to market-based transactions,
or using standard valuation techniques for the applicable
instruments and commodities involved.
•
Investments (note 1):
The Company is required to assess the carrying values of
each of its investments in subsidiaries for impairment.
The net assets of certain of the Company’s subsidiaries are
predominantly intangible exploration and evaluation (E&E)
assets. Where facts and circumstances indicate that the
carrying amount of an E&E asset held by a subsidiary may
exceed its recoverable amount, by reference to the specific
indicators of impairment of E&E assets, an impairment test
of the asset is performed by the subsidiary undertaking and
the asset is impaired by any difference between its carrying
value and its recoverable amount. The recognition of such
an impairment by a subsidiary is used by the Company as
the primary basis for determining whether or not there
are indications that the investment in the related subsidiary
may also be impaired, and thus whether an impairment test
of the investment carrying value needs to be performed.
The results of exploration activities are inherently uncertain
and the assessment of impairment of E&E assets by the
subsidiary, and that of the related investment by the Company,
is judgemental.
(g) Financial liabilities and equity instruments
Financial liabilities and equity instruments are
classified according to the substance of the contractual
arrangements entered into. An equity instrument is any
contract that evidences a residual interest in the assets
of the Group after deducting all of its liabilities.
(h) Share issue expenses
Costs of share issues are written off against the premium
arising on the issues of share capital.
(i) Finance costs of debt
Finance costs of debt are recognised in the profit and loss
account over the term of the related debt at a constant rate
on the carrying amount.
Interest-bearing borrowings are recorded as the proceeds
received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct
issue costs, are accounted for on an accruals basis in the
income statement using the effective interest method and are
added to the carrying amount of the instrument to the extent
that they are not settled in the period in which they arise.
(j) Taxation
Current and deferred tax, including UK corporation tax
and overseas corporation tax, are provided at amounts
expected to be paid using the tax rates and laws that have
been enacted or substantively enacted by the balance
sheet date. Deferred corporation tax is recognised on
all temporary differences that have originated but not
reversed at the balance sheet date where transactions
or events that result in an obligation to pay more, or right to
pay less, tax in the future have occurred at the balance sheet
date. Deferred tax assets are recognised only to the extent
that it is considered more likely than not that there will be
suitable taxable profits from which the underlying temporary
differences can be deducted. Deferred tax is measured on a
non-discounted basis.
Deferred tax is provided on temporary differences arising on
acquisitions that are categorised as business combinations.
Deferred tax is recognised at acquisition as part of the
assessment of the fair value of assets and liabilities acquired.
Any deferred tax is charged or credited in the income
statement as the underlying temporary difference is reversed.
(k) Capital management
The Company defines capital as the total equity of the
Company. Capital is managed in order to provide returns for
shareholders and benefits to stakeholders and to safeguard
the Company’s ability to continue as a going concern. Tullow
is not subject to any externally imposed capital requirements.
To maintain or adjust the capital structure, the Company may
adjust the dividend payment to shareholders, return capital,
issue new shares for cash, repay debt, and put in place new
debt facilities.
152 Tullow Oil plc 2016 Annual Report and Accounts
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NOTES TO THE COMPANY FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 1. Investments
Shares at cost in subsidiary undertakings
Unlisted investments
2016
$m
7,397.0
1.0
2015
$m
4,884.4
1.0
7,398.0
4,885.4
During 2016, the Company increased its investments in subsidiaries undertakings by $3,690.2 million (2015: $1,245.6 million);
this was partially offset by recognising an impairment of $1,177.6 million (2015: $1,279.8 million) against the Company’s
investments in subsidiaries to fund losses incurred by Group service companies and exploration companies.
The Company’s subsidiary undertakings as at 31 December 2016 are listed on pages 175 and 176. The principal activity of all
companies relates to oil and gas exploration, development and production.
Note 2. Deferred tax
The Company has tax losses of $494.4 million (2015: $359.9 million) that are available indefinitely for offset against
future non-ring-fenced taxable profits in the Company. A deferred tax asset of $nil (2015: $nil) has been recognised in respect
of these losses on the basis that the Company does not anticipate making non-ring-fenced profits in the foreseeable future.
Note 3. Other current assets
Amounts falling due within one year
Other debtors
Due from subsidiary undertakings
2016
$m
2015
$m
29.1
1,402.3
–
3,475.5
1,431.4
3,475.5
Note 5. Borrowings
Current
Non-current
Bank borrowings – Reserve Based Lending credit facility
Bank borrowings – after one year but within two years
Reserve-Based lending credit facility
Revolving credit facility
Bank borrowings – after two years but within five years
Reserve-Based lending credit facility
6.0% Senior Notes due 2020
6.25% Senior Notes due 2022
Carrying value of total borrowings
Accrued interest and unamortised fees
External borrowings
Note 6. Financial instruments
Disclosure exemptions adopted
The amounts due from subsidiary undertakings include $1,373.3 million (2015: $2,951.0 million) that incurs interest at LIBOR
plus 0.5% – 4.5%. The remaining amounts due from subsidiaries accrue no interest. All amounts are repayable on demand.
During the year a provision of $172.5 million (2015: $174.8 million) was made in respect of the recoverability of amounts due
from subsidiary undertakings.
Financial risk management objectives
The Company follows the Group’s policies for managing all its financial risks.
Fair values of derivative instruments
Note 4. Trade and other creditors
Amounts falling due within one year
VAT and other similar taxes
Due to subsidiary undertakings
2016
$m
0.7
342.9
2015
$m
–
722.5
343.6
722.5
2016
$m
2015
$m
508.1
14.2
906.2
364.6
800.0
–
1,561.7
2,165.6
647.6
651.0
646.4
650.4
4,131.1
4,262.4
4,639.2
4,276.6
40.8
37.6
4,680.0
4,314.2
Term loans are secured by fixed and floating charges over the oil and gas assets of the Group.
Where equivalent disclosures for the requirements of IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair
Value Measurements have been included in the 2016 Annual Report and Accounts of Tullow Oil plc, the Company
has adopted the disclosure exemptions available to the Company’s accounts.
All derivatives are recognised at fair value on the balance sheet with valuation changes recognised immediately in
the income statement, unless the derivatives have been designated as cash flow or fair value hedges. Fair value is the amount
for which the asset or liability could be exchanged in an arm’s length transaction at the relevant date. Where available, fair
values are determined using quoted prices in active markets. To the extent that market prices are not available, fair values are
estimated by reference to market-based transactions, or using standard valuation techniques
for the applicable instruments and commodities involved.
On 15 April 2016, the Company terminated the intercompany derivative trade previously entered on 22 December 2015 with a
wholly owned subsidiary, in exchange for a termination receipt of $550.1 million. This terminated the Company’s right to receive
from the subsidiary all future receipts, and its obligations to the subsidiary to assume all future liabilities under the Group’s
existing and future oil derivative contracts with external counterparties.
This intercompany transaction does not impact the Group’s oil derivative contracts with external counterparties, which it
continues to transact and hold in line with the Group’s commodity price risk management objectives.
On the same day, the Company entered into a new intercompany derivative trade with the same subsidiary, to purchase
downside oil price protection up to 31 December 2018, for a deferred consideration of $137.0 million.
The Company’s derivative carrying and fair values were as follows
Assets/liabilities
Intercompany oil derivatives
Total assets
Total liabilities
Less than 1
2016
year
$m
2016
1-3 years
$m
2016
Total
$m
(50.0)
(17.2)
(67.0)
–
–
–
(50.0)
(17.2)
(67.0)
Less than 1
2015
year
$m
405.4
405.4
–
2015
1-3 years
$m
217.6
217.6
–
2015
Total
$m
623.0
623.0
–
154
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 2016
Note 1. Investments
Shares at cost in subsidiary undertakings
Unlisted investments
During 2016, the Company increased its investments in subsidiaries undertakings by $3,690.2 million (2015: $1,245.6 million);
this was partially offset by recognising an impairment of $1,177.6 million (2015: $1,279.8 million) against the Company’s
investments in subsidiaries to fund losses incurred by Group service companies and exploration companies.
The Company’s subsidiary undertakings as at 31 December 2016 are listed on pages 175 and 176. The principal activity of all
companies relates to oil and gas exploration, development and production.
Note 2. Deferred tax
The Company has tax losses of $494.4 million (2015: $359.9 million) that are available indefinitely for offset against
future non-ring-fenced taxable profits in the Company. A deferred tax asset of $nil (2015: $nil) has been recognised in respect
of these losses on the basis that the Company does not anticipate making non-ring-fenced profits in the foreseeable future.
The amounts due from subsidiary undertakings include $1,373.3 million (2015: $2,951.0 million) that incurs interest at LIBOR
plus 0.5% – 4.5%. The remaining amounts due from subsidiaries accrue no interest. All amounts are repayable on demand.
During the year a provision of $172.5 million (2015: $174.8 million) was made in respect of the recoverability of amounts due
Note 3. Other current assets
Amounts falling due within one year
Other debtors
Due from subsidiary undertakings
from subsidiary undertakings.
Note 4. Trade and other creditors
Amounts falling due within one year
VAT and other similar taxes
Due to subsidiary undertakings
2016
$m
1.0
2015
$m
1.0
7,397.0
4,884.4
7,398.0
4,885.4
2016
$m
29.1
2015
$m
–
1,402.3
3,475.5
1,431.4
3,475.5
2016
$m
0.7
2015
$m
–
342.9
722.5
343.6
722.5
Note 5. Borrowings
Current
Bank borrowings – Reserve Based Lending credit facility
Non-current
Bank borrowings – after one year but within two years
Reserve-Based lending credit facility
Revolving credit facility
Bank borrowings – after two years but within five years
Reserve-Based lending credit facility
6.0% Senior Notes due 2020
6.25% Senior Notes due 2022
Carrying value of total borrowings
Accrued interest and unamortised fees
External borrowings
2016
$m
2015
$m
508.1
14.2
906.2
364.6
800.0
–
1,561.7
647.6
651.0
4,131.1
2,165.6
646.4
650.4
4,262.4
4,639.2
40.8
4,276.6
37.6
4,680.0
4,314.2
Term loans are secured by fixed and floating charges over the oil and gas assets of the Group.
Note 6. Financial instruments
Disclosure exemptions adopted
Where equivalent disclosures for the requirements of IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair
Value Measurements have been included in the 2016 Annual Report and Accounts of Tullow Oil plc, the Company
has adopted the disclosure exemptions available to the Company’s accounts.
Financial risk management objectives
The Company follows the Group’s policies for managing all its financial risks.
Fair values of derivative instruments
All derivatives are recognised at fair value on the balance sheet with valuation changes recognised immediately in
the income statement, unless the derivatives have been designated as cash flow or fair value hedges. Fair value is the amount
for which the asset or liability could be exchanged in an arm’s length transaction at the relevant date. Where available, fair
values are determined using quoted prices in active markets. To the extent that market prices are not available, fair values are
estimated by reference to market-based transactions, or using standard valuation techniques
for the applicable instruments and commodities involved.
On 15 April 2016, the Company terminated the intercompany derivative trade previously entered on 22 December 2015 with a
wholly owned subsidiary, in exchange for a termination receipt of $550.1 million. This terminated the Company’s right to receive
from the subsidiary all future receipts, and its obligations to the subsidiary to assume all future liabilities under the Group’s
existing and future oil derivative contracts with external counterparties.
This intercompany transaction does not impact the Group’s oil derivative contracts with external counterparties, which it
continues to transact and hold in line with the Group’s commodity price risk management objectives.
On the same day, the Company entered into a new intercompany derivative trade with the same subsidiary, to purchase
downside oil price protection up to 31 December 2018, for a deferred consideration of $137.0 million.
The Company’s derivative carrying and fair values were as follows
Assets/liabilities
Intercompany oil derivatives
Total assets
Total liabilities
2016
Less than 1
year
$m
(50.0)
–
(50.0)
2016
1-3 years
$m
(17.2)
–
(17.2)
2016
Total
$m
(67.0)
–
(67.0)
2015
Less than 1
year
$m
405.4
405.4
–
2015
1-3 years
$m
217.6
217.6
–
2015
Total
$m
623.0
623.0
–
154 Tullow Oil plc 2016 Annual Report and Accounts
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NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
Note 6. Financial instruments continued
The following provides an analysis of the Company’s financial instruments measured at fair value, grouped into
Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1
which are observable for the asset or liability, either directly or indirectly; and
Level 3: fair value measurements are those derived from valuation techniques which include inputs for the asset
or liability that are not based on observable market data.
All of the Company’s derivatives are Level 2 (2015: Level 2). There were no transfers between fair value levels during
the year.
For financial instruments which are recognised on a recurring basis, the Company determines whether transfers
have occurred between levels by reassessing categorisation (based on the lowest-level input which is significant
to the fair value measurement as a whole) at the end of each reporting period.
Income statement summary
Derivative fair value movements during the year which have been recognised in the income statement were as follows.
Loss on derivative instruments
Intercompany oil derivatives
2016
$m
(27.6)
2015
$m
(53.3)
Cash flow and interest rate risk
The interest rate profile of the Company’s financial assets and liabilities, excluding trade and other receivables
and trade and other payables, at 31 December 2016 and 2015 was as follows:
US$
Euro
Sterling
Other
2016
Cash at bank
$m
2016
Fixed rate
debt
$m
2016
Floating rate
debt
$m
2016
Total
$m
2015
Cash at bank
$m
2015
Fixed rate
debt
$m
2015
Floating rate
debt
$m
2015
Total
$m
7.7
–
–
0.1
(1,300.0)
–
–
–
(3,380.0)
–
–
–
(4,672.3)
–
–
0.1
2.1
0.2
0.1
1.0
(1,300.0)
–
–
–
(2,857.3)
–
(156.9)
–
(4,155.2)
0.2
(156.8)
1.0
7.8
(1,300.0)
(3,380.0)
(4,672.2)
3.4
(1,300.0)
(3,014.2)
(4,310.8)
Cash at bank consisted mainly of deposits which earn interest at rates set in advance for periods ranging from overnight to one
month by reference to market rates.
Sensitivity analysis
Note 6. Financial instruments continued
Liquidity risk
The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed
repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the
earliest date on which the Company can be required to pay.
31 December 2016
Non-interest bearing
Fixed interest rate instruments
Principal repayments
Interest charge
Principal repayments
Interest charge
Variable interest rate instruments
5.9%
Weighted
average
effective
interest rate
n/a
7.1%
343.6
–
14.5
–
14.2
Less than
1 month
$m
months
1-3
$m
3 months
to 1 year
$m
1-5
years
$m
5+
years
$m
Total
$m
–
–
94.1
–
–
343.6
941.7
395.5
650.0
20.3
1,591.7
524.4
55.0
28.2
453.1
118.4
2,871.9
151.9
–
–
3,380.0
312.7
372.3
83.2
665.6
4,361.0
670.3
6,152.4
Weighted
average
effective
interest rate
Less than
1 month
$m
months
1-3
$m
3 months
to 1 year
$m
1-5
years
$m
5+
years
$m
Total
$m
31 December 2015
Non-interest bearing
Fixed interest rate instruments
Principal repayments
Interest charge
Principal repayments
Interest charge
Variable interest rate instruments
6.0%
n/a
6.5%
722.5
–
–
–
9.9
–
–
79.6
–
–
722.5
650.0
318.5
650.0
1,300.0
60.9
459.0
14.2
3,000.0
19.7
88.5
206.0
–
–
3,014.2
324.1
732.4
19.7
182.3
4,174.5
710.9
5,819.8
The following analysis is intended to illustrate sensitivity to changes in market variables, being Dated Brent oil prices
and US dollar exchange rates. The analysis is used internally by management to monitor derivatives and assesses the financial
impact of reasonably possible movements in key variables.
–
–
–
–
–
–
–
Brent oil price
Brent oil price
US$/foreign currency exchange rates
US$/foreign currency exchange rates
The following assumptions have been used in calculating the sensitivity in movement of oil prices: the pricing adjustments
relate only to the point forward mark-to-market (MTM) valuations and the sensitivities have been run only on the intrinsic
element of the derivatives as management considers this to be the material component of oil derivative valuations.
Market movement
Impact on profit before tax
2016
$m
28.6
–
–
–
2015
$m
(286.0)
256.5
(31.4)
31.4
25%
(25%)
20%
(20%)
156
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Note 6. Financial instruments continued
The following provides an analysis of the Company’s financial instruments measured at fair value, grouped into
Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1
which are observable for the asset or liability, either directly or indirectly; and
Level 3: fair value measurements are those derived from valuation techniques which include inputs for the asset
or liability that are not based on observable market data.
All of the Company’s derivatives are Level 2 (2015: Level 2). There were no transfers between fair value levels during
the year.
For financial instruments which are recognised on a recurring basis, the Company determines whether transfers
have occurred between levels by reassessing categorisation (based on the lowest-level input which is significant
to the fair value measurement as a whole) at the end of each reporting period.
Derivative fair value movements during the year which have been recognised in the income statement were as follows.
Income statement summary
Loss on derivative instruments
Intercompany oil derivatives
Cash flow and interest rate risk
2016
$m
(27.6)
2015
$m
(53.3)
The interest rate profile of the Company’s financial assets and liabilities, excluding trade and other receivables
and trade and other payables, at 31 December 2016 and 2015 was as follows:
US$
Euro
Sterling
Other
2016
Fixed rate
Floating rate
2015
Fixed rate
Floating rate
Cash at bank
Cash at bank
2016
debt
$m
–
–
–
2016
debt
$m
–
–
–
2016
Total
$m
–
–
0.1
$m
7.7
–
–
0.1
2015
debt
$m
–
–
–
2015
debt
$m
–
–
2015
Total
$m
0.2
1.0
(156.9)
(156.8)
$m
2.1
0.2
0.1
1.0
(1,300.0)
(3,380.0)
(4,672.3)
(1,300.0)
(2,857.3)
(4,155.2)
7.8
(1,300.0)
(3,380.0)
(4,672.2)
3.4
(1,300.0)
(3,014.2)
(4,310.8)
Cash at bank consisted mainly of deposits which earn interest at rates set in advance for periods ranging from overnight to one
month by reference to market rates.
Note 6. Financial instruments continued
Liquidity risk
The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed
repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the
earliest date on which the Company can be required to pay.
Weighted
average
effective
interest rate
n/a
7.1%
31 December 2016
Non-interest bearing
Fixed interest rate instruments
Principal repayments
Interest charge
Variable interest rate instruments
5.9%
Principal repayments
Interest charge
Less than
1 month
$m
1-3
months
$m
3 months
to 1 year
$m
1-5
years
$m
5+
years
$m
Total
$m
343.6
–
14.5
–
14.2
–
–
–
–
–
–
343.6
–
94.1
941.7
395.5
650.0
20.3
1,591.7
524.4
55.0
28.2
453.1
118.4
2,871.9
151.9
–
–
3,380.0
312.7
372.3
83.2
665.6
4,361.0
670.3
6,152.4
Weighted
average
effective
interest rate
Less than
1 month
$m
1-3
months
$m
3 months
to 1 year
$m
1-5
years
$m
5+
years
$m
Total
$m
31 December 2015
Non-interest bearing
Fixed interest rate instruments
Principal repayments
Interest charge
Variable interest rate instruments
6.0%
Principal repayments
Interest charge
n/a
6.5%
722.5
–
–
–
–
–
–
722.5
–
79.6
650.0
318.5
650.0
60.9
1,300.0
459.0
–
19.7
14.2
88.5
3,000.0
206.0
–
–
3,014.2
324.1
–
–
–
9.9
Sensitivity analysis
The following analysis is intended to illustrate sensitivity to changes in market variables, being Dated Brent oil prices
and US dollar exchange rates. The analysis is used internally by management to monitor derivatives and assesses the financial
impact of reasonably possible movements in key variables.
732.4
19.7
182.3
4,174.5
710.9
5,819.8
Brent oil price
Brent oil price
US$/foreign currency exchange rates
US$/foreign currency exchange rates
Market movement
25%
(25%)
20%
(20%)
Impact on profit before tax
2016
$m
–
28.6
–
–
2015
$m
(286.0)
256.5
(31.4)
31.4
The following assumptions have been used in calculating the sensitivity in movement of oil prices: the pricing adjustments
relate only to the point forward mark-to-market (MTM) valuations and the sensitivities have been run only on the intrinsic
element of the derivatives as management considers this to be the material component of oil derivative valuations.
156 Tullow Oil plc 2016 Annual Report and Accounts
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NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
YEAR ENDED 31 DECEMBER 2016
FIVE-YEAR FINANCIAL SUMMARY
Note 7. Called up equity share capital and share premium account
Allotted equity share capital and share premium
At 1 January 2015
Issued during the year
– Exercise of share options
At 1 January 2016
Issued during the year
– Exercise of share options
At 31 December 2016
Equity share
capital allotted
and fully paid
Number
910,661,631
Share
capital
$m
147.0
Share
premium
$m
606.4
915,075
911,576,706
0.2
147.2
3.4
609.8
2,905,254
0.3
9.5
Group income statement
Sales revenue
Cost of sales
Gross profit
Administrative expenses
Restructuring costs
(Loss)/profit on disposal
Goodwill impairment
914,481,960
147.5
619.3
Exploration costs written off
Other operating income – lost production insurance proceeds
The Company does not have an authorised share capital. The par value of the Company’s shares is 10 pence.
(Loss)/profit for the year from continuing activities
(597.3)
(1,036.9)
(1,639.9)
216.1
666.2
2016
$m
2015
$m
2014
$m
2013*
$m
2012*
$m
1,606.6
2,212.9
2,646.9
2,344.1
(813.1)
(1,015.3)
(1,116.7)
(1,153.8)
(968.0)
1,269.9
90.1
546.9
(116.4)
(12.3)
(3.4)
(164.0)
(723.0)
(167.6)
(114.9)
–
591.3
(193.6)
(40.8)
(56.5)
(53.7)
(748.9)
(406.0)
(185.5)
–
–
–
1,096.2
1,493.1
1,376.1
(192.4)
(218.5)
(191.2)
(482.4)
(132.8)
(1,657.3)
(595.9)
29.5
702.5
(870.6)
(52.7)
(670.9)
(31.3)
–
–
–
–
–
–
–
–
(754.7)
(1,093.7)
(1,964.6)
380.8
1,185.2
18.2
26.4
(58.8)
4.2
50.8
9.6
(198.2)
(149.0)
(143.2)
(19.7)
43.7
(91.6)
(19.9)
9.6
(59.0)
(908.3)
(1,297.3)
(2,047.4)
311.0
260.4
407.5
313.2
(97.1)
1,115.9
(449.7)
(65.8)
(65.8)
(113.6)
(113.6)
(170.9)
(170.9)
18.6
18.5
68.8
68.4
–
–
182.3
167.4
173.2
8,340.1
813.1
9,153.2
(6,910.7)
9,506.8
9,335.1
9,439.3
8,087.6
259.2
747.4
637.0
65.4
9,766.0
10,082.5
10,076.3
8,153.0
(6,591.3)
(6,062.2)
(4,629.9)
(2,831.4)
(232.2)
(249.3)
(205.7)
(155.1)
(167.8)
147.5
619.3
48.4
128.2
740.9
778.0
147.2
609.8
–
569.9
740.9
147.0
606.4
–
401.6
740.9
146.9
603.2
–
2.3
740.9
146.6
584.8
–
(6.5)
740.9
1,336.4
2,305.8
3,984.7
3,931.2
Impairment of property, plant and equipment
Provision for onerous service contracts
Operating (loss)/profit
Profit/(loss) on hedging instruments
Finance revenue
Finance costs
Taxation
(Loss)/profit from continuing activities before taxation
(Loss)/earnings per share
Basic – ¢
Diluted – ¢
Dividends paid
Group balance sheet
Non-current assets
Net current assets/(liabilities)
Total assets less current liabilities
Long-term liabilities
Called up equity share capital
Share premium
Equity component of convertible bonds
Foreign currency translation reserve
Hedge reserve
Other reserves
Retained earnings
Net assets
2,242.5
3,174.7
4,020.3
5,446.4
5,321.6
Equity attributable to equity holders of the Parent
Non-controlling interest
2,230.1
12.4
3,154.9
3,996.0
5,322.9
5,229.2
19.8
24.3
123.5
92.4
* All comparative figures have been re-presented to align disclosure of impairments of property, plant and equipment on the face of the income
2,242.5
3,174.7
4,020.3
5,446.4
5,321.6
Total equity
statement with 2014.
158
158 Tullow Oil plc 2016 Annual Report and Accounts
159 Tullow Oil plc 2016 Annual Report and Accounts
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28/02/2017 14:01:58
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
FIVE-YEAR FINANCIAL SUMMARY
FIVE-YEAR FINANCIAL SUMMARY
Note 7. Called up equity share capital and share premium account
Allotted equity share capital and share premium
At 1 January 2015
Issued during the year
– Exercise of share options
At 1 January 2016
Issued during the year
– Exercise of share options
At 31 December 2016
Equity share
capital allotted
and fully paid
Number
910,661,631
Share
capital
$m
147.0
Share
premium
$m
606.4
915,075
911,576,706
0.2
147.2
3.4
609.8
2,905,254
0.3
9.5
914,481,960
147.5
619.3
The Company does not have an authorised share capital. The par value of the Company’s shares is 10 pence.
Group income statement
Sales revenue
Other operating income – lost production insurance proceeds
Cost of sales
Gross profit
Administrative expenses
Restructuring costs
(Loss)/profit on disposal
Goodwill impairment
Exploration costs written off
Impairment of property, plant and equipment
Provision for onerous service contracts
Operating (loss)/profit
Profit/(loss) on hedging instruments
Finance revenue
Finance costs
2016
$m
2015
$m
2014
$m
2013*
$m
2012*
$m
1,269.9
90.1
(813.1)
1,606.6
–
(1,015.3)
2,212.9
–
(1,116.7)
2,646.9
–
(1,153.8)
546.9
(116.4)
(12.3)
(3.4)
(164.0)
(723.0)
(167.6)
(114.9)
(754.7)
18.2
26.4
(198.2)
591.3
(193.6)
(40.8)
(56.5)
(53.7)
(748.9)
(406.0)
(185.5)
(1,093.7)
(58.8)
4.2
(149.0)
1,096.2
(192.4)
–
(482.4)
(132.8)
(1,657.3)
(595.9)
–
(1,964.6)
50.8
9.6
(143.2)
1,493.1
(218.5)
–
29.5
–
(870.6)
(52.7)
–
380.8
(19.7)
43.7
(91.6)
2,344.1
–
(968.0)
1,376.1
(191.2)
–
702.5
–
(670.9)
(31.3)
–
1,185.2
(19.9)
9.6
(59.0)
(Loss)/profit from continuing activities before taxation
Taxation
(908.3)
311.0
(1,297.3)
260.4
(2,047.4)
407.5
313.2
(97.1)
1,115.9
(449.7)
(Loss)/profit for the year from continuing activities
(597.3)
(1,036.9)
(1,639.9)
216.1
666.2
(Loss)/earnings per share
Basic – ¢
Diluted – ¢
Dividends paid
Group balance sheet
Non-current assets
Net current assets/(liabilities)
(65.8)
(65.8)
(113.6)
(113.6)
(170.9)
(170.9)
18.6
18.5
68.8
68.4
–
–
182.3
167.4
173.2
8,340.1
813.1
9,506.8
259.2
9,335.1
747.4
9,439.3
637.0
8,087.6
65.4
Total assets less current liabilities
Long-term liabilities
9,153.2
(6,910.7)
9,766.0
(6,591.3)
10,082.5
(6,062.2)
10,076.3
(4,629.9)
8,153.0
(2,831.4)
Net assets
2,242.5
3,174.7
4,020.3
5,446.4
5,321.6
Called up equity share capital
Share premium
Equity component of convertible bonds
Foreign currency translation reserve
Hedge reserve
Other reserves
Retained earnings
147.5
619.3
48.4
(232.2)
128.2
740.9
778.0
147.2
609.8
–
(249.3)
569.9
740.9
1,336.4
147.0
606.4
–
(205.7)
401.6
740.9
2,305.8
146.9
603.2
–
(155.1)
2.3
740.9
3,984.7
146.6
584.8
–
(167.8)
(6.5)
740.9
3,931.2
Equity attributable to equity holders of the Parent
Non-controlling interest
2,230.1
12.4
3,154.9
19.8
3,996.0
24.3
5,322.9
123.5
5,229.2
92.4
Total equity
2,242.5
3,174.7
4,020.3
5,446.4
5,321.6
* All comparative figures have been re-presented to align disclosure of impairments of property, plant and equipment on the face of the income
statement with 2014.
158 Tullow Oil plc 2016 Annual Report and Accounts
159 Tullow Oil plc 2016 Annual Report and Accounts
159
_1Q_Statement_Directors_Response_TLW_AR16_CG_2.indd 54
28/02/2017 14:01:58
3www.tullowoil.com
SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
Financial calendar
2016 Full-year results announced
Annual General Meeting
AGM Trading Update
Trading Statement & Operational
Update
2017 Half Year Results announced
November Trading Update
8 February 2017
26 April 2017
26 April 2017
28 June 2017
26 July 2017
8 November 2017
Shareholder enquiries
All enquiries concerning shareholdings, including notification
of change of address, loss of a share certificate or dividend
payments, should be made to the Company’s registrars.
For shareholders on the UK register, Computershare
provides a range of services through its online portal,
Investor Centre, which can be accessed free of charge at
www.investorcentre.co.uk. Once registered, this service,
accessible from anywhere in the world, enables shareholders
to check details of their shareholdings or dividends, download
forms to notify changes in personal details and access other
relevant information.
United Kingdom registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Tel – UK shareholders: 0870 703 6242
Tel – Irish shareholders: + 353 1 247 5413
Tel – overseas shareholders: + 44 870 703 6242
Contact: www.investorcentre.co.uk/contactus
Ghana registrar
The Central Securities Depository (Ghana) Limited
4th Floor, Cedi House, P.M.B CT 465
Cantonments, Accra, Ghana
Tel – Ghana shareholders: + 233 303 972 254/ 302 689 313
Contact: info@csd.com.gh
Share dealing service
A telephone share dealing service has been established
for shareholders with Computershare for the sale and
purchase of Tullow Oil shares. Shareholders who are
interested in using this service can obtain further details by
calling the appropriate telephone number below:
UK shareholders: 0870 703 0084
Irish shareholders: +353 1 447 5435
If you live outside the UK or Ireland and wish to trade you can
do so through the Computershare Trading Account. To find
out more or to open an account, please visit
www.computershare-sharedealing.co.uk or phone
Computershare on +44 870 707 1606.
ShareGift
If you have a small number of shares whose value makes
it uneconomical to sell, you may wish to consider donating
them to ShareGift which is a UK registered charity
specialising in realising the value locked up in small
shareholdings for charitable purposes. The resulting
proceeds are donated to a range of charities, reflecting
suggestions received from donors. Should you wish to donate
your Tullow Oil plc shares in this way, please download and
complete a transfer form from www.sharegift.org/forms, sign
it and send it together with the share certificate to ShareGift,
PO Box 72253, London SW1P 9LQ. For more information
regarding this charity, visit www.sharegift.org.
Electronic communication
To reduce impact on the environment, the Company
encourages all shareholders to receive their shareholder
communications, including annual reports and notices of
meetings, electronically. Once registered for electronic
communications, shareholders will be sent an email each
time the Company publishes statutory documents, providing
a link to the information.
Tullow actively supports Woodland Trust, the UK’s leading
woodland conservation charity. Computershare, together with
Woodland Trust, has established eTree, an environmental
programme designed to promote electronic shareholder
communications. Under this programme, the Company
makes a donation to eTree for every shareholder who
registers for electronic communication. To register
for this service, simply visit
http://www.investorcentre.co.uk/etreeuk/tullowoilplc with
your shareholder number and email address to hand.
Shareholder security
Shareholders are advised to be cautious about any unsolicited
financial advice: offers to buy shares at a discount or offers of
free company reports. More detailed information can be
found at http://scamsmart.fca.org.uk/ and in the Shareholder
Services section of the Investors area of the Tullow website:
www.tullowoil.com.
Corporate brokers
Barclays
5 North Colonnade
Canary Wharf
London
E14 4BB
Morgan Stanley & Co. International plc
20 Bank Street
Canary Wharf
London
E14 4AD
Davy
Davy House
49 Dawson Street
Dublin 2
Ireland
Licence
Fields
Area
sq km
Tullow
Interest
Operator
Other Partners
M’Boundi
146
11.00% ENI
SNPC
CI-26 Special Area "E"
Espoir
235
21.33% CNR
PETROCI
Ceiba
Okume, Oveng, Ebano,
Elon, Akom North
70
14.25% Hess
192
14.25% Hess
GEPetrol
GEPetrol
Etame, North Tchibala
7.50% Vaalco
Addax (Sinopec), Sasol,
40.00% Perenco
4,414
35.00% Perenco
ExxonMobil
52
7.50% Vaalco
Addax (Sinopec), Sasol,
15
7.50% Vaalco
Addax (Sinopec), Sasol,
PetroEnergy
PetroEnergy
PetroEnergy
5,626
7.50% Maurel & Prom
5
7.50% Maurel & Prom Gov of Gabon
117
36.00% Perenco
Total, Gov of Gabon
76
49
54
6
17
17
5
57
4
96
44
16
46
30
40
25
18
40.00% Perenco
7.50% Maurel & Prom Gov of Gabon
7.50% Maurel & Prom Gov of Gabon
7.50% Maurel & Prom Gov of Gabon
7.50% Maurel & Prom Gov of Gabon
24.31% Perenco
40.00% Perenco
7.50% Maurel & Prom Gov of Gabon
5.00% Perenco
AIC Petrofi
7.50% Maurel & Prom Gov of Gabon
7.50% Maurel & Prom Gov of Gabon
25.00% Perenco
25.00% Perenco
25.00% Perenco
27.50% Perenco
Oranje Nassau
Oranje Nassau
Oranje Nassau
Avouma,
South Tchibala
Ebouri
Echira
Gwedidi
Igongo
Limande
Mabounda
Maroc
Maroc Nord
Mbigou
M’Oba
Niembi
Niungo
Oba
Omko
Onal
Tchatamba Marin
Tchatamba South
Tchatamba West
Turnix
WEST AFRICA
Congo (Brazzaville)
M’Boundi
Côte d'Ivoire
Equatorial Guinea
Ceiba
Okume Complex
Gabon
Arouwe1
Avouma
Ebouri
Echira
Etame
Ezanga
Gwedidi
Igongo
Limande
Mabounda
Maroc
Maroc Nord
Mbigou
M’Oba
Niembi
Niungo
Oba
Omko
Onal
Tchatamba Marin
Tchatamba South
Tchatamba West
Turnix
Back-In Rights2
Dussafu Marin
Etame Marin
Ghana
Deepwater Tano
Wawa
558
49.95% Tullow
Kosmos, Anadarko, GNPC,
Ten Development Area 4 Tweneboa, Enyenra,
47.18% 4
2,780
5.00% Harvest
Pan-Petroleum 3
Natural Res 3
2,972
7.50% Vaalco
Addax (Sinopec), Sasol,
PetroEnergy
Petro SA
412
110
26.40% Kosmos
Anadarko, GNPC, Petro SA
35.48% Tullow
Kosmos, Anadarko, GNPC,
Petro SA
West Cape Three Points
Jubilee Field Unit Area 5
Notes:
Ntomme
Jubilee
Jubilee
1. Tullow has ‘Back-In Rights’ on this licence as well as a working interest.
2. Back-In Rights: Tullow has the option, in the event of a development, to acquire varying interests in these licences where there is a Back-In Right.
3. Harvest Natural Res have agree to sell its equity in Dussafu Marin to BW Energy; Pan-Petroleum have also agreed to farm-out 25% of its equity leaving them
with 8.33%; both deals are subject to Government approval.
4. GNPC has exercised its right to acquire an additional 5% in the TEN Field. Tullow’s interest is 47.175%.
5. A unitisation agreement covering the Jubilee field was agreed by the partners of the West Cape Three Points and the Deepwater Tano licences.
160
160 Tullow Oil plc 2016 Annual Report and Accounts
161 Tullow Oil plc 2016 Annual Report and Accounts
_1Q_Statement_Directors_Response_TLW_AR16_CG_2.indd 55
28/02/2017 14:01:59
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
LICENCE INTERESTS
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
Financial calendar
ShareGift
2016 Full-year results announced
8 February 2017
Annual General Meeting
AGM Trading Update
Trading Statement & Operational
Update
26 April 2017
26 April 2017
28 June 2017
If you have a small number of shares whose value makes
it uneconomical to sell, you may wish to consider donating
them to ShareGift which is a UK registered charity
specialising in realising the value locked up in small
shareholdings for charitable purposes. The resulting
proceeds are donated to a range of charities, reflecting
suggestions received from donors. Should you wish to donate
2017 Half Year Results announced
26 July 2017
November Trading Update
8 November 2017
your Tullow Oil plc shares in this way, please download and
Shareholder enquiries
All enquiries concerning shareholdings, including notification
of change of address, loss of a share certificate or dividend
payments, should be made to the Company’s registrars.
For shareholders on the UK register, Computershare
provides a range of services through its online portal,
Investor Centre, which can be accessed free of charge at
www.investorcentre.co.uk. Once registered, this service,
accessible from anywhere in the world, enables shareholders
to check details of their shareholdings or dividends, download
forms to notify changes in personal details and access other
relevant information.
United Kingdom registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Tel – UK shareholders: 0870 703 6242
Tel – Irish shareholders: + 353 1 247 5413
Tel – overseas shareholders: + 44 870 703 6242
Contact: www.investorcentre.co.uk/contactus
Ghana registrar
The Central Securities Depository (Ghana) Limited
4th Floor, Cedi House, P.M.B CT 465
Cantonments, Accra, Ghana
Tel – Ghana shareholders: + 233 303 972 254/ 302 689 313
Contact: info@csd.com.gh
Share dealing service
A telephone share dealing service has been established
for shareholders with Computershare for the sale and
purchase of Tullow Oil shares. Shareholders who are
interested in using this service can obtain further details by
calling the appropriate telephone number below:
UK shareholders: 0870 703 0084
Irish shareholders: +353 1 447 5435
If you live outside the UK or Ireland and wish to trade you can
do so through the Computershare Trading Account. To find
out more or to open an account, please visit
www.computershare-sharedealing.co.uk or phone
Computershare on +44 870 707 1606.
complete a transfer form from www.sharegift.org/forms, sign
it and send it together with the share certificate to ShareGift,
PO Box 72253, London SW1P 9LQ. For more information
regarding this charity, visit www.sharegift.org.
Electronic communication
To reduce impact on the environment, the Company
encourages all shareholders to receive their shareholder
communications, including annual reports and notices of
meetings, electronically. Once registered for electronic
communications, shareholders will be sent an email each
time the Company publishes statutory documents, providing
a link to the information.
Tullow actively supports Woodland Trust, the UK’s leading
woodland conservation charity. Computershare, together with
Woodland Trust, has established eTree, an environmental
programme designed to promote electronic shareholder
communications. Under this programme, the Company
makes a donation to eTree for every shareholder who
registers for electronic communication. To register
for this service, simply visit
http://www.investorcentre.co.uk/etreeuk/tullowoilplc with
your shareholder number and email address to hand.
Shareholder security
Shareholders are advised to be cautious about any unsolicited
financial advice: offers to buy shares at a discount or offers of
free company reports. More detailed information can be
found at http://scamsmart.fca.org.uk/ and in the Shareholder
Services section of the Investors area of the Tullow website:
Morgan Stanley & Co. International plc
www.tullowoil.com.
Corporate brokers
Barclays
5 North Colonnade
Canary Wharf
London
E14 4BB
20 Bank Street
Canary Wharf
London
E14 4AD
Davy
Davy House
49 Dawson Street
Dublin 2
Ireland
WEST AFRICA
Licence
Fields
Area
sq km
Tullow
Interest
Operator
Other Partners
Congo (Brazzaville)
M’Boundi
Côte d'Ivoire
CI-26 Special Area "E"
Equatorial Guinea
Ceiba
Okume Complex
M’Boundi
146
11.00% ENI
SNPC
Espoir
235
21.33% CNR
PETROCI
Ceiba
Okume, Oveng, Ebano,
Elon, Akom North
70
192
14.25% Hess
14.25% Hess
GEPetrol
GEPetrol
Gabon
Arouwe1
Avouma
Ebouri
Echira
Etame
Ezanga
Gwedidi
Igongo
Limande
Mabounda
Maroc
Maroc Nord
Mbigou
M’Oba
Niembi
Niungo
Oba
Omko
Onal
Tchatamba Marin
Tchatamba South
Tchatamba West
Turnix
Back-In Rights2
Dussafu Marin
Etame Marin
Ghana
Deepwater Tano
Avouma,
South Tchibala
Ebouri
4,414
52
35.00% Perenco
7.50% Vaalco
15
7.50% Vaalco
Echira
Etame, North Tchibala
76
49
40.00% Perenco
7.50% Vaalco
ExxonMobil
Addax (Sinopec), Sasol,
PetroEnergy
Addax (Sinopec), Sasol,
PetroEnergy
Addax (Sinopec), Sasol,
PetroEnergy
Gwedidi
Igongo
Limande
Mabounda
Maroc
Maroc Nord
Mbigou
M’Oba
Niembi
Niungo
Oba
Omko
Onal
Tchatamba Marin
Tchatamba South
Tchatamba West
Turnix
5,626
5
117
54
6
17
17
5
57
4
96
44
16
46
30
40
25
18
7.50% Maurel & Prom
7.50% Maurel & Prom Gov of Gabon
36.00% Perenco
40.00% Perenco
Total, Gov of Gabon
7.50% Maurel & Prom Gov of Gabon
7.50% Maurel & Prom Gov of Gabon
7.50% Maurel & Prom Gov of Gabon
7.50% Maurel & Prom Gov of Gabon
24.31% Perenco
7.50% Maurel & Prom Gov of Gabon
40.00% Perenco
5.00% Perenco
7.50% Maurel & Prom Gov of Gabon
7.50% Maurel & Prom Gov of Gabon
AIC Petrofi
25.00% Perenco
25.00% Perenco
25.00% Perenco
27.50% Perenco
Oranje Nassau
Oranje Nassau
Oranje Nassau
2,780
5.00% Harvest
Pan-Petroleum 3
Natural Res 3
2,972
7.50% Vaalco
Wawa
558
49.95% Tullow
Addax (Sinopec), Sasol,
PetroEnergy
Kosmos, Anadarko, GNPC,
Petro SA
Ten Development Area 4 Tweneboa, Enyenra,
47.18% 4
West Cape Three Points
Jubilee Field Unit Area 5
Notes:
Ntomme
Jubilee
Jubilee
412
110
26.40% Kosmos
35.48% Tullow
Anadarko, GNPC, Petro SA
Kosmos, Anadarko, GNPC,
Petro SA
1. Tullow has ‘Back-In Rights’ on this licence as well as a working interest.
2. Back-In Rights: Tullow has the option, in the event of a development, to acquire varying interests in these licences where there is a Back-In Right.
3. Harvest Natural Res have agree to sell its equity in Dussafu Marin to BW Energy; Pan-Petroleum have also agreed to farm-out 25% of its equity leaving them
with 8.33%; both deals are subject to Government approval.
4. GNPC has exercised its right to acquire an additional 5% in the TEN Field. Tullow’s interest is 47.175%.
5. A unitisation agreement covering the Jubilee field was agreed by the partners of the West Cape Three Points and the Deepwater Tano licences.
160 Tullow Oil plc 2016 Annual Report and Accounts
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15,811
50.00% Tullow
6,172
50.00% Tullow
Africa Oil, Maersk
Africa Oil, Maersk
15,390
40.00% Tullow
Africa Oil, Delonex
6,200 100.00% Tullow
4,719
50.00% Tullow
Africa Oil, Maersk
372
85
710
344
33.33% 17 Total
33.33% 17 Total
CNOOC
CNOOC
33.33% 17 Tullow 17
CNOOC, Total
33.33% 17 CNOOC
Total
20
33.33% 17 Tullow 17
CNOOC, Total
EAST AFRICA
Licence
Kenya
Block 10BA
Block 10BB
Block 12A
Block 12B
Block 13T
Uganda
Exploration Area 1
Exploration Area 1A
Exploration Area 2
Production Licence 1/12
Production Licence 01/16
Production Licence 06/16
Production Licence 07/16
Production Licence 08/16
Notes:
region.
Jobi East, Mpyo
Lyec
Kingfisher
Kasamene -
Wahrindi
Nsoga
Ngege
Waraga
Ngiri
Jobi - Rii
Gunya
Production Licence 02/16
Kigogole - Ngara
Production Licence 03/16
Production Licence 04/16
Production Licence 05/16
Mputa - Nzizi -
92
60
57
86
33.33% 17 Tullow 17
33.33% 17 Tullow 17
33.33% 17 Tullow 17
33.33% 17 Tullow 17
CNOOC, Total
CNOOC, Total
CNOOC, Total
CNOOC, Total
50
121
55
33.33% 17 Total
33.33% 17 Total
33.33% 17 Total
CNOOC
CNOOC
CNOOC
6. Exploration & production operations in the Netherlands and production in the UK are dealt with by the West Africa BDT despite falling outside this geographic
7. These fields are unitised – interests are as follows: F16-E 4.147%; E18-A 18.357%.
8.
Interests in blocks K7, K8, K11, K14a, K15 and L13 have been unitised. These six blocks, along with J9, are known as the Joint Development Area (JDA).
9. Refer to CMS III Unit for field interest.
10. Refer to Schooner Unit for field interest.
11. Refer to Munro Unit for field interest.
12. The Kelvin field re-commenced production in Q4 2016.
13. This field is no longer producing.
Tullow is involved are listed in addition to the nominal licence holdings.
15. Refer to Gawain Unit for field interest.
16. These fields are no longer producing. Abandonment works are ongoing.
14. For the UK offshore area, fields that extend across more than one licence area with differing partner interests become part of a unitised area. The interest held
in the Unitised Field Area is split amongst the holders of the relevant licences according to their proportional ownership of the field. The unitised areas in which
17. Tullow has agreed a farm-down with Total whereby it will reduce it's holding to 11.76% and transfer operatorship to Total. The deal is subject to Government
approval.
LICENCE INTERESTS CONTINUED
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
EUROPE 6
Licence
Blocks
Fields
Area
sq km
Tullow
Interest
Operator
Other Partners
Fields
Operator
Other Partners
Area
sq km
Tullow
Interest
Netherlands
E10
E11
E14
E15a
E15b
E15c
E18a
F13a
J9
K8
K11
L13
Joint Development Area (JDA)8
J9, K7, K8, K11, K14a, K15, L13
United Kingdom
CMS Area
P450
P451
44/21a
44/22a
44/22b
44/23a (part)
44/28b
44/26a
44/17b
44/18b
44/23b
44/19b
P452
P453
P516
P1006
P1058
P1139
CMS III Unit14
44/17a (part)
44/17c (part)
44/21a (part)
44/22a (part)
44/22b (part)
44/22c (part)
44/23a (part)
44/17b
44/17a
Schooner Unit14 44/26a
43/30a
Munro Unit14
Thames Area
P007
F16-E7
E18-A7
E18-A7, F16-E7
F16-E7
401
401
403
39
21
285
76
4
18
30.00% ENGIE
30.00% ENGIE
30.00% ENGIE
4.69% Wintershall
21.12% Wintershall
20.00% ENGIE
17.60% Wintershall
4.69% Wintershall
9.95% NAM
820
22.50% NAM
18.00%
22.50% NAM
413
31 fields
9.95% NAM
EBN
EBN
EBN
Dana, ENGIE, EBN
Dana, EBN
EBN, Gas Plus
Dana, EBN
Dana, ENGIE, EBN
Oranje Nassau,
Wintershall, EBN
Oranje Nassau,
Wintershall, EBN
Oranje Nassau,
Wintershall, EBN,
Oranje Nassau,
Wintershall, EBN
Boulton B & F
Murdoch
Boulton H 9
Murdoch K 9
Ketch
Schooner 10
Munro 11
Kelvin 12
Katy (formerly
Harrison) 13
Boulton H, Hawksley 13
McAdam 13, Murdoch K
77
89
48
85
99
48
46
9.50% ConocoPhillips ENGIE
34.00% ConocoPhillips ENGIE
6.91% ConocoPhillips ENGIE
40.00% Faroe Petr
42.96% Faroe Petr
20.00% ConocoPhillips ENGIE
22.50% ConocoPhillips ENGIE
30
22.50% ConocoPhillips ENGIE
14.10% ConocoPhillips ENGIE
Munro
Schooner
15.00% ConocoPhillips ENGIE
40.00% Faroe Petr
Gawain 15, 16
69
50.00% Perenco
P037
P039
P105
P786
P852
Gawain Unit14
49/24aF1
(Gawain)
49/28a
49/28b
Thames16, Yare16,
Bure16, Deben16,
Wensum16
Thurne16
Wissey16
Gawain 15, 16
Horne16
Horne & Wren16
49/28a (part)
53/04d
49/29a (part)
53/03c
53/04b
49/24F1 (Gawain) Gawain16
49/29a (part)
90
66.67% Perenco
Centrica
29
17
8
17
76.90% Tullow
50.00% Perenco
50.00% Tullow
50.00% Tullow
50.00%
Perenco
Faroe Petr.
Centrica
Centrica
162
162 Tullow Oil plc 2016 Annual Report and Accounts
163 Tullow Oil plc 2016 Annual Report and Accounts
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
Licence
Blocks
Fields
Operator
Other Partners
Area
sq km
Tullow
Interest
Licence
Fields
Area
sq km
Tullow
Interest
Operator
Other Partners
EAST AFRICA
Kenya
Block 10BA
Block 10BB
Block 12A
Block 12B
Block 13T
Uganda
Exploration Area 1
Exploration Area 1A
Exploration Area 2
Production Licence 1/12
Production Licence 01/16
Production Licence 02/16
Production Licence 03/16
Production Licence 04/16
Production Licence 05/16
Production Licence 06/16
Production Licence 07/16
Production Licence 08/16
Notes:
15,811
6,172
15,390
50.00% Tullow
50.00% Tullow
40.00% Tullow
6,200 100.00% Tullow
50.00% Tullow
4,719
Africa Oil, Maersk
Africa Oil, Maersk
Africa Oil, Delonex
Africa Oil, Maersk
Jobi East, Mpyo
Lyec
Kingfisher
Kasamene -
Wahrindi
Kigogole - Ngara
Nsoga
Ngege
Mputa - Nzizi -
Waraga
Ngiri
Jobi - Rii
Gunya
372
85
710
344
20
92
60
57
86
33.33% 17 Total
33.33% 17 Total
33.33% 17 Tullow 17
33.33% 17 CNOOC
33.33% 17 Tullow 17
33.33% 17 Tullow 17
33.33% 17 Tullow 17
33.33% 17 Tullow 17
33.33% 17 Tullow 17
50
121
55
33.33% 17 Total
33.33% 17 Total
33.33% 17 Total
CNOOC
CNOOC
CNOOC, Total
Total
CNOOC, Total
CNOOC, Total
CNOOC, Total
CNOOC, Total
CNOOC, Total
CNOOC
CNOOC
CNOOC
6. Exploration & production operations in the Netherlands and production in the UK are dealt with by the West Africa BDT despite falling outside this geographic
region.
7. These fields are unitised – interests are as follows: F16-E 4.147%; E18-A 18.357%.
8.
Interests in blocks K7, K8, K11, K14a, K15 and L13 have been unitised. These six blocks, along with J9, are known as the Joint Development Area (JDA).
9. Refer to CMS III Unit for field interest.
10. Refer to Schooner Unit for field interest.
11. Refer to Munro Unit for field interest.
12. The Kelvin field re-commenced production in Q4 2016.
13. This field is no longer producing.
14. For the UK offshore area, fields that extend across more than one licence area with differing partner interests become part of a unitised area. The interest held
in the Unitised Field Area is split amongst the holders of the relevant licences according to their proportional ownership of the field. The unitised areas in which
Tullow is involved are listed in addition to the nominal licence holdings.
15. Refer to Gawain Unit for field interest.
16. These fields are no longer producing. Abandonment works are ongoing.
17. Tullow has agreed a farm-down with Total whereby it will reduce it's holding to 11.76% and transfer operatorship to Total. The deal is subject to Government
approval.
401
401
403
39
21
76
4
18
77
89
48
85
99
48
46
30.00% ENGIE
30.00% ENGIE
30.00% ENGIE
EBN
EBN
EBN
F16-E7
E18-A7
4.69% Wintershall
Dana, ENGIE, EBN
21.12% Wintershall
Dana, EBN
285
20.00% ENGIE
EBN, Gas Plus
E18-A7, F16-E7
F16-E7
17.60% Wintershall
Dana, EBN
4.69% Wintershall
Dana, ENGIE, EBN
9.95% NAM
820
22.50% NAM
18.00%
413
22.50% NAM
9.95% NAM
Oranje Nassau,
Wintershall, EBN
Oranje Nassau,
Wintershall, EBN
Oranje Nassau,
Wintershall, EBN,
Oranje Nassau,
Wintershall, EBN
EUROPE 6
Netherlands
E10
E11
E14
E15a
E15b
E15c
E18a
F13a
J9
K8
K11
L13
P450
P451
P452
P453
P516
P1006
P1058
P1139
P007
P037
P039
P105
P786
P852
44/21a
44/22a
44/22b
44/28b
44/26a
44/17b
44/18b
44/23b
44/19b
44/17a (part)
44/17c (part)
44/21a (part)
44/22a (part)
44/22b (part)
44/22c (part)
44/23a (part)
44/17b
44/17a
43/30a
49/24aF1
(Gawain)
49/28a
49/28b
49/28a (part)
53/04d
Joint Development Area (JDA)8
31 fields
J9, K7, K8, K11, K14a, K15, L13
United Kingdom
CMS Area
44/23a (part)
Murdoch K 9
6.91% ConocoPhillips ENGIE
Boulton B & F
Murdoch
Boulton H 9
Ketch
Schooner 10
Munro 11
Kelvin 12
Katy (formerly
Harrison) 13
9.50% ConocoPhillips ENGIE
34.00% ConocoPhillips ENGIE
40.00% Faroe Petr
42.96% Faroe Petr
20.00% ConocoPhillips ENGIE
22.50% ConocoPhillips ENGIE
30
22.50% ConocoPhillips ENGIE
CMS III Unit14
14.10% ConocoPhillips ENGIE
Boulton H, Hawksley 13
McAdam 13, Murdoch K
Munro Unit14
Munro
15.00% ConocoPhillips ENGIE
Schooner Unit14 44/26a
Schooner
40.00% Faroe Petr
Thames Area
Gawain 15, 16
69
50.00% Perenco
Thames16, Yare16,
Bure16, Deben16,
Wensum16
Thurne16
Wissey16
90
66.67% Perenco
Centrica
76.90% Tullow
Faroe Petr.
29
17
8
17
50.00% Perenco
50.00% Tullow
50.00% Tullow
50.00%
Perenco
Centrica
Centrica
49/29a (part)
Gawain 15, 16
53/03c
53/04b
Horne16
Horne & Wren16
Gawain Unit14
49/24F1 (Gawain) Gawain16
49/29a (part)
162 Tullow Oil plc 2016 Annual Report and Accounts
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LICENCE INTERESTS CONTINUED
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
NEW VENTURES
NEW VENTURES continued
Blocks
Fields
Area
sq km
Tullow
Interest
Operator
Other Partners
Blocks
Area
sq km
Tullow
Interest
Operator
Other Partners
6,525
1,776
30.00%
60.00%
Repsol
Tullow
Eco O&G
32,065 100.00%
Tullow
9,825
8,025
13,225
31
90.00%
76.50%
90.00%
22.26%
Tullow
Tullow
Tullow
Petronas
SMH
SMH, Sterling
SMH
SMH, Premier, Kufpec
Chinguetti
2012A
2112A,B, 2113B
5,800
17,295
25.00%
65.00%
Eco O&G
Tullow
AziNam, NAMCOR
Pancontinental, Paragon
Block 31
18. PSC B (Chinguetti EEA) is dealt with by the West Africa BDT.
20. Tullow’s interest on completion of farm-down to MPCL.
19. Tullow is in the process of divesting its Norwegian business. The sale of all remaining assets should be completed by April 2017.
Licence
Pakistan
Bannu West
Block 28
Kalchas
Kohat
Kohlu
Suriname
Block 47
Block 54
Uruguay
Block 15
Zambia
PEL 28
1,230
6,200
2,068
1,107
2,459
20.00% 20 Tullow
95.00% OGDCL
30.00% OGDCL
40.00% OGDCL
30.00% OGDCL
2,369 100.00% Tullow
OGDCL, MPCL, SEL
MPCL
MPCL, SEL
MPCL
8,480
30.00% Tullow
Statoil, Noble Energy
8,030
35.00% Tullow
Statoil, Inpex
52,937 100.00% Tullow
Licence
Guyana
Kanuku
Orinduik
Jamaica
Walton Morant
Mauritania
Block C-3
Block C-10
Block C-18
PSC B
(Chinguetti EEA) 18
Namibia
PEL 0030
PEL 0037
Norway 19
North Sea
PL 636
PL 746S
PL 774
PL 774B
PL 776
PL 786
PL 826
Norwegian Sea
PL 651
PL 689
PL 689B
PL 750
PL 750B
PL 791
36/7
29/3
16/7
16/10
16/5, 16/6, 16/8,
16/9
31/3, 32/1, 35/12,
36/10
29/3, 30/1, 33/12
6610/8, 6610/9,
6610/11, 6610/12
6306/3
6307/1, 6307/4
6405/4, 6405/7,
6405/10
6404/9, 6404/12,
6405/10
6203/7, 6203/8,
6203/9, 6203/10,
6203/11, 6203/12,
6204/10
455
55
114
22
665
732
15
20.00%
30.00%
40.00%
40.00%
40.00%
ENGIE
Point Res
Tullow
Tullow
Tullow
50.00%
ENGIE
Idemitsu, Wellesley Petr
Concedo
Concedo, Petrolia
Concedo, Petrolia
Concedo, Petoro, Wintershall
30.00%
Point Res
Concedo
1,338
60.00%
AkerBP
457
128
1,043
20.00%
20.00%
60.00%
DONG
DONG
Tullow
AkerBP, Bayerngas
AkerBP, Bayerngas
Repsol
732
60.00%
Tullow
Repsol
1,302
50.00%
Point Res
164
164 Tullow Oil plc 2016 Annual Report and Accounts
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
NEW VENTURES
Blocks
Fields
Operator
Other Partners
Area
sq km
Tullow
Interest
Walton Morant
32,065 100.00%
Tullow
6,525
1,776
30.00%
Repsol
60.00%
Tullow
Eco O&G
9,825
8,025
90.00%
76.50%
13,225
90.00%
Tullow
Tullow
Tullow
31
22.26%
Petronas
SMH, Sterling
SMH
SMH
SMH, Premier, Kufpec
(Chinguetti EEA) 18
Chinguetti
2012A
2112A,B, 2113B
5,800
25.00%
Eco O&G
AziNam, NAMCOR
17,295
65.00%
Tullow
Pancontinental, Paragon
NEW VENTURES continued
Licence
Pakistan
Bannu West
Block 28
Kalchas
Kohat
Kohlu
Suriname
Block 47
Block 54
Uruguay
Block 15
Zambia
PEL 28
Blocks
Area
sq km
Tullow
Interest
Operator
Other Partners
1,230
6,200
2,068
1,107
2,459
20.00% 20 Tullow
95.00% OGDCL
30.00% OGDCL
40.00% OGDCL
30.00% OGDCL
2,369 100.00% Tullow
30.00% Tullow
8,480
OGDCL, MPCL, SEL
MPCL
MPCL, SEL
MPCL
Statoil, Noble Energy
8,030
35.00% Tullow
52,937 100.00% Tullow
Statoil, Inpex
Block 31
18. PSC B (Chinguetti EEA) is dealt with by the West Africa BDT.
19. Tullow is in the process of divesting its Norwegian business. The sale of all remaining assets should be completed by April 2017.
20. Tullow’s interest on completion of farm-down to MPCL.
Licence
Guyana
Kanuku
Orinduik
Jamaica
Mauritania
Block C-3
Block C-10
Block C-18
PSC B
Namibia
PEL 0030
PEL 0037
Norway 19
North Sea
PL 636
PL 746S
PL 774
PL 774B
PL 776
PL 786
PL 826
PL 651
PL 689
PL 689B
PL 750
PL 791
Norwegian Sea
36/7
29/3
16/7
16/10
16/9
36/10
16/5, 16/6, 16/8,
31/3, 32/1, 35/12,
29/3, 30/1, 33/12
6610/8, 6610/9,
6610/11, 6610/12
6306/3
6307/1, 6307/4
6405/4, 6405/7,
6405/10
6405/10
6203/7, 6203/8,
6203/9, 6203/10,
6203/11, 6203/12,
6204/10
20.00%
ENGIE
Idemitsu, Wellesley Petr
30.00%
Point Res
Concedo
Concedo, Petrolia
Concedo, Petrolia
Concedo, Petoro, Wintershall
455
55
114
22
665
732
15
40.00%
Tullow
40.00%
Tullow
40.00%
Tullow
50.00%
ENGIE
30.00%
Point Res
Concedo
1,338
60.00%
AkerBP
457
128
20.00%
DONG
20.00%
DONG
AkerBP, Bayerngas
AkerBP, Bayerngas
1,043
60.00%
Tullow
Repsol
PL 750B
6404/9, 6404/12,
732
60.00%
Tullow
Repsol
1,302
50.00%
Point Res
164 Tullow Oil plc 2016 Annual Report and Accounts
165 Tullow Oil plc 2016 Annual Report and Accounts
165
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COMMERCIAL RESERVES AND CONTINGENT RESOURCES SUMMARY
COMMERCIAL RESERVES AND CONTINGENT RESOURCES SUMMARY
(UNAUDITED) WORKING INTEREST BASIS
(UNAUDITED) WORKING INTEREST BASIS
TRANSPARENCY DISCLOSURE
West Africa
East Africa
New Ventures
TOTAL
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Petroleum
mmboe
Commercial reserves
1 January 2016
Revisions
Transfer from contingent resources
Disposals
Production
287.6
13.8
(7.4)
–
(21.9)
205.8
(0.2)
–
–
(15.9)
31 December 2016
272.1
189.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
287.6
13.8
(7.4)
–
(21.9)
205.8
(0.2)
–
–
(15.9)
321.8
13.8
(7.4)
–
(24.5)
272.1
189.7
303.7
Contingent resources
1 January 2016
Revisions
Additions
Disposals
Transfers to commercial reserves
115.8
4.8
–
–
7.4
724.9
5.6
–
–
–
628.8
3.7
–
–
–
42.6
–
–
–
–
101.5
–
–
(101.5)
–
4.2
–
–
–
–
846.1
8.5
–
(101.5)
7.4
771.7
5.6
–
–
–
974.7
9.5
–
(101.5)
7.4
31 December 2016
128.0
730.5
632.5
42.6
0.0
4.2
760.6
777.3
890.1
Total
31 December 2016
400.1
920.2
632.5
42.6
0.0
4.2
1,032.7
967.0
1,193.8
1. Proven and Probable Commercial Reserves are as audited by an independent engineer. Reserves estimates for each field are reviewed by the independent
engineer based on significant new data or a material change with a review of each field undertaken at least every two years, with the exception of minor assets
contributing less than 5% of the Group’s reserves.
2. Proven and Probable Contingent Resources are as audited by an independent engineer. Resources estimates are reviewed by the independent engineer based on
significant new data received following exploration or appraisal drilling.
3. The West Africa revisions to reserves relate to Jubilee, Tchatamba, Ezanga, Espoir, M’Oba, and an equity revision for certain Gabonese fields.
4. The West Africa transfers relate to the Etame and MBoundi fields which were transferred to Contingent Resources.
5. The West Africa revision to gas contingent resources relates to the relinquishment of the Pelican field in Mauritania.
6. New Venture disposals to contingent resources relate to the Norway country exit and Zaedyus licence relinquishment.
The Group provides for depletion and amortisation of tangible fixed assets on a net entitlements basis, which reflects the terms
of the Production Sharing Contracts related to each field. Total net entitlement reserves were 283.2 mmboe at 31 December 2016
(31 December 2015: 299.1 mmboe).
Contingent Resources relate to resources in respect of which development plans are in the course of preparation or further
evaluation is under way with a view to future development.
Transparency disclosure
Bonus payments – represent any bonus paid to governments
The Reports on Payments to Governments Regulations (UK
during the year, usually as a result of achieving certain
Regulations) came into force on 1 December 2014 and require
milestones, such as a signature bonus, POD bonus or a
UK companies in the extractive sector to publicly disclose
production bonus.
payments made to governments in the countries where they
undertake extractive operations. The regulations implement
Chapter 10 of EU Accounting Directive (2013/34/ EU).
Licence fees – represent licence fees, rental fees, entry fees
and other consideration for licences and/or concessions paid
for access to an area during the year (with the exception of
The UK Regulations came into effect on 1 January 2015,
signature bonuses which are captured within bonus
but Tullow were early adopters of the EU Directive and have
payments).
published our tax payments to governments in full, in our
Annual Report and Accounts since 2013. The 2016 disclosure
remains in line with the EU Directive and UK Regulations and
we have provided additional voluntary disclosure on VAT,
stamp duty, withholding tax, PAYE and other taxes.
Infrastructure improvement payments – represent payments
made in respect of infrastructure improvements for projects
that are not directly related to oil and gas activities during the
year. This can be a contractually obligated payment in a PSC
or a discretionary payment for building/improving local
The payments disclosed are based on where the obligation
infrastructure such as roads, bridges, ports, schools
for the payment arose: payments raised at a project level
and hospitals.
have been disclosed at project level and payments raised at
a corporate level have been disclosed on that basis. However,
where a payment or a series of related payments do not exceed
£86,000, they are disclosed at a corporate level, in accordance
with the UK Regulations. The voluntary disclosure has been
prepared on a corporate level.
VAT – represents net cash VAT received from/paid to
governments during the year. The amount disclosed is equal to
the VAT return submitted by Tullow to governments with the
cash payment made in the year the charge is borne. It should
be noted the operator of a joint venture typically makes VAT
payments in respect of the joint venture as a whole and, as such,
All of the payments disclosed in accordance with the Directive
where Tullow has a non-operated presence in a country limited
have been made to National Governments, either directly or
VAT will be paid.
through a Ministry or Department of the National Government,
with the exception of Ghana payments in respect of production
entitlements and licence fees, which are paid to the Ghana
National Oil Company. Our total economic contribution to all
stakeholders can be found on page 51. Detailed disclosure on
our 2016 tax payments can be found on page 56.
Production entitlements in barrels – includes non-cash
royalties and state non-participating interest paid in barrels
of oil or gas out of Tullow’s working interest share of
production in a licence. The figures disclosed are produced
on an entitlement basis rather than a liftings basis. It does not
include the Government’s or NOC’s working interest share
of production in a licence. Production entitlements have been
multiplied by the Group’s 2016 average realised oil price
$61.4/bbl.
Income taxes – represent cash tax calculated on the basis of
profits including income or capital gains. Income taxes are
usually reflected in corporate income tax returns. The cash
payment of income taxes occurs in the year in which the tax
Stamp duty –includes taxes that are placed on legal
documents usually in the transfer of assets or capital.
Usually these taxes are reflected in stamp duty returns made
to governments and are paid shortly after capital or assets
are transferred.
Withholding tax (WHT) – represent tax charged on services,
interest, dividends or other distributions of profits. The
amount disclosed is equal to the WHT return submitted by
Tullow to governments with the cash payment made in the
year the charge is borne. It should be noted the operator of a
joint venture typically makes WHT payments in respect of the
joint venture as a whole and, as such, where Tullow has a
non-operated presence in a country limited WHT will be paid.
PAYE and national insurance – represent payroll and
employer taxes paid (such as PAYE and national insurance) by
Tullow as a direct employer. The amount disclosed is equal to
the return submitted by Tullow to governments with the cash
payment made in the year the charge is borne.
has arisen or up to one year later. Income taxes also include
Carried interests – comprise payments made under a
any cash tax rebates received from the government or
revenue authority during the year. Income taxes do not
include fines and penalties.
carrying agreement or PSC/PSA by Tullow for the cash
settlement of costs owed by a government or national oil
company for their equity interest in a licence.
Royalties – represent cash royalties paid to governments
Customs duties – represent cash payments made in respect
during the year for the extraction of oil or gas. The terms of
of customs/excise/import and export duties made during the
the royalties are described within our PSCs and can vary from
year including items such as railway levies. These payments
project to project within one country. Royalties paid in kind
typically arise through the import/transportation of goods into
have been recognised within the production entitlements
a country with the cash payment made in the year the charge
category. The cash payment of royalties occurs in the year in
is borne.
which the tax has arisen.
Training allowances – comprise payments made in respect of
training government or national oil company staff. This can be
in the form of mandatory contractual requirements or
discretionary training provided by a company.
166
166 Tullow Oil plc 2016 Annual Report and Accounts
167 Tullow Oil plc 2016 Annual Report and Accounts
_1Q_Statement_Directors_Response_TLW_AR16_CG_2.indd 61
28/02/2017 14:02:00
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
COMMERCIAL RESERVES AND CONTINGENT RESOURCES SUMMARY
(UNAUDITED) WORKING INTEREST BASIS
TRANSPARENCY DISCLOSURE
TRANSPARENCY DISCLOSURE
West Africa
East Africa
New Ventures
TOTAL
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Petroleum
mmboe
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(101.5)
–
–
–
–
–
–
–
–
–
–
Commercial reserves
1 January 2016
Revisions
Transfer from contingent resources
Disposals
Production
287.6
205.8
13.8
(7.4)
–
(0.2)
–
–
(21.9)
(15.9)
287.6
13.8
(7.4)
–
(21.9)
205.8
(0.2)
–
–
(15.9)
321.8
13.8
(7.4)
–
(24.5)
31 December 2016
272.1
189.7
272.1
189.7
303.7
Transfers to commercial reserves
7.4
115.8
724.9
628.8
42.6
101.5
4.2
846.1
771.7
974.7
4.8
5.6
3.7
–
–
–
–
–
8.5
–
(101.5)
7.4
5.6
–
–
–
9.5
–
(101.5)
7.4
31 December 2016
128.0
730.5
632.5
42.6
0.0
4.2
760.6
777.3
890.1
Contingent resources
1 January 2016
Revisions
Additions
Disposals
Total
31 December 2016
400.1
920.2
632.5
42.6
0.0
4.2
1,032.7
967.0
1,193.8
1. Proven and Probable Commercial Reserves are as audited by an independent engineer. Reserves estimates for each field are reviewed by the independent
engineer based on significant new data or a material change with a review of each field undertaken at least every two years, with the exception of minor assets
contributing less than 5% of the Group’s reserves.
2. Proven and Probable Contingent Resources are as audited by an independent engineer. Resources estimates are reviewed by the independent engineer based on
significant new data received following exploration or appraisal drilling.
3. The West Africa revisions to reserves relate to Jubilee, Tchatamba, Ezanga, Espoir, M’Oba, and an equity revision for certain Gabonese fields.
4. The West Africa transfers relate to the Etame and MBoundi fields which were transferred to Contingent Resources.
5. The West Africa revision to gas contingent resources relates to the relinquishment of the Pelican field in Mauritania.
6. New Venture disposals to contingent resources relate to the Norway country exit and Zaedyus licence relinquishment.
The Group provides for depletion and amortisation of tangible fixed assets on a net entitlements basis, which reflects the terms
of the Production Sharing Contracts related to each field. Total net entitlement reserves were 283.2 mmboe at 31 December 2016
(31 December 2015: 299.1 mmboe).
Contingent Resources relate to resources in respect of which development plans are in the course of preparation or further
evaluation is under way with a view to future development.
Transparency disclosure
The Reports on Payments to Governments Regulations (UK
Regulations) came into force on 1 December 2014 and require
UK companies in the extractive sector to publicly disclose
payments made to governments in the countries where they
undertake extractive operations. The regulations implement
Chapter 10 of EU Accounting Directive (2013/34/ EU).
The UK Regulations came into effect on 1 January 2015,
but Tullow were early adopters of the EU Directive and have
published our tax payments to governments in full, in our
Annual Report and Accounts since 2013. The 2016 disclosure
remains in line with the EU Directive and UK Regulations and
we have provided additional voluntary disclosure on VAT,
stamp duty, withholding tax, PAYE and other taxes.
The payments disclosed are based on where the obligation
for the payment arose: payments raised at a project level
have been disclosed at project level and payments raised at
a corporate level have been disclosed on that basis. However,
where a payment or a series of related payments do not exceed
£86,000, they are disclosed at a corporate level, in accordance
with the UK Regulations. The voluntary disclosure has been
prepared on a corporate level.
All of the payments disclosed in accordance with the Directive
have been made to National Governments, either directly or
through a Ministry or Department of the National Government,
with the exception of Ghana payments in respect of production
entitlements and licence fees, which are paid to the Ghana
National Oil Company. Our total economic contribution to all
stakeholders can be found on page 51. Detailed disclosure on
our 2016 tax payments can be found on page 56.
Production entitlements in barrels – includes non-cash
royalties and state non-participating interest paid in barrels
of oil or gas out of Tullow’s working interest share of
production in a licence. The figures disclosed are produced
on an entitlement basis rather than a liftings basis. It does not
include the Government’s or NOC’s working interest share
of production in a licence. Production entitlements have been
multiplied by the Group’s 2016 average realised oil price
$61.4/bbl.
Income taxes – represent cash tax calculated on the basis of
profits including income or capital gains. Income taxes are
usually reflected in corporate income tax returns. The cash
payment of income taxes occurs in the year in which the tax
has arisen or up to one year later. Income taxes also include
any cash tax rebates received from the government or
revenue authority during the year. Income taxes do not
include fines and penalties.
Royalties – represent cash royalties paid to governments
during the year for the extraction of oil or gas. The terms of
the royalties are described within our PSCs and can vary from
project to project within one country. Royalties paid in kind
have been recognised within the production entitlements
category. The cash payment of royalties occurs in the year in
which the tax has arisen.
Bonus payments – represent any bonus paid to governments
during the year, usually as a result of achieving certain
milestones, such as a signature bonus, POD bonus or a
production bonus.
Licence fees – represent licence fees, rental fees, entry fees
and other consideration for licences and/or concessions paid
for access to an area during the year (with the exception of
signature bonuses which are captured within bonus
payments).
Infrastructure improvement payments – represent payments
made in respect of infrastructure improvements for projects
that are not directly related to oil and gas activities during the
year. This can be a contractually obligated payment in a PSC
or a discretionary payment for building/improving local
infrastructure such as roads, bridges, ports, schools
and hospitals.
VAT – represents net cash VAT received from/paid to
governments during the year. The amount disclosed is equal to
the VAT return submitted by Tullow to governments with the
cash payment made in the year the charge is borne. It should
be noted the operator of a joint venture typically makes VAT
payments in respect of the joint venture as a whole and, as such,
where Tullow has a non-operated presence in a country limited
VAT will be paid.
Stamp duty –includes taxes that are placed on legal
documents usually in the transfer of assets or capital.
Usually these taxes are reflected in stamp duty returns made
to governments and are paid shortly after capital or assets
are transferred.
Withholding tax (WHT) – represent tax charged on services,
interest, dividends or other distributions of profits. The
amount disclosed is equal to the WHT return submitted by
Tullow to governments with the cash payment made in the
year the charge is borne. It should be noted the operator of a
joint venture typically makes WHT payments in respect of the
joint venture as a whole and, as such, where Tullow has a
non-operated presence in a country limited WHT will be paid.
PAYE and national insurance – represent payroll and
employer taxes paid (such as PAYE and national insurance) by
Tullow as a direct employer. The amount disclosed is equal to
the return submitted by Tullow to governments with the cash
payment made in the year the charge is borne.
Carried interests – comprise payments made under a
carrying agreement or PSC/PSA by Tullow for the cash
settlement of costs owed by a government or national oil
company for their equity interest in a licence.
Customs duties – represent cash payments made in respect
of customs/excise/import and export duties made during the
year including items such as railway levies. These payments
typically arise through the import/transportation of goods into
a country with the cash payment made in the year the charge
is borne.
Training allowances – comprise payments made in respect of
training government or national oil company staff. This can be
in the form of mandatory contractual requirements or
discretionary training provided by a company.
166 Tullow Oil plc 2016 Annual Report and Accounts
167 Tullow Oil plc 2016 Annual Report and Accounts
167
_1Q_Statement_Directors_Response_TLW_AR16_CG_2.indd 62
28/02/2017 14:02:00
3www.tullowoil.com
TRANSPARENCY DISCLOSURE CONTINUED
TRANSPARENCY DISCLOSURE
European transparency directive disclosure
2016
Production
entitlements
Production
entitlements
Licence/Company level
BBL000
M'Boundi
Total Congo
CI-26 Espoir
Corporate
Total Côte d'Ivoire
Ceiba
Okume Complex
Corporate
Total Equatorial Guinea
Echira
Etame
Ezanga
Limande
M'Oba
Niungo
Tchatamba
Turnix
Corporate - Tullow Oil Gabon SA
Oba
Corporate - Tulipe Oil SA
Total Gabon
Jubilee
TEN
Company level
Total Ghana
Company level
Total Guinea
PSC B (Chinguetti EEA)
Corporate
Total Mauritania
South Omo
Corporate
Total Ethiopia
Corporate
Total Kenya
167
167
–
–
–
109
366
–
475
–
–
–
–
–
–
–
–
–
–
–
-
478
125
–
603
–
–
39
–
39
–
–
–
–
–
$000
–
–
2,277
–
2,277
–
–
–
-
–
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
–
–
–
Income
taxes
$000
–
–
–
–
-
–
–
8,982
8,982
–
–
–
–
–
–
–
–
–
–
–
-
–
–
27,314
27,314
–
–
–
–
–
–
–
-
9
9
Royalties
(cash only) Dividends
Bonus
payments
Licence
fees
Infrastructure
improvement
payments
$000
$000
$000
–
–
–
–
–
–
–
–
–
1,194
1,618
2,176
2,285
61
2,085
6,927
1,012
217
770
–
18,345
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30,000
–
–
30,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
75
75
28
28
258
94
352
441
–
441
614
614
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
348
193
2,981
3,522
119
119
–
–
–
169
–
169
–
–
VAT
$000
Stamp duty
$000
Withholding
tax
$000
Carried
interests
Customs
Training
duties
allowances
$000
$000
$000
$000
Total
$000
Total
BBL000
Voluntary disclosure
PAYE and
national
insurance
–
–
–
-
-
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(58)
(58)
162
162
–
–
–
-
-
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19
19
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-
-
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
403
403
–
11
11
159
159
–
106
106
1,864
1,864
9,852
9,852
700
700
–
150
150
924
924
65
65
-
-
52
402
–
3
52
405
2,277
19
2,296
–
–
–
–
8,982
8,982
1,194
1,618
2,176
2,285
61
2,085
6,927
1,012
30,671
48,802
770
3
348
193
147
147
258
1,356
1,614
610
209
819
13,490
13,490
167
167
109
366
–
475
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
478
125
–
–
–
39
–
39
–
–
–
–
–
18,098
18,098
66,968
15,394
60,661
66,968
15,394
60,661
6,528
6,528
250
250
198,269
198,810
603
168
168 Tullow Oil plc 2016 Annual Report and Accounts
www.tullowoil.com 169
_1Q_Statement_Directors_Response_TLW_AR16_CG_2.indd 63
28/02/2017 14:02:01
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
Licence/Company level
BBL000
$000
$000
$000
$000
$000
Production
entitlements
Production
entitlements
Income
Royalties
Bonus
Licence
taxes
(cash only) Dividends
payments
Infrastructure
improvement
payments
$000
fees
$000
European transparency directive disclosure
TRANSPARENCY DISCLOSURE
167
167
109
366
475
-
478
125
603
39
39
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,277
2,277
8,982
8,982
–
–
–
–
–
–
-
-
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
-
9
9
1,194
1,618
2,176
2,285
61
2,085
6,927
1,012
217
770
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27,314
27,314
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
75
75
28
28
258
94
352
441
–
441
614
614
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
348
193
2,981
3,522
119
119
169
169
2016
M'Boundi
Total Congo
CI-26 Espoir
Corporate
Total Côte d'Ivoire
Ceiba
Okume Complex
Corporate
Total Equatorial Guinea
Echira
Etame
Ezanga
Limande
M'Oba
Niungo
Tchatamba
Turnix
Oba
Total Gabon
Jubilee
TEN
Company level
Total Ghana
Company level
Total Guinea
Corporate
Total Mauritania
South Omo
Corporate
Total Ethiopia
Corporate
Total Kenya
PSC B (Chinguetti EEA)
Corporate - Tullow Oil Gabon SA
30,000
Corporate - Tulipe Oil SA
18,345
-
30,000
Voluntary disclosure
Stamp duty
Withholding
tax
PAYE and
national
insurance
Carried
interests
Customs
duties
Training
allowances
$000
$000
$000
$000
–
–
–
-
-
–
–
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
52
–
–
52
–
–
66,968
66,968
–
–
–
403
403
–
11
11
1,864
1,864
–
–
–
19
19
–
–
–
–
–
–
–
–
–
–
–
–
402
–
3
405
–
–
15,394
15,394
–
–
–
159
159
–
106
106
9,852
9,852
–
–
–
-
-
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
60,661
60,661
–
–
–
–
–
–
–
–
–
–
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,528
6,528
–
–
–
–
–
–
–
–
65
65
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
250
250
–
–
–
700
700
–
150
150
924
924
VAT
$000
–
–
–
-
-
–
–
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
18,098
18,098
–
–
–
–
–
–
(58)
(58)
162
162
Total
$000
Total
BBL000
–
–
2,277
19
2,296
–
–
8,982
8,982
1,194
1,618
2,176
2,285
61
2,085
6,927
1,012
30,671
770
3
48,802
348
193
198,269
198,810
147
147
258
1,356
1,614
610
209
819
13,490
13,490
167
167
–
–
–
109
366
–
475
–
–
–
–
–
–
–
–
–
–
–
–
478
125
–
603
–
–
39
–
39
–
–
–
–
–
168 Tullow Oil plc 2016 Annual Report and Accounts
169
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TRANSPARENCY DISCLOSURE CONTINUED
TRANSPARENCY DISCLOSURE
European transparency directive disclosure
Production
entitlements
Production
entitlements
BBL 000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,284
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,277
Income
taxes
$000
–
–
–
1
1
–
–
31
31
36,059
36,059
(1,129)
(1,129)
–
–
–
8,215
8,215
(60,215)
(60,215)
54
54
–
–
–
51,126
51,126
–
–
70,447
Royalties
(cash only) Dividends
Bonus
payments
Licence
fees
$000
$000
$000
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,345
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30,000
150
–
150
–
–
105
105
–
–
158
158
–
–
133
–
133
303
303
34
34
14
14
–
–
448
1,024
1,472
–
–
3,879
Infrastructure
improvement
payments
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14
14
–
–
–
–
–
–
–
3,824
2016
Licence/Company level
Block 3111
Corporate
Total Madagascar
Corporate
Total Mozambique
Company level
Total Namibia
Corporate
Total South Africa
Corporate
Total Uganda
Corporate
Total Ireland
Walton Morant
Corporate
Total Jamaica
Corporate
Total Netherlands
Corporate
Total Norway
Corporate
Total Pakistan
Corporate
Total Suriname
Schooner
Corporate
Total UK
Corporate
Total Uruguay
Total
VAT
$000
Stamp duty
$000
Withholding
tax
$000
Carried
interests
Customs
Training
duties
allowances
$000
$000
$000
$000
Total
Total
$000
BBL'000
Voluntary disclosure
PAYE and
national
insurance
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,590
2,590
121
121
–
2
2
–
-
3
3
2,073
2,073
3,728
3,728
4,840
4,840
–
–
–
–
–
–
–
5,633
5,633
152
152
–
47,776
47,776
280
280
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(267)
(267)
(1,483)
(1,483)
433
433
(2,926)
(2,926)
(16,216)
(16,216)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
7
15
15
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34
34
228
228
104
104
53
53
194
194
100
100
150
2
152
1
1
142
142
1,837
1,837
42,763
42,763
2,228
2,228
133
104
237
8,951
8,951
(57,467)
(57,467)
256
256
346
346
448
83,725
84,173
380
380
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,257)
72,009
90,422
60,661
6,615
2,737
358,959
1,284
Payments in kind in $000
78,919
Total 437,878
170
170 Tullow Oil plc 2016 Annual Report and Accounts
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
Licence/Company level
BBL 000
$000
$000
$000
$000
$000
Production
entitlements
Production
entitlements
Income
Royalties
Bonus
Licence
taxes
(cash only) Dividends
payments
Infrastructure
improvement
payments
$000
European transparency directive disclosure
TRANSPARENCY DISCLOSURE
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
1
–
–
31
31
36,059
36,059
(1,129)
(1,129)
–
–
–
–
–
–
–
–
8,215
8,215
(60,215)
(60,215)
54
54
51,126
51,126
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
fees
$000
150
150
105
105
158
158
133
133
303
303
34
34
14
14
–
–
448
1,024
1,472
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14
14
1,284
2,277
70,447
18,345
–
30,000
3,879
3,824
2016
Block 3111
Corporate
Total Madagascar
Corporate
Total Mozambique
Company level
Total Namibia
Corporate
Total South Africa
Total Netherlands
Corporate
Total Uganda
Corporate
Total Ireland
Walton Morant
Corporate
Total Jamaica
Corporate
Corporate
Total Norway
Corporate
Total Pakistan
Corporate
Total Suriname
Schooner
Corporate
Total UK
Corporate
Total Uruguay
Total
VAT
$000
–
–
–
–
–
–
–
(267)
(267)
–
–
(1,483)
(1,483)
–
–
–
433
433
(2,926)
(2,926)
–
–
–
–
–
(16,216)
(16,216)
–
–
(2,257)
Voluntary disclosure
Stamp duty
Withholding
tax
PAYE and
national
insurance
Carried
interests
Customs
duties
Training
allowances
$000
$000
$000
$000
$000
$000
Total
Total
$000
BBL'000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,590
2,590
–
–
–
–
–
–
–
–
–
121
121
–
–
–
–
–
–
–
72,009
–
2
2
–
-
3
3
2,073
2,073
3,728
3,728
4,840
4,840
–
–
–
–
–
5,633
5,633
–
–
152
152
–
47,776
47,776
280
280
90,422
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
60,661
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
7
–
–
–
–
–
15
15
–
–
6,615
–
–
–
–
–
34
34
–
–
228
228
–
–
–
104
104
–
–
–
–
53
53
194
194
–
–
–
100
100
2,737
150
2
152
1
1
142
142
1,837
1,837
42,763
42,763
2,228
2,228
133
104
237
8,951
8,951
(57,467)
(57,467)
256
256
346
346
448
83,725
84,173
380
380
358,959
Payments in kind in $000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,284
78,919
Total 437,878
170 Tullow Oil plc 2016 Annual Report and Accounts
171
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SUSTAINABILITY DATA
CSR DATA TABLES
CSR DATA TABLES
ENVIRONMENT
Atmospherics
Total air emissions (tonnes of CO2e)
Scope 1 total air emissions (tonnes of CO2e)
Scope 2 total air emissions (tonnes of CO2e)
Scope 3 total air emissions (tonnes of CO2e)
Total air emissions by production (tonnes of
CO2e) per thousand tonnes hydrocarbon
produced
CH4 emissions (tonnes)
N2O emissions (tonnes)
CO2 emissions (tonnes) per thousand tonnes
of HC produced
Flaring
Total hydrocarbon flared (tonnes)
Total Hydrocarbon flared by production
(tonnes per thousand tonnes hydrocarbon
produced)
Water usage
Metered water (m3)
Seawater (m3)
Ground water (m3)
Fresh water (m3)
Other water (m3)
Total water usage (m3) - all operational sites
Recycled water (m3)
Total water from sustainable sources (m3)
Waste
Total Waste disposed (tonnes)
Waste Recycled / Re-used / Treated (%)
Hazardous waste Recycled / Re-used /
Treated (%)
Non-hazardous waste Recycled / Re-used /
Treated (%)
Uncontrolled releases
Oil & Chemical spills (#)
Oil & Chemical spills (tonnes)
Energy use
Total operations indirect and direct energy use
(GJ)
Total indirect and direct energy use (GJ)
Total indirect and direct energy use by
production (GL per thousand tonnes
hydrocarbon produced)
Fines and sanctions
2012
2013
2014
2015
2016
537,040
693,170
686,996
6,174
803,724
799,551
4,173
98.21
1,931
33.76
99.78
2,578
43.75
123.84
2,191
41.84
758,790
752,539
4,631
1,620
122.07
2,073
29.85
772,110
754,338
4,763
13,010
142.11
2,741
21.98
85
85
106
106
122
30,246
80,695
117,516
110,638
149,217
5.53
11.62
18.11
17.84
27.93
11,430,092
143,569
42,342
58,291
11,674,294
13,013
7,295,571
180,337
35,900
31,740
7,556,562
21,567
21,567
59,220
9,885,133
129,956
11,695
3,643
10,089,647
11,250
11,250
70,466
8,004,940
113,847
-
10
8,189,263
5,451
5,451
56,728
9,080,888
46,322
-
-
9,183,938
4,722
4,722
54,692
72.15
34,157
83.38
75,799
63.82
72,380
70.93
58,554
27.95
87.00
97.85
99.49
74.36
51.75
3.68
3.44
15.01
5
38.86
10
23.29
15
715.85
7
24.71
2
4.85
5,685,961
5,757,479
5,798,539
5,345,475
5,375,436
5,104,423
5,158,200
7,272,710
7,318,373
1,040
0
829
-
828
80,000
832
-
1,370
-
HEALTH AND SAFETY
Hours worked (million)
Number of employee fatalities
Number of contractor fatalities
Number of third party fatalities involving
members of the public
Lost Time Injuries (LTIs)
Lost Time Injuries Frequency Rate (LTIF)
Total Recordable Injuries (TRI)
Total Recordable Injuries Frequency Rate
OGP LTIF
(TRIF)
OGP TRIF
High Potential Incidents (HiPos)
High Potential Incident Frequency Rate
(HiPoF)
Malaria frequency rate
Kilometres driven ('000,000)
Vehicle Accident Frequency Rate (VAFR)
LOCAL CONTENT
Local supplier spend ($ million)
By Country
Ethiopia
Ghana
Kenya
Mauritania
Uganda
Total
2012
18.6
–
–
2
13
0.70
0.48
42
2.26
1.74
44
2.37
0.06
12.2
1.31
2012
145.4
2012
–
69.2
28.7
–
47.5
145.4
2013
21.1
–
–
1
17
0.81
0.45
67
3.18
1.60
39
1.85
0.01
12.7
0.71
2013
217.0
2013
14.4
128.0
48.0
7.0
19.6
217.0
2014
22.4
–
–
1
13
0.58
0.36
41
1.83
1.54
25
1.11
0.03
15.5
0.77
2014
225.4
2014
–
123.6
81.5
–
20.3
225.4
2015
13.3
–
–
–
4
0.30
0.29
12
0.90
1.21
15
1.13
0.30
6.5
0.47
2015
308.9
2015
–
226.0
75.0
–
7.9
308.9
2016
9.2
–
–
–
–
–
n/a
9
0.98
n/a
8
0.87
–
5.4
0.55
2016
336.6
2016
–
297.0
28.0
–
11.6
336.6
172
172 Tullow Oil plc 2016 Annual Report and Accounts
173 Tullow Oil plc 2016 Annual Report and Accounts
_1Q_Statement_Directors_Response_TLW_AR16_CG_2.indd 67
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
CSR DATA TABLES
CSR DATA TABLES
Total hydrocarbon flared (tonnes)
30,246
80,695
117,516
110,638
149,217
Total air emissions (tonnes of CO2e)
537,040
693,170
686,996
6,174
803,724
799,551
4,173
2012
2013
2014
2015
2016
758,790
752,539
4,631
1,620
122.07
2,073
29.85
772,110
754,338
4,763
13,010
142.11
2,741
21.98
98.21
1,931
33.76
99.78
2,578
43.75
123.84
2,191
41.84
85
85
106
106
122
5.53
11.62
18.11
17.84
27.93
11,430,092
7,295,571
9,885,133
8,004,940
13,013
59,220
70,466
143,569
42,342
58,291
54,692
72.15
180,337
35,900
31,740
21,567
21,567
34,157
83.38
129,956
11,695
3,643
11,250
11,250
75,799
63.82
113,847
-
10
5,451
5,451
72,380
70.93
56,728
9,080,888
46,322
-
-
4,722
4,722
58,554
27.95
87.00
97.85
99.49
74.36
51.75
3.68
3.44
15.01
5
38.86
10
23.29
15
715.85
7
24.71
2
4.85
ENVIRONMENT
Atmospherics
Scope 1 total air emissions (tonnes of CO2e)
Scope 2 total air emissions (tonnes of CO2e)
Scope 3 total air emissions (tonnes of CO2e)
Total air emissions by production (tonnes of
CO2e) per thousand tonnes hydrocarbon
produced
CH4 emissions (tonnes)
N2O emissions (tonnes)
of HC produced
Flaring
CO2 emissions (tonnes) per thousand tonnes
Total Hydrocarbon flared by production
(tonnes per thousand tonnes hydrocarbon
produced)
Water usage
Metered water (m3)
Seawater (m3)
Ground water (m3)
Fresh water (m3)
Other water (m3)
Recycled water (m3)
Total water from sustainable sources (m3)
Waste
Total Waste disposed (tonnes)
Waste Recycled / Re-used / Treated (%)
Hazardous waste Recycled / Re-used /
Non-hazardous waste Recycled / Re-used /
Treated (%)
Treated (%)
Energy use
(GJ)
Uncontrolled releases
Oil & Chemical spills (#)
Oil & Chemical spills (tonnes)
Total operations indirect and direct energy use
Total indirect and direct energy use by
production (GL per thousand tonnes
hydrocarbon produced)
Fines and sanctions
Total indirect and direct energy use (GJ)
5,685,961
5,757,479
5,798,539
5,345,475
5,375,436
5,104,423
5,158,200
7,272,710
7,318,373
1,040
0
829
-
828
80,000
832
-
1,370
-
Total water usage (m3) - all operational sites
11,674,294
7,556,562
10,089,647
8,189,263
9,183,938
HEALTH AND SAFETY
Hours worked (million)
Number of employee fatalities
Number of contractor fatalities
Number of third party fatalities involving
members of the public
Lost Time Injuries (LTIs)
Lost Time Injuries Frequency Rate (LTIF)
OGP LTIF
Total Recordable Injuries (TRI)
Total Recordable Injuries Frequency Rate
(TRIF)
OGP TRIF
High Potential Incidents (HiPos)
High Potential Incident Frequency Rate
(HiPoF)
Malaria frequency rate
Kilometres driven ('000,000)
Vehicle Accident Frequency Rate (VAFR)
LOCAL CONTENT
Local supplier spend ($ million)
By Country
Ethiopia
Ghana
Kenya
Mauritania
Uganda
Total
2012
18.6
–
–
2
13
0.70
0.48
42
2.26
1.74
44
2.37
0.06
12.2
1.31
2012
145.4
2012
–
69.2
28.7
–
47.5
145.4
2013
21.1
–
–
1
17
0.81
0.45
67
3.18
1.60
39
1.85
0.01
12.7
0.71
2013
217.0
2013
14.4
128.0
48.0
7.0
19.6
217.0
2014
22.4
–
–
1
13
0.58
0.36
41
1.83
1.54
25
1.11
0.03
15.5
0.77
2014
225.4
2014
–
123.6
81.5
–
20.3
225.4
2015
13.3
–
–
–
4
0.30
0.29
12
0.90
1.21
15
1.13
0.30
6.5
0.47
2015
308.9
2015
–
226.0
75.0
–
7.9
308.9
2016
9.2
–
–
–
–
–
n/a
9
0.98
n/a
8
0.87
–
5.4
0.55
2016
336.6
2016
–
297.0
28.0
–
11.6
336.6
172 Tullow Oil plc 2016 Annual Report and Accounts
173 Tullow Oil plc 2016 Annual Report and Accounts
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CSR DATA TABLES
SUSTAINABILITY DATA CONTINUED
COMPLIANCE
Corruption
Fraud
HR
Supply chain
Total speaking up cases
OUR PEOPLE
Number of employees
Number of contractors
Number of expatriates in the workforce
Number of people on local contract terms
Total workforce
Number of females in the workforce
Number of female managers
Number of managers
Number of female senior managers
Number of senior managers
Number of female board members
Number of board members
2014
14
10
35
9
68
2014
1,595
447
448
1,594
2,042
583
90
442
4
53
2
12
2015
17
22
47
17
103
2015
1,156
247
268
1,135
1,403
396
76
338
14
115
2
12
2016
5
19
46
21
91
2016
1,023
129
173
979
1,152
336
66
297
9
68
2
11
2012
1,415
363
347
1,431
1,778
511
73
379
2013
1,553
481
446
1,588
2,034
582
85
433
6
49
2
12
174 Tullow Oil plc 2016 Annual Report and Accounts
174
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Tullow Exploration & Production B.V.
Tullow Exploration & Production Netherlands B.V. Netherlands
Tullow Global Compliance B.V.
Tullow Guyana B.V.
175 Tullow Oil plc 2016 Annual Report and Accounts
TULLOW OIL PLC SUBSIDIARIES
AS AT 7 February 2017
Country of incorporation
(all ordinary shares)
Type of ownership
% of nominal value of shares held
Company name
Hardman Oil and Gas Pty Ltd
Hardman Resources Pty Ltd
Tullow Chinguetti Production Pty Ltd
Tullow Petroleum (Mauritania) Pty Ltd
Tullow Uganda Operations Pty Ltd
Tullow Do Brasil Petroleo E Gas Ltda
Eagle Drill Limited
Tullow (EA) Holdings Limited
Tullow Oil Canada Ltd
Planet Oil International Limited
Tullow Energy Limited
Tullow Greenland Exploration Limited
Tullow Group Services Limited
Tullow Guinea Limited
Tullow Jamaica Limited
Tullow Mozambique Limited
Tullow Oil (International) Norge Limited
Tullow Oil 100 Limited
Tullow Oil 101 Limited
Tullow Oil Finance Limited
Tullow Oil SK Limited
Tullow Oil SNS Limited
Tullow Oil SPE Limited
Tullow Oil TS Limited
Tullow Uruguay Limited
Hardman Petroleum France S.A.S.
Tulipe Oil SA
Tullow Oil Gabon SA
Invest In Africa
Tullow Oil (Mauritania) Ltd
Tullow Oil Holdings (Guernsey) Ltd
Tullow Oil Ltd
Tullow Congo Limited
Tullow Equatorial Guinea Ltd
Tullow Gabon Holdings Limited
Tullow Gabon Limited
Tullow Mauritania Ltd
Tullow Namibia Ltd
Tullow Senegal Ltd
Tullow Uganda Ltd
Tullow Côte d’Ivoire Exploration Ltd
Tullow Côte d’Ivoire Ltd
Tullow Ghana Ltd
Tullow India Operations Ltd
Tullow Madagascar Ltd
Tullow Oil International Ltd
Tullow Pakistan (Developments) Ltd
Tullow 101 Netherlands B.V.
Tullow Angola B.V.
Tullow DRC B.V.
Tullow Ethiopia B.V.
Australia
Australia
Australia
Australia
Australia
Brazil
British Virgin Islands
British Virgin Islands
Canada
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
France
Gabon
Gabon
Guernsey
Guernsey
Guernsey
Ireland
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
CSR DATA TABLES
TULLOW OIL PLC SUBSIDIARIES
TULLOW OIL PLC SUBSIDIARIES
AS AT 7 FEBRUARY 2016
AS AT 7 February 2017
COMPLIANCE
Corruption
Fraud
HR
Supply chain
OUR PEOPLE
Total speaking up cases
Number of employees
Number of contractors
Number of expatriates in the workforce
Number of people on local contract terms
Total workforce
Number of females in the workforce
Number of female managers
Number of managers
Number of female senior managers
Number of senior managers
Number of female board members
Number of board members
2014
14
10
35
9
68
2014
1,595
447
448
1,594
2,042
583
90
442
4
53
2
12
2015
17
22
47
17
103
2015
1,156
247
268
1,135
1,403
396
76
338
14
115
2
12
2016
5
19
46
21
91
2016
1,023
1,152
129
173
979
336
66
297
9
68
2
11
2012
1,415
363
347
1,431
1,778
511
73
379
2013
1,553
481
446
1,588
2,034
582
85
433
6
49
2
12
174 Tullow Oil plc 2016 Annual Report and Accounts
Country of incorporation
Company name
Australia
Hardman Oil and Gas Pty Ltd
Australia
Hardman Resources Pty Ltd
Australia
Tullow Chinguetti Production Pty Ltd
Australia
Tullow Petroleum (Mauritania) Pty Ltd
Australia
Tullow Uganda Operations Pty Ltd
Brazil
Tullow Do Brasil Petroleo E Gas Ltda
British Virgin Islands
Eagle Drill Limited
British Virgin Islands
Tullow (EA) Holdings Limited
Canada
Tullow Oil Canada Ltd
England & Wales
Planet Oil International Limited
England & Wales
Tullow Energy Limited
England & Wales
Tullow Greenland Exploration Limited
England & Wales
Tullow Group Services Limited
England & Wales
Tullow Guinea Limited
England & Wales
Tullow Jamaica Limited
England & Wales
Tullow Mozambique Limited
England & Wales
Tullow Oil (International) Norge Limited
England & Wales
Tullow Oil 100 Limited
England & Wales
Tullow Oil 101 Limited
England & Wales
Tullow Oil Finance Limited
England & Wales
Tullow Oil SK Limited
England & Wales
Tullow Oil SNS Limited
England & Wales
Tullow Oil SPE Limited
England & Wales
Tullow Oil TS Limited
England & Wales
Tullow Uruguay Limited
France
Hardman Petroleum France S.A.S.
Gabon
Tulipe Oil SA
Gabon
Tullow Oil Gabon SA
Guernsey
Invest In Africa
Guernsey
Tullow Oil (Mauritania) Ltd
Guernsey
Tullow Oil Holdings (Guernsey) Ltd
Ireland
Tullow Oil Ltd
Isle of Man
Tullow Congo Limited
Isle of Man
Tullow Equatorial Guinea Ltd
Isle of Man
Tullow Gabon Holdings Limited
Isle of Man
Tullow Gabon Limited
Isle of Man
Tullow Mauritania Ltd
Isle of Man
Tullow Namibia Ltd
Isle of Man
Tullow Senegal Ltd
Isle of Man
Tullow Uganda Ltd
Jersey
Tullow Côte d’Ivoire Exploration Ltd
Jersey
Tullow Côte d’Ivoire Ltd
Jersey
Tullow Ghana Ltd
Jersey
Tullow India Operations Ltd
Jersey
Tullow Madagascar Ltd
Jersey
Tullow Oil International Ltd
Jersey
Tullow Pakistan (Developments) Ltd
Netherlands
Tullow 101 Netherlands B.V.
Netherlands
Tullow Angola B.V.
Netherlands
Tullow DRC B.V.
Netherlands
Tullow Ethiopia B.V.
Tullow Exploration & Production B.V.
Netherlands
Tullow Exploration & Production Netherlands B.V. Netherlands
Netherlands
Tullow Global Compliance B.V.
Netherlands
Tullow Guyana B.V.
175 Tullow Oil plc 2016 Annual Report and Accounts
% of nominal value of shares held
(all ordinary shares)
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Type of ownership
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
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TULLOW OIL PLC SUBSIDIARIES CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
AS AT 7 FEBRUARY 2016
YEAR ENDED 31 DECEMBER 2016
Company name
Tullow Hardman Holdings B.V.
Tullow Kenya B.V.
Tullow Liberia B.V.
Tullow Mexico B.V.
Tullow Netherlands Holding Cooperatief B.A.
Tullow Overseas Holdings B.V.
Tullow Sierra Leone B.V.
Tullow Suriname B.V.
Tullow Tanzania B.V.
Tullow Uganda Holdings B.V.
Tullow Zambia B.V.
Tullow Oil (Bream) Norge AS
Tullow Oil Norge AS
Tullow Exploration & Production UK Limited
Energy Africa Bredasdorp (Pty) Ltd
Tullow South Africa (Pty) Ltd
T.U. S.A.
Country of incorporation
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Norway
Norway
Scotland
South Africa
South Africa
Uruguay
% of nominal value of shares held
(all ordinary shares)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Type of ownership
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Note 1. All holdings in the second from right column are of ordinary shares, and the proportion of the nominal value of shares held.
Note 2. The financial results and the financial position of all companies listed above are included in the Tullow Oil Plc consolidated accounts.
GLOSSARY
Annual General Meeting
Available for sale
African Partner Pool
Advanced Security Operations Centre
Barrel
Billion cubic feet
Business Delivery Team
Barrels of oil equivalent
Barrels of oil equivalent per day
Barrels of oil per day
Cent
Capital expenditure
Cyber Information Sharing Partnership
Caister Murdoch System
A group development of five satellite fields linked to CMS
China National Offshore Oil Corporation
Control self-assessment
Civil Society Organisations
Case to Operate
Development and Operations
Depreciation, Depletion and Amortisation
Department for Environment, Food & Rural Affairs
Delegation of Authority
Deferred Share Bonus Plan
Exploration and Appraisal
Exploration and Production
Earnings Before Interest, Tax, Depreciation and Amortisation
Earnings Before Interest, Tax, Depreciation, Amortisation and Exploration
Environment, Health and Safety
Extractive Industries Transparency Initiative
Early Oil Pilot Scheme
Earnings per share
A European market index
Environmental Social Impact Assessment
Executive Share Option Scheme
Extended Well Test
AGM
AFS
APP
ASOC
bbl
bcf
BDT
boe
boepd
bopd
¢
Capex
CISP
CMS
CMS III
CNOOC
CSA
CSO
CtO
D&O
DD&A
DEFRA
DoA
DSBP
E&A
E&P
EBITDA
EBITDAX
EHS
EITI
EOPS
EPS
ESIA
ESOS
EWT
EuroStoxx
176
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2016
Country of incorporation
(all ordinary shares)
Type of ownership
% of nominal value of shares held
Tullow Netherlands Holding Cooperatief B.A.
Company name
Tullow Hardman Holdings B.V.
Tullow Kenya B.V.
Tullow Liberia B.V.
Tullow Mexico B.V.
Tullow Overseas Holdings B.V.
Tullow Sierra Leone B.V.
Tullow Suriname B.V.
Tullow Tanzania B.V.
Tullow Uganda Holdings B.V.
Tullow Zambia B.V.
Tullow Oil (Bream) Norge AS
Tullow Oil Norge AS
Tullow Exploration & Production UK Limited
Energy Africa Bredasdorp (Pty) Ltd
Tullow South Africa (Pty) Ltd
T.U. S.A.
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Norway
Norway
Scotland
South Africa
South Africa
Uruguay
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Note 1. All holdings in the second from right column are of ordinary shares, and the proportion of the nominal value of shares held.
Note 2. The financial results and the financial position of all companies listed above are included in the Tullow Oil Plc consolidated accounts.
GLOSSARY
GLOSSARY
Annual General Meeting
Available for sale
African Partner Pool
Advanced Security Operations Centre
Barrel
Billion cubic feet
Business Delivery Team
Barrels of oil equivalent
Barrels of oil equivalent per day
Barrels of oil per day
Cent
Capital expenditure
Cyber Information Sharing Partnership
Caister Murdoch System
A group development of five satellite fields linked to CMS
China National Offshore Oil Corporation
Control self-assessment
Civil Society Organisations
Case to Operate
Development and Operations
Depreciation, Depletion and Amortisation
Department for Environment, Food & Rural Affairs
Delegation of Authority
Deferred Share Bonus Plan
Exploration and Appraisal
Exploration and Production
Earnings Before Interest, Tax, Depreciation and Amortisation
Earnings Before Interest, Tax, Depreciation, Amortisation and Exploration
Environment, Health and Safety
Extractive Industries Transparency Initiative
Early Oil Pilot Scheme
Earnings per share
A European market index
Environmental Social Impact Assessment
Executive Share Option Scheme
Extended Well Test
AGM
AFS
APP
ASOC
bbl
bcf
BDT
boe
boepd
bopd
¢
Capex
CISP
CMS
CMS III
CNOOC
CSA
CSO
CtO
D&O
DD&A
DEFRA
DoA
DSBP
E&A
E&P
EBITDA
EBITDAX
EHS
EITI
EOPS
EPS
EuroStoxx
ESIA
ESOS
EWT
176 Tullow Oil plc 2016 Annual Report and Accounts
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GLOSSARY CONTINUED
GLOSSARY
Front End Engineering and Design
Final Investment Decision
Full Field Development
Floating Production Storage and Offloading vessel
Financial Reporting Council
Financial Reporting Standard
Equity index consisting of the 101st to 350th largest UK listed companies by market
capitalisation
Fair Value Through Profit or Loss
General and Administrative
Gifts and hospitality
Greenhouse gas
Greater Jubilee Full Field Development
Ghana National Petroleum Corporation Group Company and its subsidiary undertakings
High Potential Incident
HM Revenue & Customs
International Accounting Standard
International Accounting Standards Board
International Financial Reporting Standards
Invest in Africa
International Monetary Fund
Integrated Management System
International oil company
Investor Relations
International Tribunal for the Law of the Sea
Joint Development Agreement
Joint Venture
Kilometres
Kenya National Police Service
Key Performance Indicator
London Interbank Offered Rate
Lost Time Injury
Frequency Rate measured in LTIs per million hours worked
Million barrels of oil
Million barrels of oil equivalent
Million standard cubic feet per day
Memorandum of Understanding
Major Simplification Project
Mark-to-Market
Motor vehicle collision
Motor vehicle collision frequency
FEED
FID
FFD
FPSO
FRC
FRS
FTSE 250
FVTPL
G&A
G&H
GHG
GJFFD
GNPC
HIPO
HMRC
IAS
IASB
IFRS
IIA
IMF
IMS
IOC
IR
ITLOS
JDA
JV
km
KNPS
KPI
LIBOR
LTI
LTIF
mmbo
mmboe
mmscfd
MoU
MSP
MTM
MVC
MVCF
GLOSSARY
Non-Governmental Organisation
Organisation of Petroleum Exporting Countries
Operating expenses
Organisation Strategy & Effectiveness
Pence
Pay As You Earn
Politically exposed persons
Plan of Development
Property, plant and equipment
Petroleum Revenue Tax
Production Sharing Agreement
Production Sharing Contract
Performance Share Plan
Supply Chain
Supplementary Corporation Tax
South East Etame North Tchibala
Senior Independent Director
Share Incentive Plan
Skills for oil and gas in Africa
Share Option Plan
Square kilometres
Socially Responsible Investment
Safety, Sustainability & External Affairs
Tweneboa – Enyenra – Ntomme
Tullow Incentive Plan
Tullow Group Scholarship Scheme
Turret Remediation Project
Total Shareholder Return
Total recordable injuries
Standard & Poor’s 500, US stock market index based on market capitalisation
UK GAAP
UK Generally Accepted Accounting Practice
Value Added Tax
Vice President
Voluntary Principles on Security and Human Rights
Weighted Average Exercise Price
World Health Organization
Exploratory well drilled in land not known to be an oil field
NGO
OPEC
Opex
OSE
p
PAYE
PEP
PoD
PP&E
PRT
PSA
PSC
PSP
S&P 500
SC
SCT
SEENT
SID
SIP
SOGA
SOP
Sq km
SRI
SSEA
TEN
TIP
TGSS
TRP
TSR
TRI
VAT
VP
VPSHR
WAEP
WHO
Wildcat
178
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Tullow Oil plc 2016 Annual Report and AccountsFINANCIAL STATEMENTS
GLOSSARY
GLOSSARY
FTSE 250
Equity index consisting of the 101st to 350th largest UK listed companies by market
Ghana National Petroleum Corporation Group Company and its subsidiary undertakings
FEED
FID
FFD
FPSO
FRC
FRS
FVTPL
G&A
G&H
GHG
GJFFD
GNPC
HIPO
HMRC
IAS
IASB
IFRS
IIA
IMF
IMS
IOC
IR
ITLOS
JDA
JV
km
KNPS
KPI
LIBOR
LTI
LTIF
mmbo
mmboe
mmscfd
MoU
MSP
MTM
MVC
MVCF
Front End Engineering and Design
Final Investment Decision
Full Field Development
Floating Production Storage and Offloading vessel
Financial Reporting Council
Financial Reporting Standard
capitalisation
Fair Value Through Profit or Loss
General and Administrative
Gifts and hospitality
Greenhouse gas
Greater Jubilee Full Field Development
High Potential Incident
HM Revenue & Customs
International Accounting Standard
International Accounting Standards Board
International Financial Reporting Standards
Invest in Africa
International Monetary Fund
Integrated Management System
International oil company
Investor Relations
International Tribunal for the Law of the Sea
Joint Development Agreement
Joint Venture
Kilometres
Kenya National Police Service
Key Performance Indicator
London Interbank Offered Rate
Lost Time Injury
Million barrels of oil
Million barrels of oil equivalent
Million standard cubic feet per day
Memorandum of Understanding
Major Simplification Project
Mark-to-Market
Motor vehicle collision
Motor vehicle collision frequency
Frequency Rate measured in LTIs per million hours worked
NGO
OPEC
Opex
OSE
p
PAYE
PEP
PoD
PP&E
PRT
PSA
PSC
PSP
S&P 500
SC
SCT
SEENT
SID
SIP
SOGA
SOP
Sq km
SRI
SSEA
TEN
TIP
TGSS
TRP
TSR
TRI
Non-Governmental Organisation
Organisation of Petroleum Exporting Countries
Operating expenses
Organisation Strategy & Effectiveness
Pence
Pay As You Earn
Politically exposed persons
Plan of Development
Property, plant and equipment
Petroleum Revenue Tax
Production Sharing Agreement
Production Sharing Contract
Performance Share Plan
Standard & Poor’s 500, US stock market index based on market capitalisation
Supply Chain
Supplementary Corporation Tax
South East Etame North Tchibala
Senior Independent Director
Share Incentive Plan
Skills for oil and gas in Africa
Share Option Plan
Square kilometres
Socially Responsible Investment
Safety, Sustainability & External Affairs
Tweneboa – Enyenra – Ntomme
Tullow Incentive Plan
Tullow Group Scholarship Scheme
Turret Remediation Project
Total Shareholder Return
Total recordable injuries
UK GAAP
UK Generally Accepted Accounting Practice
VAT
VP
VPSHR
WAEP
WHO
Wildcat
Value Added Tax
Vice President
Voluntary Principles on Security and Human Rights
Weighted Average Exercise Price
World Health Organization
Exploratory well drilled in land not known to be an oil field
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Tullow Oil plc
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Tullow Oil plc
9 Chiswick Park
566 Chiswick High Road
London W4 5XT
United Kingdom
Tel: +44 20 3249 9000
Fax: +44 20 3249 8801
Email: info@tullowoil.com
Website: www.tullowoil.com