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TULLOW OIL PLC 2017 ANNUAL REPORT & ACCOUNTS
AFRICA’S LEADING
INDEPENDENT OIL
COMPANY
www.tullowoil.com
D
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 90 licences spans 16 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.
2
CORPORATE GOVERNANCE
Directors’ report
Audit Committee report
Nominations Committee report
EHS Committee report
Remuneration report
56
67
73
76
78
Other statutory information
101
3
FINANCIAL STATEMENTS
Statement of Directors’ responsibilities 108
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
109
117
153
162
163
164
Commercial reserves and resources 168
Transparency disclosure
Sustainability data
Tullow Oil plc subsidiaries
Glossary
169
176
179
181
1
STRATEGIC REPORT
Our Group highlights
Our operations
Chairman’s foreword
Chief Executive Officer’s foreword
Chief Financial Officer’s foreword
Executive Team overview
Market outlook
Our strategy
Our business model
Key performance indicators
Creating value
Operations review
Finance review
Responsible Operations
Governance & Risk management
Board of Directors
Principal Risks
Organisation & Culture
Shared Prosperity
1
4
6
8
10
12
14
16
18
20
24
26
31
36
38
40
42
50
52
You can find this report and additional information about Tullow Oil on our website: www.tullowoil.com
Cover: TEN FPSO, Prof. John Evans Atta Mills, offshore Ghana
OUR GROUP HIGHLIGHTS
MAKING GOOD PROGRESS
Our business has developed organically and through acquisitions since 1986. We have a
diversified world-class asset base focused on Africa and South America that is performing
well and generating value across our three core Business Delivery Teams.
REVENUE
$1,723M
1
2016: $1,270M
CAPITAL INVESTMENT
$225M
2,3
2016: $857M
LICENCES
90
Across 16 countries
UNDERLYING CASH OPERATING COSTS
$11.1/BOE
3
2016: $14.3/BOE
FREE CASH FLOW
3
$543M
2016: $(792)M
NEW VENTURES
37,244KM2
Added to our exploration new acreage
portfolio in 2017
ADJUSTED EBITDAX
$1,346M
3
2016: $941M
LOSS AFTER TAX
$(189)M
2016: $(597)M
NET DEBT
$3.5BN
3
2016: $4.8BN
GEARING4
2.6 TIMES
3
2016: 5.1 TIMES
TOTAL WORKFORCE
1,030
Our talented employees and contractors
work together across our Corporate Centre
and Business Delivery Teams
LOST TIME INJURY FREQUENCY (LTIF)
0.37
2016: ZERO
>>
Key performance indicators
20
1. Total revenue does not include proceeds from Tullow’s corporate business interruption insurance of $162 million.
2. 2017 capex excludes Uganda capex covered by farm-down.
3. Non-GAAP measures are reconciled on pages 34 to 35.
4. Gearing ratio calculated as Net Debt/Adjusted EBITDAX.
www.tullowoil.com
1
WEST AFRICA 2017 OIL PRODUCTION EXCEEDS EXPECTATIONS
Offloading tanker at the TEN field, offshore Ghana.
2
Tullow Oil plc 2017 Annual Report and Accounts
1 STRATEGIC REPORT
Our operations
Chairman’s foreword
Chief Executive Officer’s foreword
Chief Financial Officer’s foreword
Executive Team overview
Market outlook
Our strategy
Our business model
Key performance indicators
Creating value
Operations review
Finance review
Responsible Operations
Governance & Risk management
Board of Directors
Principal Risks
Organisation & Culture
Shared Prosperity
4
6
8
10
12
14
16
18
20
24
26
31
36
38
40
42
50
52
www.tullowoil.com
3
OUR OPERATIONS
A STRENGTHENED
PORTFOLIO
Tullow has continued to high-grade and progress its portfolio of assets through 2017,
exceeding expectations at our West Africa producing assets, advancing development projects
in East Africa and developing an exciting prospect inventory for exploration drilling.
OPERATING COUNTRIES
LICENCES
16
Tullow’s key operations are
in Africa and South America.
These are split into three
Business Delivery Teams,
as set out below.
90
Tullow’s portfolio of licences
is balanced between
exploration, development
and production activities.
ACREAGE (SQ KM)
263,820
Our acreage onshore
and offshore Africa and
South America includes
newly acquired licences
in Côte d’Ivoire and Peru.
TOTAL GROUP PRODUCTION
94,7001
BOEPD
Tullow’s producing assets
performed well in 2017,
beating original guidance
of 78–85,000 bopd.
>>
Key performance indicators
21
WEST AFRICA
Tullow’s West Africa team is focused on
optimising existing production across
our operated and non-operated
producing assets in West Africa and
Europe, as well as pursuing new
exploration opportunities.
Key activities
• Following the ITLOS ruling and
Government approval of the Greater
Jubilee Full Field Development
Plan, plans are on track to deliver
incremental drilling across both the
TEN and Jubilee fields, to sustain
and maximise production in the
coming years
• The Turret Remediation Project is
progressing with bearing stabilisation
and FPSO rotation to its permanent
spread moored position planned
for 2018
0
0
6
,
5
6
0
0
2
,
8
5
WORKING INTEREST PRODUCTION
70,000
60,000
50,000
d
p
e
o
b
40,000
30,000
20,000
10,000
0
0
0
2
,
2
0
0
0
,
3
0
0
4
,
3
0
0
2
,
6
0
0
6
0
0
7
0
0
0
,
3
1
Congo (Brazz)
N etherlands
M auritania
Equatorial G uinea
U nited Kingdo m
C ôte d’Ivoire
G abon
G hana
Jubilee field production-equivalent
insurance payments: 7,400 bopd
• TEN facilities tested to over
80,000 bopd; commissioning
completed; production averaged
56,000 bopd in 2017
>>
Operations review: West Africa
26
4
Tullow Oil plc 2017 Annual Report and Accounts
1. Includes production equivalent
insurance payments: 7,400 bopd
EAST AFRICA
In this high-potential region, Tullow
is progressing the development of
its discoveries in Uganda and Kenya.
Key activities
• The Uganda project is working
towards reaching a Final Investment
Decision in the first half of 2018
• In Kenya, the completion of the
South Lokichar Basin appraisal has
confirmed material oil resources to
support substantial oil production
• A project focused on Amosing and
Ngamia, as the Foundation Stage
of the South Lokichar development,
has been defined
• Kenya’s Early Oil Pilot Scheme
will be under way in 2018, with
initial water injection tests ongoing
and production facilities being
constructed in the field
STRATEGIC REPORT EAST AFRICA
United Kingdom P
Dublin
London
Jamaica E
Guyana E
Mauritania EP
Suriname E
Côte d’Ivoire EP
Pakistan E
Ghana EDP
Accra
Gabon EDP
Equatorial Guinea DP
Uganda D
Kampala
Kenya ED
Nairobi
Peru E
Namibia E
Zambia E
Uruguay E
Cape Town
Note: Tullow sold its interests in Norway and the Netherlands during 2017.
Key: E Exploration D Development P Production
Key offices
NEW VENTURES
The New Ventures Team is responsible
for Tullow’s frontier exploration activity
across Africa and South America.
Key activities
• Portfolio reset over last 36 months,
divesting non-core assets, farming
down existing assets to the right
equity levels and acquiring
new acreage
• Extensive seismic data across several
licences will significantly increase the
prospect inventory, allowing Tullow
to target high-impact, low-cost and
basin-testing opportunities
• Exciting and significant new acreage
positions in Peru and Côte d’Ivoire
further strengthen our South
American and African portfolios
• Preparing for basin testing wells
from the second half of 2018 onwards
>>
>>
Operations review: East Africa
28
Operations review: New Ventures
29
www.tullowoil.com
5
1 STRATEGIC REPORT
CHAIRMAN’S FOREWORD
READY FOR GROWTH
My focus for my two-year tenure is twofold: to provide stability for Tullow after
30 years of leading the Company and to support Paul and his Executive Team
as they move Tullow into its next phase of growth.
DEAR SHAREHOLDER
We began 2017 by announcing our $900 million farm-down
in Uganda, an excellent deal that recognised the value of this
world-class asset. This, coupled with major cost cutting over
the last three years, meant that your Company started 2017
with a positive outlook.
Dealing with our high level of debt has been a priority of the
Board and management over the last three years. As a Board,
we had never intended to reach such high levels of debt; a
combination of the International Tribunal for the Law of the Sea
(ITLOS) proceedings between Ghana and Côte d’Ivoire and the
fall in the oil price meant we were obliged to develop the TEN
field at a level of equity that we had not anticipated. While that
level of equity is now creating significant value in terms of our
share of production from the TEN field, our debt position earlier
this year, while manageable, was restricting our ability to invest
in the business.
“ I am confident the
team will meet the
challenge of restoring
shareholder value
through disciplined
investment.”
AIDAN HEAVEY, CHAIRMAN
6
Tullow Oil plc 2017 Annual Report and Accounts
At the beginning of 2017, the risks to the business that lay
ahead included our gearing being at 5.1x net debt/adjusted
EBITDAX, the ITLOS process was still to be resolved and our
Reserves Based Lending (RBL) facility needed to be refinanced.
We therefore needed to give the business greater operational
and financial flexibility by materially reducing our debt through
the combination of a Rights Issue and ensuring the business
generated free cash flow in a low oil price environment.
Rights Issues are not often popular, but with a continuing low
oil price, a highly leveraged balance sheet and limited cash flow
available to invest in the business, we needed the flexibility it
offered. To create shareholder value we needed to both reduce
the risks and invest in the high rate of return projects in our
portfolio. We have actively listened to feedback from
shareholders, both before and after the Rights Issue, and it is
my hope that shareholders will look at the strength of our
business today and the many challenges we have overcome
along the way, and agree that we made the right decision.
Nevertheless, I recognise and am grateful for the loyalty of
our shareholders through this process.
We leave 2017 in a strong financial position with the Ghana/
Côte d’Ivoire border dispute resolved, the RBL refinancing
completed and a new culture of financial discipline and
efficiency after three years of cost reductions. Our challenge
is now to regain the trust of the market and restore value to
our shareholders.
Leadership changes
2017 also saw changes in leadership at the top of our Company.
At our AGM, Simon Thompson stepped down as Chairman after
five years and I would like to recognise all that Simon did for
Tullow and the Board during some difficult years for our
Company.
In succeeding Simon as Chairman, my focus for my two-year
tenure is twofold: to provide stability for Tullow after 30 years
of leading the Company and to support Paul and his Executive
Team as they move Tullow into its next phase of growth. The
Nominations Committee’s search for Tullow’s next Chairman
is well advanced and we expect to make an announcement by
the end of 2018.
I am delighted that Paul has adjusted so rapidly to his new position
as CEO after 11 very successful years as Chief Operating Officer.
STRATEGIC REPORT He is already making his mark on Tullow as CEO and is increasing
the financial and operational strength of the Company. I have
been working with Paul to hand over Tullow’s relationships
across Africa and it was clear at the Africa Oil Week conference in
Cape Town in October, where Paul gave the keynote speech, that
he is building very effective networks with key ministers and
officials from all over the continent.
Ian Springett, our long-standing CFO, also retired this year due
to ill health. This was a premature retirement after eight years
of much valued service as CFO, but I am pleased to report that
Ian is making good progress and is well on the road to recovery.
Ian was replaced, in an interim capacity at first and then
permanently, by Les Wood, previously our VP, Commercial
and Finance. I was particularly pleased that the CFO appointment
was internal as it showed the exceptional talent that we have
at senior levels within the Company. This promotion followed
Paul’s appointment of the Executive Team, all of whom came
entirely from within the Tullow business.
In our Full Year Results statement we announced that
Anne Drinkwater had informed the Board that she has decided
not to stand for re-election at the 2018 AGM. I would like to
thank Anne for her excellent counsel and guidance to the
Company over the six years she has served on Tullow’s Board.
Values
Our Company Values underpin all that we are and all that we
do in Tullow. They are important to me and important to our
staff. Our core Values have been refreshed by our employees
to reflect the Company we are today. They are based on four
key principles of Creating Value, Acting with Integrity, Working
Collaboratively and Using Initiative. Our transition to being a
much more efficiently managed, cost-conscious workplace
and performance-driven Company is reflected in these Values
and they are helping us enhance Tullow’s culture.
Diversity and inclusion
Paul and I are personally committed to ensuring that our teams
and talent are diverse and that we improve and prioritise the
development of people from our countries of operation and
women for Senior Management positions. We know the benefits
that diverse thinking, perspectives and experiences can bring to
our business and we are acutely aware of the value of the
different cultures in areas where we operate. We are supportive
of the aims of the Hampton-Alexander Review and I was glad to
see that Paul’s selection of his new Executive Team included
two women; this is a good signal of the further progress we
want to see. We also work alongside governments to meet their
aims of employing and developing local talent and we want to
support the continued development and long-term careers of
our local staff. Underlining this commitment, we have embarked
upon a dedicated initiative, Project LEAP, to help all employees
manage their careers and personal development in Tullow,
which you can read more about on page 50.
Outlook
The outlook for Tullow at the end of 2017 is brighter than it
has been for some time. The team has shown that it has the
skills to meet any challenge and deal with it. We have come
through some of the most difficult years in the oil industry as
a better and more disciplined Company. We have created high
rate of return opportunities within our existing operated and
non-operated portfolio that we now have the financial flexibility
to invest in. I am confident the team will meet the challenge of
restoring shareholder value through disciplined investment in
these opportunities, while maintaining our newly embedded
performance and cost management culture.
Aidan Heavey
Chairman
6 February 2018
>>
Our strategy
Organisation & Culture
Shared Prosperity
16
50
52
www.tullowoil.com
7
1 STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S FOREWORD
FOCUSED ON OPPORTUNITIES
IN A CHANGED INDUSTRY
Tullow continues to positively benefit from the decisive and far-reaching changes we made
to the business in reaction to the oil price crash three years ago.
DEAR SHAREHOLDER
In 2017 we continued to see the positive impact of the early
and significant actions we took to adjust the business in
reaction to the oil price crash in late 2014. As we consolidated
these measures we considered it was the right time to make
substantial changes to both the Board and the Executive Team
to ensure the Company was well positioned to start the journey
back to growth.
Simon Thompson, Ian Springett and Ann Grant all retired from
the Board, and I would like to thank them for their personal
commitment to Tullow and recognise the immense contribution
they made to the Group. Aidan, after 31 years as CEO, has
moved to Chairman providing me with significant support in
my new role as CEO, which I have appreciated hugely.
“ In the same way we
have successfully
navigated the biggest
downturn in our
industry’s recent
history, I believe
we can return the
Company to growth in
the recovery phase.”
PAUL McDADE, CHIEF EXECUTIVE OFFICER
8
Tullow Oil plc 2017 Annual Report and Accounts
A new Executive Team
As I prepared to take over as CEO, my primary focus was to put
together an ambitious, competent and committed team to take
over as the new Executive of Tullow. The extensive work we had
done over the years developing our people and planning for
succession ensured that I was able to find all the skills I was
looking for within Tullow. The new Executive Team is committed
to collective, fully informed decision making, continuing to build
on the financial discipline and efficiency we have embedded
into our business, and is determined to return the business
to growth.
Hard won discipline
The strong foundation we are building on has been achieved
through a great deal of hard work since 2014, when we began
the process of change within Tullow to ensure we would be
competitive in a world of $50 oil. I would like to thank all our
staff for everything that they have contributed to this effort;
these have been difficult years with substantial reductions in
headcount and an enormous focus on cost reduction, all of which
has resulted in significant uncertainty for everyone at Tullow.
Nevertheless, I see no appetite within Tullow to return to previous
spending patterns and key to maintaining this discipline is the
new structure we have put in place with three accountable
Business Delivery Teams, West Africa, East Africa and New
Ventures, and a reduced and more focused Corporate Centre.
A stronger financial base
In March 2017 we undertook a Rights Issue; I saw this
$750 million as the final part of resetting our business and,
while I would have preferred my first task as incoming CEO not
to have been to ask our shareholders for equity, we have already
benefited and will continue to benefit from the operational and
financial flexibility that it afforded us. We have now reduced
gearing to 2.6x net debt/adjusted EBITDAX and this lower level of
debt provides sufficient financial flexibility such that we have
been able to allocate appropriate levels of capital expenditure
to allow us to continue to invest in the business such as our
drilling programme in Ghana. Continuing to reduce our debt
remains a key target. The successful and oversubscribed
refinancing of our RBL facility in November 2017 shows the
faith that our banking syndicate has in our quality assets and
in our ability to remain financially focused and disciplined.
STRATEGIC REPORT TULLOW’S LONG-TERM PLANS & PROSPECTS
Tullow is in a robust position, and oil prices have recently achieved higher levels, albeit with the potential for
them to remain volatile. This more positive outlook, and a contractor cost base that reflects a significantly more
efficient industry, means we are now shifting from the short term to consider our long-term plans and prospects.
1 Our low-cost and long-life production in West Africa and, in time, East Africa will remain at the
heart of the Group’s strategy. We will endeavour to manage these assets safely, to the highest
operational standards, utilising local staff and the local supply chain, whilst minimising costs
and maximising production revenues. We will use the free cash flow from these production
revenues to reduce our debt, re-invest and, in time, deliver shareholder returns.
2 We will aim to build our reserves, resources and future production through targeted and disciplined
exploration in geographies and geologies that we know well in Africa and South America. We will
do this through continuous high-grading of our acreage portfolio, appropriately managing equities
to extract value through farm-downs, whilst retaining material exposure to our preferred prospects,
as we seek to extend our basin opening track record.
3 We will manage our asset portfolio through both divestments and acquisitions. We will
ensure that we retain the appropriate equity in our assets for each stage in the cycle to
manage both value and risk. We will also look to acquire assets that we consider can
create value for our shareholders.
4 Our disciplined and returns-focused allocation of capital will remain at the forefront of our
decision making. Tough decisions will be made and assets will have to compete for capital in a
market that remains in recovery.
Outlook
In the same way that we have successfully navigated the biggest
downturn in our industry’s recent history, I believe that by following
these key principles we can return the Company to value growth
in the recovery phase. The team at Tullow has a very strong
track record: we are recognised as a top industry explorer; we
have successfully delivered two major deep-water developments
both within budget and on time; we continue to safely and
efficiently deliver production revenues; and we have a strong
track record on portfolio management. All of these skills are
critical as we return the business to growth and positive financial
returns. However, critical skills we have developed as a Company
are the necessary relationship skills and understanding to work
as a partner of choice to our emerging market host nations.
This success has been built through our focus on shared
prosperity where we consider our shareholder returns are best
served by a strong focus on local priorities. These include
employing and developing our local leadership and workforce,
developing the local supply chain and working closely with our
local communities to ensure they share in the benefits our
industry can deliver.
Under my leadership it is not only our exceptional oil industry
competencies that will deliver value growth, it is our relationship
skills that will continue to make a difference in Tullow’s financial
performance as we again start to grow and take advantage of
the opportunities that an improving market will offer.
Paul McDade
Chief Executive Officer
6 February 2018
>>
Our strategy
Organisation & Culture
Shared Prosperity
16
50
52
www.tullowoil.com
9
1 CHIEF FINANCIAL OFFICER’S FOREWORD
BUILDING ON OUR IMPROVED
FINANCIAL STRENGTH
We have continued to actively manage our financial position and ended 2017
with a number of major achievements.
Tangible benefits from Company reset
As I reflect on Tullow’s performance in 2017, I am pleased with
the significant progress we made throughout the year, right
across the business. We substantially reduced our net debt,
refinanced our bank lending facilities, further simplified the
portfolio including exiting non-core assets, continued to lower
our underlying cost base and began generating significant free
cash flow. Material decisions made in 2017 resulted in key
activities being executed; these combined with the realisation
of tangible benefits from the reset of the business that was
started around three years ago have helped place the
Company on a much firmer footing.
“ Tullow moves into
2018 in a much
stronger financial
position and has
the flexibility to take
advantage of growth
opportunities both
within our existing
portfolio and in the
wider market.”
LES WOOD, CHIEF FINANCIAL OFFICER
10
Tullow Oil plc 2017 Annual Report and Accounts
Strong financial discipline
Financial and cost discipline is now firmly embedded in
Tullow’s systems, processes and management approach, from
low-cost items like travel through to material items of capital
expenditure including major project activity. We are on track to
deliver over $650 million of cost savings from the business
since mid-2015 through to mid-2018, exceeding our original
target by 30 per cent. Our focus now is to ensure that these
underlying savings are sustained year-on-year. This is easier
where we have direct control, but we must be vigilant on
third-party costs, particularly in a potentially improving market.
Prudent capital allocation
We have forecast that we will spend around $460 million in 2018,
compared to $225 million in 2017. The increase year-on-year
is primarily due to our return to drilling at our high-return
producing assets in Ghana. This is combined with optimised
pre-Final Investment Decision (FID) spend in East Africa and
maintaining similar levels of exploration to high-grade our
prospect inventory and drill high-impact opportunities at a
relatively low cost. Operating costs continue to come down
across the Group and in 2017 underlying cash operating costs
were $11.1/boe. We anticipate this downward trend will
continue to around $10/boe or less as we realise further
synergies in our Ghana operations and exit some of our most
mature, high-cost assets.
Prioritising debt reduction
Reducing our net debt level to deleverage the balance sheet
continues to be a key objective for the Group. We started 2017
with $4.8 billion of net debt, a position that built up during the
capital-intensive execution period of the TEN project. The Rights
Issue executed in the first half of the year was further supported
by the work to deliver strong free cash flow generation of
$543 million. This included sales revenue from our producing
assets at an average realised oil price of $58.3/bbl, Business
Interruption insurance proceeds, reducing our capital expenditure,
and lower interest costs following the Rights Issue, among
other factors. The free cash flow generation together with
proceeds from the Rights Issue allowed us to reduce our net
debt by 27 per cent to $3.5 billion by the end of the year. As a
result, we now have the financial flexibility we need to optimise
investment in our assets. Critically, we have a strong asset base
with which to increase EBITDAX and generate free cash flow,
STRATEGIC REPORT which in turn helps to reduce our debt as we move towards our
gearing policy of less than 2.5x net debt/adjusted EBITDAX.
We are already close to achieving this target, having moved
from 5.1x at the end of 2016 to 2.6x at the end of 2017, affording
us sufficient flexibility to invest in our existing asset base and
exploration opportunities in 2018.
Our 2017 key financial metrics reflect the outcomes of the positive
actions we have taken over the last three years. In 2017, sales
revenues amounted to $1,723 million (2016: $1,270 million),
generating free cash flow of $543 million. We also reduced our
net G&A expenditure to $95 million from $116 million in 2016.
However, the Company reported a net loss after tax of $189 million
(2016: $597 million), largely as a result of non-cash impairments,
primarily driven by market conditions resulting from the lower
oil price outlook compared with the prevalent higher oil price
environment when these investments were made. While a loss
is disappointing, and can often make headlines, these losses do
not affect the day-to-day financial health of our business or our
ability to invest or pay down debt and they must not detract
from the clear financial progress we have made. They do,
however, underline the importance of disciplined, efficient and
effective capital investment across the life cycle, which we have
now embedded.
Risk management and strengthening balance sheet
Financial risk management remains at the core of our financial
strategy and we have seen once again in 2017 the benefits it
can deliver. Our long-standing approach to hedging remains
important. The programme contributed $110 million to revenues
in 2017 against a backdrop of ongoing volatility in the oil markets.
Our prudent insurance policy has also meant that we have
benefited from the regular reimbursements of our insurance
cover for the Jubilee Turret Remediation Project. We have
recorded $221 million of insurance proceeds as received in the
year. We have also taken proactive action to address our funding
structure and the maturities of our bank debt. In February, we
extended our Revolving Corporate Facility (RCF) by a further
year to April 2019. Then in November, we announced the
successful refinancing of our RBL facility ahead of our year-end
objective, securing $2.5 billion of debt capacity, with final maturity
in 2024 and a grace period of three years. The process was
exceptionally well managed by the team over the course of the
year, and the result is testament to our strong asset base, and
also evidence of the strong relationships that have been built
and maintained with not only our existing lending banks but
also new banks that we were able to attract.
Moving into 2018
Earlier this year, as I set up my new senior finance team I was
able to take advantage of promoting internal talent to key positions
to create a strong team. With my new team I have been able
to build on the strong foundation that Ian Springett had put in
place and deliver strong results across all areas that are within
the CFO organisation. I would like to thank Ian for all the
support he provided me, particularly in preparation for taking
on the role of CFO.
We have made very good progress in 2017 towards our
longer-term financial objectives. I believe that Tullow moves
into 2018 in a much more robust financial position, with a
strengthened balance sheet, embedded financial discipline
and the flexibility to take advantage of growth opportunities
both within our existing portfolio and in the wider market.
Les Wood
Chief Financial Officer
6 February 2018
>>
Key performance indicators
Finance review
Principal Risks
20
31
42
www.tullowoil.com
11
1 EXECUTIVE TEAM OVERVIEW
TULLOW’S NEW LEADERSHIP
In April 2017, a new Executive Team was selected from Tullow’s significant internal talent base
to provide strong direction for each area of the business, to bed down our focus on performance
and cost management and to set the business up for its next phase of growth.
PAUL
McDADE
CHIEF
EXECUTIVE
OFFICER
Paul was appointed as Tullow’s Chief
Executive Officer in April 2017. To read
Paul’s full biography, go to page 40.
LES WOOD
CHIEF
FINANCIAL
OFFICER
Les has held the position of Tullow’s
Chief Financial Officer since June 2017.
For Les’ full biography, go to page 40.
ANGUS
McCOSS
EXPLORATION
DIRECTOR
Angus has been Tullow’s Exploration
Director since 2006. For Angus’ full
biography, go to page 40.
CLAIRE
HAWKINGS
EXECUTIVE VICE
PRESIDENT,
ORGANISATION
STRATEGY
& COMPANY
PERFORMANCE
SANDY STASH
EXECUTIVE VICE
PRESIDENT,
SAFETY,
OPERATIONS &
ENGINEERING
& EXTERNAL
AFFAIRS
Claire joined Tullow in 2009 as Europe
Business Manager, before becoming
Regional Vice President, Europe, Asia,
South America, then VP of Organisation
Strategy and Effectiveness, before
taking on her current role. Claire’s
responsibilities include: leading the
Executive’s agenda; overseeing Company
performance management and
reporting; delivery of the organisational
strategy, including the employee
proposition; localisation; leadership
succession; and Diversity & Inclusion.
Since assuming her role, Claire has
driven the organisational changes,
which have led to a significant reduction
in Tullow’s organisational cost base
and performance management
improvements. Claire’s focus for 2018
will be to ensure the Executive Team
is effective in leading the business;
maintaining focus on business delivery;
and refining the employee proposition and
organisational effectiveness. Claire has
worked in the oil and gas industry for
27 years in a variety of international
commercial, environmental, business
development and general management
leadership positions.
Sandy joined Tullow in 2013 as Vice
President of Safety, Sustainability and
External Affairs, managing all non-
technical risks for the Company. In 2017,
Sandy was appointed EVP, Safety,
Operations and Engineering, and
External Affairs, where she has Group-
wide oversight of wells and production
operations, projects and engineering,
supply chain management, EHS, Asset
Protection, sustainability, management
systems, and government and public
affairs. In 2018, Sandy will focus on
driving the business toward operational
and business excellence in both
technical and non-technical fields
by building world class, high calibre
functional teams, a systematic approach
to fit-for-purpose assurance, and
leadership that moves the Company’s
performance to the next level of safety,
sustainability, cost-effectiveness and
efficiency in business decision-making
and execution. Sandy has a 30-year
history leading businesses and working
across safety, engineering and
operations in roles at Talisman Energy,
BP, TNK-BP and Arco.
12
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT GARY
THOMPSON
EXECUTIVE
VICE
PRESIDENT,
WEST AFRICA
Gary joined Tullow in 2013 as Vice
President for East Africa with overall
accountability for the Uganda and Kenya
development businesses. Gary was
appointed EVP, West Africa in 2017 and
has been focused on progressing the
Jubilee Turret Remediation Project,
delivery of improved production efficiency
and performance from both the TEN and
Jubilee fields and driving profitability
through management of operating and
capital costs. In 2018, Gary will focus
on increasing production including the
resumption of development drilling on
the TEN and Jubilee fields, execution
of the next phases of the Jubilee FPSO
turret remediation and converting the
Jubilee FPSO to a permanent spread
moored vessel and pursuing growth
opportunities in the West Africa non-
operated production business. Gary
has 30 years’ technical, commercial
and business management experience
in the oil and gas business including
senior leadership positions spanning
exploration, project development and
production operations. Prior to joining
Tullow, Gary worked for BG Group,
Woodside Energy, Ampolex and Chevron.
MARK
MACFARLANE
EXECUTIVE VICE
PRESIDENT,
EAST AFRICA
IAN CLOKE
EXECUTIVE VICE
PRESIDENT,
NEW
VENTURES
Mark joined Tullow in 2013 as Director,
Development and Operations in Tullow
Ghana with accountability for all
subsurface, well construction, technical
and operational aspects of Jubilee and
delivery of the multi-billion dollar
TEN development. In 2017, Mark was
appointed EVP, East Africa and began
the transition of Uganda to a non-
operated business. In Kenya, based upon
the results of the appraisal programme,
he has transformed the approach to the
asset development to one that is focused
on creating and maximising the value of
the Kenya business. In 2018, Mark will
focus on taking the Kenya project
towards FID in 2019 with a prudent and
flexible plan of execution that can deliver
First Oil and cash flow as soon as possible.
Mark has a 30-year career history
spanning Australia, Asia and Africa,
covering operational, technical,
commercial and business leadership
positions across Exxon, Santos,
GLNG and Tullow.
Ian joined Tullow in 2005 as Subsurface
Lead for the Schooner and Ketch gas
assets before becoming Exploration
Manager for Uganda and Kenya and
then VP, Exploration. In 2017 Ian was
appointed EVP, New Ventures and is
responsible for delivering Tullow’s
frontier Exploration and Appraisal activity
across Africa and South America. He led
the reset of the New Ventures Business,
resulting in a re-balanced exploration
portfolio sitting in industry hotspots or
under-explored or emergent petroleum
systems. In 2017, Ian and his team
delivered the Araku wildcat, Suriname
ahead of budget and safely as well
as seven geophysical surveys. In 2018,
Ian will focus on the Cormorant wildcat,
offshore Namibia, geophysical
acquisition and continuing to identify
and capture large scale acreage and
preparing for exploration campaigns in
2019. Ian has a 25-year career history
spanning the UK and Norway, USA, SE
Asia, Africa and South America covering
technical, business and operational
leadership positions across ExxonMobil,
Conoco, Lasmo and Tullow.
TULLOW’S ORGANISATIONAL STRUCTURE
Nine members
BOARD
Eight members
EXECUTIVE TEAM
3 Executive Directors
6 Non-executive Directors
4 Board Committees
3 Executive Directors
5 Executive Vice Presidents are held
accountable for Tullow’s performance
BUSINESS
DELIVERY
TEAMS
WEST AFRICA
EAST AFRICA
NEW VENTURES
CORPORATE
CENTRE
AGREED GROUP
SERVICES
CFO FUNCTIONS
EXPLORATION & SUBSURFACE
ORGANISATION STRATEGY &
PERFORMANCE
SAFETY, OPERATIONS & ENGINEERING
& EXTERNAL AFFAIRS
CROSS BDT TECHNICAL &
NON-TECHNICAL SUPPORT
www.tullowoil.com
13
1 MARKET OUTLOOK
RESPONSIVE TO CHANGING
MARKET DYNAMICS
ECONOMIC &
POLITICAL OVERVIEW
2017 was another busy year for politics, not least in the UK
and Europe given the ongoing Brexit backdrop and a snap
general election, major elections in both France and Germany,
and Catalonia’s struggle for independence. Donald Trump’s
election win in late 2016 continued to cause both tension
and hope as he strived to achieve his promised reform plans.
In Beijing, Xi Jinping declared China is becoming “a mighty
force” that could lead the world on political, economic,
military and environmental matters in a “new era” of
Chinese power. Meanwhile tensions between the US and
North Korea ratcheted up, adding some geopolitical concern
to an already nervous backdrop as terrorist incidents in a
number of major global cities also continued into 2017.
On the economic front, global growth remained robust;
however, inflation and central bank policy remained key
themes for investors. ‘Reflation’ was the keyword early
in the year, as Donald Trump’s reforms provided hope of
future growth. China, the world’s second largest economy,
continues to grow steadily and is currently focused on
technology leadership, improving productivity and reining
in domestic debt. Except in the UK – where ongoing
Sterling (GBP) weakness sent inflation soaring to 3 per cent
– inflation in developed markets remained rather elusive,
proving problematic for central bankers keen to return
policy to a more typical level following the prolonged recovery
from the global financial crisis. Nevertheless, the US Federal
Reserve raised rates twice over the course of the year.
In Europe, with core inflation slowly returning as the year
progressed, the European Central Bank announced that
it would halve the pace of its monthly quantitative easing
purchases, albeit extending it for a further nine months
in order to smooth the return to normality without rattling
financial markets. And, for the first time in more than a
decade, the Bank of England was effectively forced to raise
the base rate by 25 basis points (thus negating the post-EU
referendum cut), despite a struggling economic backdrop,
as a currency-impacted headline Consumer Prices Index
hit 3 per cent for the first time since 2012.
OIL PRICE
Oil prices continued to be volatile through 2017, bottoming
out around $45/bbl in mid-June before hitting a two-year high
of $64/bbl in early November. Prices have continued on a
firmer footing into 2018, with escalating geopolitical tensions
across the Middle East, particularly in Kurdistan and between
Saudi Arabia and Iran, acting as price-supportive factors.
The resurgence of shale oil and its impact on the global market
will continue to maintain near-term downward pressure on
prices. Tullow’s strategy to mitigate this risk, set out on pages 46
and 47 in our discussion on principal risks, focuses on ensuring
our business remains robust and competitive at $50 oil and
maintaining our long-term hedging policy, to protect
against fluctuations.
Irrespective of this unpredictable environment, the long-term
fundamentals for the oil sector continue to look strong, with
Tullow well placed to benefit. The IEA’s New Policies Scenario
predicts global oil needs will rise more slowly than in the past,
and at a lower rate than total energy consumption such that its
relative share in the overall energy mix continues its long-term
decline. Renewables’ share of the overall energy mix will continue
to rise, albeit still from a much lower base. The growing energy
demand generated by population growth is partially offset by
energy efficiency gains. Nevertheless, the 30 per cent increase in
forecast energy demand by 2040 is greater than the fall in oil’s
share of the total energy market and oil demand is forecast to
stay on a rising trajectory to 105 million barrels of oil per day
by 2040. This growth is driven largely by the production of
petrochemicals, closely followed by rising consumption for
trucks (fuel efficiency policies cover 80 per cent of global car
sales today, but only 50 per cent of global truck sales), for
aviation and for shipping.
GLOBAL DEMAND FOR OIL
(MMBOEPD)
AVERAGE BRENT CRUDE
PRICE ($/BBL)
100
98
96
94
92
90
88
$54/BBL
9
0
01
0
1
4
5
4
5
5
4
13
14
15
16
17
11
12
13
14
15
16
17
18E
Source: BP Statistical Review of Barclays Research.
14
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT AFRICAN ECONOMIC & POLITICAL OUTLOOK
Ghana
Ghana’s headline economic performance in 2017 was strong
– GDP grew by 5.9 per cent1, mostly as a result of rising oil
production at the TEN field and First Oil shipments from
ENI’s Sankofa project. Oil & Gas activity is expected to
contribute to robust growth in 2018, cementing our industry’s
role as a key driver of Ghana’s economic outlook.
However, despite improving headline growth, the Ghanaian
economy is still in recovery mode after the balance of payments
crisis in 2014–15; an IMF programme to restore Ghana’s debt
sustainability was extended in 2017 until April 2019.
In this context, the Government is targeting ambitious deficit
reductions based on improved domestic revenue mobilisation
and expenditure management. Our ongoing efforts to remove
costs and maximise production uptime at TEN and Jubilee
align well with Ghana’s immediate focus on maximising the
economic value of its resources, while the activities foreseen
in the GJFFD will extend Jubilee’s material contribution to
Ghana’s economic prospects into the next decade.
Kenya
Kenya is emerging from its unsettled, drawn-out 2017 election
with an economy in reasonably good shape. GDP growth grew
by ~5.5 per cent2 as businesses and consumers reversed the
‘wait-and-see’ stance adopted in the run-up to the election.
The uncertainty of the election process suppressed demand
and put pressure on the shilling and equity prices in Q4, but
not at a level requiring emergency policy intervention.
Robust headline growth notwithstanding, a number of
‘weak signals’ of future stress are emerging: fiscal space
is receding due to rising debt service obligations and the
requirement for central government financing of devolved
county administrations. The public debt burden – while not
excessively high by regional standards – is rising quickly.
It will take time for the post-election period to settle, but
weak signals of stress and the need to deliver against
pre-election commitments should translate into a renewed
sense of Government urgency and focus to facilitate and
deliver growth-enhancing development projects, including
Tullow’s South Lokichar development.
CLIMATE CHANGE REGULATION
Governments are putting in place taxes, carbon trading
schemes and other measures to limit greenhouse gas (GHG)
emissions. We are currently undertaking a review of how many
of our countries of operation will be subject to emissions and
carbon policies by 2020.
To help anticipate greater regulatory requirements for GHG
emissions, we factor a shadow carbon cost into our own
investment decisions for large new projects to ensure that
the rate of return on investment for these projects is still
viable in the event of carbon taxes being imposed.
Further information on our position on climate change can be
found on page 37, but our aim is to minimise the GHG emissions
Non-operated production areas
Of all the countries in Tullow’s portfolio, it is the West African
countries in our non-operated business which are the most
dependent on oil production and which have been most reliant
in recent years on high oil prices to compensate for secular
decline in their maturing fields.
Unsurprisingly, their economies have been badly affected by
the post-2014 collapse in oil prices and the reconfiguration
of oil industry capital allocation priorities has resulted in
lower levels of investment and the accelerated withdrawal
of a number of major IOCs.
While the structural reforms needed to reset their economies
for a lower-for-longer oil price environment have been
unevenly implemented across the CEMAC bloc3, Gabon and
Equatorial Guinea have begun the process of adjusting to the
new competitive landscape facing their respective industries.
With the right policy set in place, they could stand to benefit
from the continued commitment of smaller low-cost
operators and portfolio investors – like Tullow – and should
be able to identify incremental value addition opportunities
and be better positioned to compete for exploration capital.
1. Source: IMF World Economic Outlook, Oct 2017.
2. Source: IMF World Economic Outlook, Oct 2017.
3. Economic and Monetary Community of Central Africa (comprising
Cameroon, Central African Republic, Chad, Equatorial Guinea,
Gabon and Republic of Congo).
potential of our activities and implement appropriate reduction
initiatives, taking into account the overall stability of our operations.
We also work to ensure that our business is responsive to
applicable legal and regulatory developments designed to
address climate change, and maintain transparency in our
performance reporting and openness in our engagement
about climate change.
>>
Our strategy
Operations review
Governance & Risk management
16
26
38
www.tullowoil.com
15
1 OUR STRATEGY
A SUSTAINABLE &
SELF-FUNDED BUSINESS
Tullow’s strategy is to create a business where our low-cost, long-life asset base in Africa creates
the high-margin cash flow that funds our growth, reduce our debt and deliver shareholder returns.
Our strategy is to build a strong, sustainable and
self-funded Exploration & Production business.
As set out in Paul’s CEO Statement, Tullow’s four
strategic priorities are:
1 LOW-COST, LONG-LIFE
PRODUCING ASSETS
Maintaining and continuing to invest in our
production and development assets remains a key
priority. The production revenues provide free cash
flow to reduce debt, re-invest and deliver shareholder
returns. Managing these assets safely, to high
operational standards, utilising local staff and
suppliers, whilst minimising costs and maximising
production revenues is our constant focus.
2 EXPLORATION TO
BUILD RESERVES
Building our reserves, resources and future
production through targeted and disciplined
exploration in Africa and South America is another
key priority. We continuously high-grade our low-
cost acreage portfolio, managing equity interests
to extract value, whilst retaining material exposure
to our most highly prized drillable prospects.
3 ACTIVE PORTFOLIO
MANAGEMENT
We actively manage our asset portfolio through
divestments and acquisitions. Farm-downs, disposals
and acquisitions help us to manage our financial
risk exposure, generate cash or add value-accretive
assets to our portfolio. We will also look to acquire
assets at any stage in the life cycle where we can
create value for our shareholders.
4 DISCIPLINED, RETURNS-FOCUSED
CAPITAL ALLOCATION
Prudent capital allocation, combined with careful
cost management, runs through all our decision
making. It ensures our assets remain competitive
and helps us achieve a balance between investing
in the short-, near- and long-term growth engines
for the business.
16
Tullow Oil plc 2017 Annual Report and Accounts
BALANCE
SHEET
CASH FLOW FROM
OPERATIONS
INVESTMENT
DECISIONS
Investment decisions
Tullow has a rigorous capital
allocation process in order to
appropriately balance its
investment in its producing fields,
selective developments and
exploration opportunities.
Balance sheet
Deleveraging the balance sheet
remains a high priority for the
business and we are working
towards our long-term gearing
policy of less than 2.5x net debt/
adjusted EBITDAX.
Cash flow from operations
Tullow generates cash flow from
its low-cost production assets in
Ghana and across its West African
non-operated portfolio.
STRATEGIC REPORT Exploration
Exploration is key for future growth. While
the scale of exploration has reduced, we are
maximising exploration spend on high-impact
activities and taking advantage of low
industry costs.
Portfolio management
We actively high-grade our portfolio, maintaining
the appropriate financial risk exposure ahead
of exploration and development projects,
generating funds to both pay down debt and
create growth opportunities for the business.
We screen opportunities and only progress
programmes that pass strict commercial,
geological and risk criteria.
We continually monitor potential inorganic
ways to grow the business, but will only act
on opportunities that are value accretive and
fit well within our strategy and when we have
the appropriate balance sheet to do so.
EXPLORATION
PORTFOLIO
MANAGEMENT
FINANCIAL
MANAGEMENT
SELECTIVE
DEVELOPMENTS
PRODUCING
FIELDS
FREE
CASH FLOW
RE-INVEST
DIVIDENDS
Financial management
Financial management of our business
includes value-protecting programmes such
as insurance and oil price hedging policies.
G&A and the cost of our debt are running
costs that we carefully manage. We have
made good progress in reducing these costs
in recent years and embedded cost discipline
and performance management are in place
to ensure these costs are appropriately
controlled going forward.
Selective developments
Tullow has a proven track record of developing
major projects on time and on budget. Tullow
will selectively develop discoveries it makes
that have a clear path to monetisation with
robust economics, where we have the right
level of licence equity and Joint Venture
Partners to effectively deliver the project.
Producing fields
Tullow has low-cost, long-life oil producing
assets in Ghana and West Africa which provide
stable cash flow for the Group. Tullow plans to
grow and sustain its production through
further drilling in Ghana and bringing on
additional production from East Africa.
Free cash flow
Free cash flow is the cash
that Tullow is left with after
all our costs are covered.
Generating free cash flow
gives Tullow the flexibility
to re-invest in future growth,
reduce debt and provide a
return for shareholders.
Re-invest
Re-investment in our existing
portfolio of assets is vital to
maximise the potential of
our asset base, to build and
maintain the future revenue
streams that will in turn deliver
our ambition of achieving a
self-funded business.
Dividends
Tullow recognises that
issuing a dividend is an
important signal of financial
discipline and is a way
to return value to our
shareholders. The Board
reviews the Company’s
dividend policy annually
and will consider a dividend
alongside prioritising
deleveraging of the balance
sheet and investing in
our assets.
www.tullowoil.com
17
1 OUR BUSINESS MODEL
FOCUSED ON VALUE CREATION
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.
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
EXPLORATION &
APPRAISAL
37,244KM2
of new acreage accessed,
including Côte d’Ivoire
and Peru
DEVELOPMENT &
PRODUCTION
$11.1/BOE
average operating cost
across the Group, with this
downward trending moving
towards $10/boe in 2018
SAFETY
EVENTS
ZERO
Tier 1 or Tier 2 process safety
events recorded at TEN or
Jubilee in 2017
GOVERNANCE & RISK
MANAGEMENT
100%
completion of the e-learning
Code of Ethical Conduct
18
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT
Our business is delivered through the seven elements of our business model. Each component places importance on how we run our
business as well as how we create value. How we create value describes our core operations from exploration, to development and
production, and through our strong financial and portfolio management. Ultimately the purpose of our business model is to create
sustainable, long-term value growth and return on investment for our shareholders. How we run our business describes how we
manage our people, how we interact with communities, government relations and how we manage our environmental footprint.
HOW WE CREATE VALUE
Element of business model
Our key strengths and activities
Exploration & Appraisal
• Finding oil to build reserves and resources to sell in the ground or to selectively develop for
future production through targeted and disciplined exploration in geographies and geologies
we know well in Africa and South America
• Active high-grading of our prospect portfolio to build the best pipeline of drilling candidates,
managing risk exposure and readiness to take advantage of new exploration opportunities
Development & Production
• Focused development plans with clear routes to monetisation
• Investing in near- and in-field drilling programme in Ghana to increase and extend
production plateau and reduce decline in our non-operated assets
• Clear path to additional 23,000 bopd from early 2020s, from our equity share in Uganda, at
no cost to the Group following completion of the farm-down deal
• Optimising pre-FID investment in Kenya, with clear focus on achieving a profitable
development at low oil prices
Finance & Portfolio Management
• Reducing debt by around 30 per cent over the year and moving closer towards our policy of
<2.5x net debt/adjusted EBITDAX
• Creating operational and financial flexibility through the Rights Issue
• Securing long-term funding through refinancing of our RBL facilities
HOW WE RUN OUR BUSINESS
Element of business model
Our key strengths and activities
Responsible Operations
• Progressing position on Free, Prior and Informed Consent in Kenya, as recognised by the
International Finance Corporation
• Signing a Memorandum of Understanding on Voluntary Principles and Human Rights in Kenya
• Continued drive on process safety management on Ghanaian assets
Governance & Risk management
• 100 per cent completion of the e-learning module and Code of Ethical Conduct
compliance certification
• Integrating risk and assurance monitoring into quarterly business performance reporting
and reviews
• Auditing our Integrated Management System, validating its completeness and effectiveness
of roll-out
Organisation & Culture
• New Executive Team selected internally, responsible for driving performance and positioning
the Company for growth
• Follow-up to employee feedback survey has resulted in launch of refreshed Values and dedicated
project to accelerate Company’s career and performance development opportunities
Shared Prosperity
• Strength of government relations demonstrated by Greater Jubilee Full Field Development
Plan approval and new Côte d’Ivoire exploration licence awards after ITLOS ruling
• Stakeholder Engagement Framework published ahead of development phase in Kenya
• Ongoing progress of the socio-economic investment strategy
www.tullowoil.com
19
1 KEY PERFORMANCE INDICATORS
A YEAR OF SOLID PERFORMANCE
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 2017 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 Executive Vice Presidents’
performance is judged solely on the delivery of the targets
set in the Group scorecard, whereas all other permanent
employees’ bonuses are based on a combination of individual
and Group performance.
In 2017, a decision was taken to introduce a discretionary
component to the Group scorecard of 10 per cent. This was
introduced to recognise unplanned events or initiatives
that required significant discretionary effort on the part
of our employees.
Each objective measured has a percentage weighting, and
financial and operational indicators have trigger, base and
stretch performance targets. As reflected in the adjoining table,
in 2017, Tullow’s overall performance was 39.7 per cent. The
‘relative’ Total Shareholder Return (TSR) tracks our performance
over a three-year period. For 2017 performance, our share
price during the fourth quarter of 2014 is compared to the
fourth quarter of 2017, with the intervening period not accounted
for. For these two periods we remain below the median and
therefore score nil out 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.
>>
Remuneration Report
78
20
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT STRATEGIC FINANCING (9.5%/10%)
Relevance to strategy
Supporting our growth strategy with the
appropriate financing and liquidity to meet our
capital commitments. Deleveraging the balance
sheet is critical to achieving our growth strategy.
FACILITY HEADROOM &
FREE CASH AT YEAR END
$1.1BN
Performance
• Refinanced $2.5 billion seven-year RBL facility
• Extended $800 million RCF by one year and
voluntarily reduced commitment by $200 million
ahead of amortisation schedule
• Deleveraged balance sheet through $750 million
Rights Issue
• Generated $543 million of free cash flow, reducing
gearing to 2.6x net debt/adjusted EBITDAX
• Debt down by $1.3 billion to $3.5 billion
PRODUCTION (4%/4%)
Relevance to strategy
Production revenues generate high-margin cash flow
which in turn funds exploration and development
investment opportunities, can be re-invested in our
portfolio of assets and pays down debt.
Performance
• Group production exceeded the stretch target and
guidance was revised upwards due to strong
performance from the TEN and Jubilee fields
• Non-operated West Africa portfolio performed
ahead of budget
• Year-end total, excluding barrels covered
by business interruption insurance was
87,300 boepd
WORKING INTEREST
PRODUCTION
87,300BOEPD
0
0
2
,
4
8
0
0
2
,
5
7
0
0
4
,
3
7
0
0
1
,
7
6
0
0
3
.
7
8
OPERATING EXPENDITURE/PER BARREL (1%/1%)
Relevance to strategy
Maintaining competitive operating expenditure helps
deliver higher-margin production revenues. The cost of
producing a single barrel of oil is influenced by industry
costs, inflation, fixed costs and production output.
Performance
• The Group achieved an operating cost of $11.1/boe,
significantly exceeding the stretch target
• Increased production due to strong performance
on Jubilee and TEN fields and the Jubilee
shut-down being moved to 2018 contributed
to exceeding targets
• Operating costs also benefited from contract
renegotiation, synergies within service providers
and synergies with TEN and Jubilee operations
NET GENERAL AND ADMINISTRATIVE COSTS (1%/1%)
Relevance to strategy
Maintaining lean running costs for the business
influences both the profitability and efficiency of our
business. Net G&A is the Company’s corporate
costs, which are not off-set against licence activity.
Performance
• Net G&A was managed well during the year
resulting in a Net G&A for the year of $95 million,
significantly beating our stretch target
CAPITAL EXPENDITURE (1%/1%)
Relevance to strategy
Investing capital expenditure is required to
maintain and grow the business and is directed
to the development costs of major projects and
exploration campaigns. We are working to reduce
capital expenditure in order to reduce our current
debt levels.
Performance
• Capex was reduced significantly during the year to
$225 million, excluding the Uganda expenditure.
This includes a $69 million accrual reversal
in Ghana
13
14
15
16
17
CASH OPERATING COST
$11.1/BOE
6
.
8
1
5
.
6
1
1
.
5
1
3
.
4
11
.
1
1
13
14
15
16
17
NET G&A
$95M
9
1
22
9
1
4
9
1
6
1
51
9
13
14
15
16
17
CAPITAL EXPENDITURE
$225M
0
2
0
,
2
0
0
8
,
1
0
2
7
,
1
7
5
8
5
2
2
13
14
15
16
17
www.tullowoil.com
21
1 LOST TIME INJURY, TOTAL
RECORDABLE INJURY
s
r
u
o
h
n
a
m
n
o
i
l
l
i
m
I
r
e
p
F
R
T
&
F
I
T
L
1.00
0.80
0.60
0.40
0.20
0.00
2017
Lost time injury frequency
Total recordable injury frequency
BACK TO
DRILLING
GREATER JUBILEE FULL
FIELD DEVELOPMENT
GOVERNMENT APPROVAL
FARM-DOWN
OF UGANDAN ASSETS
UNDER WAY
HIGH-
GRADED
EXPLORATION PORTFOLIO
KEY PERFORMANCE INDICATORS CONTINUED
SAFETY, SUSTAINABILITY AND OCCUPATIONAL HEALTH (3.4%/5%)
Relevance to strategy
Protecting our people, communities, facilities and
the environment impacted by our activities ensures
we work safely and sustainably and maintains our
good reputation. We measure this KPI through
process safety events, asset integrity, Lost Time
Injury Frequency (LTIF), number of malaria cases,
resolution of community grievances and spending
appropriate levels of our goods and services
budgets with local suppliers.
Performance
• Four Lost Time Injuries have negatively impacted
LTIF performance
• 38 minor process safety events were recorded
• 12,349 lost man hours due to community
work-related incidents
• No regulatory non-compliance notices received.
• No new malaria cases for 2017
• 87 per cent progress against our Asset Integrity/
Process Safety key performance indicators
WEST AFRICA (3.5%/5%)
Relevance to strategy
Our Ghana business continues to hold our most
important and strategic producing assets and the
ITLOS ruling allows us to pursue future exploration
opportunities whilst returning the Jubilee field to
plateau production levels, preparing for exploration
drilling and enhancing the value of the West Africa
non-operated business.
EAST AFRICA (3.5%/5%)
Relevance to strategy
Commercialising oil in Kenya and Uganda is a key
objective of our strategy which is being pursued
through appropriate equity holdings in the respective
assets. This KPI measured progress of the Kenya
development project for FID; completing the Uganda
farm-down; and progressing the Uganda development
to FID.
NEW VENTURES (3.8%/5%)
Relevance to strategy
Creating value through new exploration at the right
licence equity levels and securing new acreage
ensure that we maintain a balanced portfolio to
pursue growth opportunities. This KPI measured
new acreage secured; managing appropriate equity
levels in existing licences; maturing commercially
attractive prospects for future drilling campaigns;
and drilling the Araku well in Suriname safely,
efficiently and cost-effectively.
22
Tullow Oil plc 2017 Annual Report and Accounts
Performance
• Government of Ghana approval was secured for
the Greater Jubilee Full Field Development Plan
• Rig contracted in preparation for return to drilling
on TEN and Jubilee in early 2018
• Non-operated business growth plan for Gabon
was developed
• Decommissioning activities in the Southern North
Sea progressed
• 20 mmbbls of new resources were booked
Performance
• Strong operational performance was maintained
with initiatives being prepared and focus on
community relations and capacity building to
support local content
• In Kenya, strategic direction shifted to focusing on
a phased development as a preferred value proposition
• A Joint Development Agreement to construct an
oil pipeline has been signed with government
• In Uganda our Partners, Total and CNOOC, have
signed the Sales and Purchase Agreement to
farm-down our interest and completion is expected
in 2018. We are working towards achieving FID
around mid-2018
Performance
• Performance focus was on securing new acreage
and developing prospectivity
• New licences in Côte d’Ivoire and Peru
were secured
• Equity reductions secured in licences in
Mauritania, Suriname, Namibia, Jamaica
and Pakistan
• The exit from Madagascar and Greenland
was completed
• Progress was made on prospects in Suriname
• All operations in Jamaica, Uruguay, Guyana,
Zambia, Suriname and Mauritania completed
safely and under budget
STRATEGIC REPORT
ORGANISATION (2%/3%)
Relevance to strategy
Our organisation strategy aims to be inclusive and
engage and motivate employees while ensuring that
we have robust governance processes in place. This
KPI targeted improvements in staff engagement,
Diversity & Inclusion and Ethics & Compliance.
100%
STAFF COMPLETION OF
CODE OF ETHICAL
CONDUCT ONLINE COURSE
Performance
• A mini staff survey conducted in Q3 showed that actions
taken as a result of the feedback from the biennial
engagement survey in 2016 were yielding results
• A Diversity & Inclusion (D&I) workshop was held
with the new Executive Team to endorse the
forward plan of management and a new Executive
Sub-Group was agreed to promote the D&I aims
• All employees completed the Code of Ethical
Conduct online course and our administrative Code
Certification process. There were two breaches of
compliance regarding the Company’s Expenditure
related to Public Officials (ExPo) Standard
DISCRETIONARY AWARD (7%/10%)
Relevance to strategy
The discretionary award is effective for specific
actions that have resulted in value creation. This
element was introduced in 2017 to take account
of unforeseen events; business performance
management and leadership; in-year external
commentary regarding the business and our share
price; and value created through superior performance.
Performance
• The following were taken into consideration
for the discretionary award: Executive Team
transition; Ghana/Côte d’Ivoire ITLOS preparation;
free cash flow generation; exiting Congo and the
Netherlands; settling a tax dispute in one of our
West African host countries; investor sentiment;
progress on the Kenya development; and
finance processes
7/10
TOTAL SHAREHOLDER RETURN (0%/50%)
Relevance to strategy
Our strategy is to build long-term sustainable value
growth resulting in returns to our shareholders.
The TSR component is based on our performance
relative to our European and US E&P peers over a
three-year period.
Performance
• We achieved a zero score for TSR because our
share price, including the adjustment for the
Rights Issue, performed below the median
against our industry peer group over a
three-year period
TOTAL SHAREHOLDER
RETURN
500
400
300
200
100
0
08
09
10 11 12 13 14 15 16 17
Tullow
FTSE 100
FTSE 250
2018 GROUP SCORECARD
Financial, operational and organisational targets are included
in the 2018 scorecard, as well as measures to deliver on the
longer-term growth strategy of the Company.
• Ensuring funding capacity in a downside environment and
determining a long-term strategic solution to deleverage
and rebase the balance sheet;
A summary of the targets is listed below, and the KPIs will be
disclosed in the 2018 Annual Report:
• Business delivery: operational targets relating to
West Africa, East Africa and New Ventures; and
• Financing the business: ensuring sufficient liquidity through
2018 to deliver the Business Plan and execute our long-term
strategic plan to deleverage and rebase the balance sheet;
• Growing our business: deliver growth activities relating
to West Africa, East Africa and New Ventures.
www.tullowoil.com
23
1
CREATING VALUE
CREATING
SUSTAINABLE BENEFITS
The oil we find and sell has the potential to create sustainable value and shared prosperity
in our countries of operation. Over the course of the oil and gas life cycle, we prioritise cost
consciousness, paying fair and appropriate amounts of tax, being transparent in the payments
we make to governments and identifying opportunities for local businesses within our supply
chain to share the benefits from our operations.
VALUE CREATION
Exploration
Appraisal
Development
Production
Decommissioning
Government take
Oil company take
Government net cash flow
Appraisal proves
commerciality of field
Exploration
success
Seismic survey
First exploration well
First Oil
Oil company cost
Oil company opex
Government investment
2–10 year period
3–10 year period
20–50 year period
INVESTMENT
24
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT Exploration & Appraisal
Development of discovery
Production
Decommissioning
Tullow shareholders
We invest the capital raised from
shareholders and our banks in
acquiring licences, seismic data and
drilling E&A wells.
We bring in Joint Venture industry
partners at this stage to spread our
exposure to risk and often carry the
host governments’ share of costs
through to First Oil.
We assess the best monetisation
options of our commercial
discoveries and decide whether
to sell the oil in the ground or
proceed to development.
This phase involves investment in
drilling wells required for oil production
and building the infrastructure required
to extract and develop resources.
We may dilute our equity in return
for development costs being carried
by Joint Venture Partners.
For onshore projects, this includes
transport infrastructure, processing
facilities and pipelines.
For offshore projects, Floating Production
Storage and Offloading (FPSO) vessels
and subsea equipment are fabricated,
installed and commissioned.
Tullow employees and local employment
Once a field is producing, investment
will focus on sustaining and extending
plateau production.
Minimisation of operating costs becomes
a focus in this phase, as does the economic
optimisation of production from the
subsurface and through the infrastructure.
Funds need
to be set aside
to decommission
facilities and
remediate
locations at the
end of production.
Our expert technical teams
identify acreage, basins, plays and
prospects for our portfolio, which
we rejuvenate in learning cycles.
The capital we invest at this stage is
de-risked through research and
analysis of the geology by our teams
ahead of any drilling commitments.
Governments
We share our expertise and know-how
Tullow will work with international
by employing local subcontractors and
suppliers and the development phase
presents a material opportunity to do this.
and local contractors and expertise
from the local workforce is required to
run operations, maintain the field and
facilities, protect the integrity of the field
and plan for additional infill or near-field
exploration drilling.
Tullow pays the host government land leases and various taxes, including
The main economic value to host
withholding tax on goods and services imported into the country, PAYE and
National Insurance on personnel employed, licence fees, infrastructure
improvement payments, customs duties and training allowances.
An agreement between Tullow and the government determines how and when
Tullow and its Joint Venture Partners can recover the significant investment that
has been made during the exploration, appraisal and development phases.
governments is from production revenues
and income taxes on Tullow’s profits.
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’. The arrangement then
significantly benefits the Government
throughout the longer term, after the initial
costs are recovered by the oil company.
Our employees
and contractors will
be able to use their
experiences and
lessons learnt in
future developments.
The remediated
land will be handed
back to the host
government.
Local supply chain
In the early stages of a project
This phase represents the greatest
Tullow creates benefits for local
communities by investing in social
projects and employing local
subcontractors in E&A programmes,
where possible. Other benefits can
include improved infrastructure and
access to amenities and social
investment in local communities.
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.
Community
Goods and services from local
businesses are required at this stage
and Tullow continues to invest in capacity
building and training to grow levels of
local employment and business
participation in the supply chain.
New skills
that the local
communities have
developed as a
result of our
operations can
be used in other
industries.
Building a robust social licence is fundamental to our ability to operate. Without the engaged support of our host communities, we would be unable
to undertake the technical, infrastructural and logistical work associated with exploration, development and production of hydrocarbons onshore and
offshore. Focal areas of our social performance therefore include stakeholder engagement, management of community grievances and land/sea
access – all led by focused stakeholder engagement teams – with emphasis dependent on project context and proposed activities. In 2017, the focus
has been on embedding our new socio-economic investment (SEI) strategy and governance process, which is based on the implementation of rigorous
project selection criteria and performance measurement to ensure that SEI projects create measurable value for both Tullow and host communities.
www.tullowoil.com
25
1 OPERATIONS REVIEW
A BALANCED E&P BUSINESS
Tullow’s highly experienced team have again in 2017 shown our proven operating capability.
The combination of our low cost production in West Africa, material East African developments
and a high impact exploration portfolio will generate future value for our shareholders.
WEST AFRICA
“ Tullow’s West African operations remain
at the core of Tullow. In 2017, West Africa
delivered over 89,000 bopd of high-margin,
low-cost oil and in 2018 we will invest in
Ghana to sustain this impressive performance
over the coming years. Drilling is due to
commence on the Ntomme field by the end
of February 2018 and we continue to evaluate
the business case of procuring additional
rig capacity. I have been particularly pleased
by the performance of the TEN fields, with
production exceeding 70,000 bopd at the
end of the year, especially given the delays
on completing the development wells which
resulted from the ITLOS drilling moratorium.
I look forward to similarly strong performances
from Jubilee, TEN and our other West African
oil fields in 2018.”
GARY THOMPSON, EXECUTIVE VICE PRESIDENT FOR WEST AFRICA
26
Tullow Oil plc 2017 Annual Report and Accounts
PRODUCTION
Tullow’s West Africa 2017 oil production exceeded expectations
for the year averaging 89,100 bopd. This includes 7,400 bopd of
net production-equivalent payments received under Tullow’s
corporate business interruption insurance for the Jubilee field.
In Europe, working interest gas production performed in line
with expectations with full year net production averaging 5,600
boepd. This brings Tullow’s total average working interest
production in 2017 to 94,700 boepd.
In 2018, working interest oil production, including production-
equivalent insurance payments, is expected to average between
82,000 and 90,000 bopd. Working interest gas production, which
includes TEN associated gas sales and the impact of the
Netherlands assets sales in 2017, is expected to average
between 3,500 and 4,500 boepd. This brings overall Group
production guidance, for both oil and gas, to between 86,000
and 95,000 boepd.
Ghana
Jubilee
Full year 2017 gross production from the Jubilee field averaged
89,600 bopd (net: 31,800 bopd). Tullow’s corporate business
interruption insurance has reimbursed 7,400 bopd of net
production-equivalent insurance payments, bringing expected
full year effective net production from Jubilee to 39,200 bopd.
Gross production in the latter part of 2017 was consistently
above 90,000 bopd and we expect to build on this as we
commence drilling in 2018.
Turret Remediation Project
Following the discovery of the issue with the turret bearing of
the Jubilee FPSO Kwame Nkrumah in 2016, Tullow has been
able to continue efficient production operations while working
on the permanent solution which involves converting the FPSO
to a spread moored vessel. The first phase of this work,
involving the installation of a stern anchoring system, was
completed in February 2017, after which the tugs maintaining
the FPSO on heading control were removed.
Preparations continue in advance of the planned turret bearing
stabilisation work in the first quarter of 2018. This work is
expected to take place over two shut-down periods, totalling
four to six weeks. A further planned shut-down of approximately
three weeks is expected around year end 2018 to rotate the
FPSO to its permanent heading and install the final spread
mooring anchoring system.
STRATEGIC REPORT Production in 2018
Tullow expects 2018 gross oil production from the TEN fields to
average 64,000 bopd (net: 30,200 bopd). During the year, the rig
schedule and timing of drilling and completion operations will
be optimised, providing upside potential to this initial estimate.
Ghana drilling in 2018
Tullow has secured the Maersk Venturer rig which is expected
to start drilling later this month. The rig will be used across the
TEN and Jubilee fields and has been contracted for up to four
years with early termination provisions. The first well planned
is an Ntomme production well in the TEN fields followed by a
Jubilee production well located in the north-eastern area of
the field. Work is ongoing to finalise the sequence of further
wells to optimise output from both the Jubilee and TEN fields.
Tullow and its Joint Venture Partners continue to evaluate the
business case for contracting a second rig that would allow the
acceleration of drilling across both fields.
NON-OPERATED PORTFOLIO &
EUROPE GAS PRODUCTION
2017 West Africa net non-operated production exceeded
expectations at 23,500 bopd. Net production in 2018 is expected
to be around 19,100 bopd. The reduced year-on-year forecast
is primarily due to natural decline as a result of sustained low
investment levels during a period of low oil prices, combined
with the exit from the M’Boundi field, Congo (Brazzaville),
effective from July 2017, and the cessation of production
at the Chinguetti field in Mauritania.
Full year gas production from Europe averaged 5,600 boepd in
2017, which includes production from Tullow’s Netherlands
assets prior to the completion of their sale in November 2017.
In mid-2017 Tullow started the planning, engineering and
procurement processes to decommission up to 10 operated
wells in the UK Continental Shelf during 2018. Site surveys and
other preparatory works will be undertaken during the first
quarter of 2018, which will be followed by approximately six
months of well plug and abandonment operations. Tullow
expects annual production from its UK assets to average
around 1,900 boepd in 2018, which takes into account cessation
of production at the end of the third quarter of 2018, ahead of
decommissioning activities.
Greater Jubilee Full Field Development Plan
The Government of Ghana approved the Greater Jubilee Full
Field Development Plan in October 2017, allowing Tullow and
its Joint Venture Partners to prepare for a multi-year incremental
drilling programme to maximise and sustain oil production and
gas exports. The initial focus will be the drilling and completion
of new wells in the Jubilee unit area that will make use of
existing infrastructure, and the completion of a well previously
drilled in the Mahogany discovery. 4D seismic acquired in the
first half of 2017 is being used to optimise well locations and
ongoing reservoir management.
Production in 2018
Tullow expects 2018 gross production from the Jubilee field
to average 75,800 bopd (net: 26,900 bopd), which takes into
account the planned shut-downs associated with the turret
remediation work. Tullow’s corporate business interruption
insurance cover, which compensates Tullow for lost production
associated with the remediation works, is expected to reimburse
Tullow 10,200 bopd of net production-equivalent insurance
payments. Jubilee effective net production is therefore expected
to average around 37,100 bopd for 2018.
TEN
The TEN fields performed well in 2017 with gross
production exceeding initial guidance, averaging 56,000 bopd
(net: 26,400 bopd). This strong performance was as a result
of production and water injection optimisation, which continues
to be effective, and the field has performed consistently above
70,000 bopd for the last three months. Production from the
11 wells drilled so far indicate reserves estimates for both
Ntomme and Enyenra to be in line with previous guidance.
In June 2017, a commissioning capacity test and facility blowdown
was completed demonstrating that the FPSO can operate at
its design capacity of 80,000 bopd and at higher rates as
indicated by a 24-hour test conducted around 100,000 bopd.
Final commissioning of the TEN FPSO was completed in the
second half of 2017. The TEN gas manifold was also installed
and commissioned in 2017 and a gas export trial to Ghana
National Gas Company facilities was successfully completed.
This connection will allow for the export and sale of TEN gas as
well as the ability to supply gas in substitution for Jubilee gas during
the planned Jubilee turret remediation shut-downs in 2018.
On 23 September 2017, the International Tribunal for the Law
of the Sea (ITLOS) made its decision with regard to the maritime
boundary dispute between Ghana and Côte d’Ivoire. The new
maritime boundary, as determined by the tribunal, does not
affect the TEN fields. Tullow subsequently received notification
from the Government of Ghana to recommence drilling in the
TEN fields and a multi-year incremental drilling programme
will start this year, seeking to ramp up production from the
TEN fields to utilise the full capacity of the FPSO and sustain
this over a number of years.
In the last quarter of 2017, Tullow signed the TEN Associated
Gas (TAG) Gas Sales Agreement with the Ghana National
Petroleum Corporation and Tullow anticipates the start of gas
sales from TEN in the first half of 2018. Gross gas sales equivalent
to 4,200 boepd (net: 2,000 boepd) have been forecast for the year.
www.tullowoil.com
27
1 OPERATIONS REVIEW CONTINUED
Following a full assessment of all the Exploration and Appraisal
data, Tullow estimates that the South Lokichar Basin contains
the following recoverable resources: 240–560–1,230 mmbo
(1C–2C–3C) from an overall discovered STOIIP of up to 4 billion
barrels. This estimate of recoverable resources is consistent
with previous guidance provided during the Exploration and
Appraisal phase (pmean of 750 mmbo). The additional remaining
conventional undrilled prospect inventory of the basin is
approximately 230 mmbo risked mean recoverable, not
including further potential in tight oil plays in the future.
Development
Tullow and its Joint Venture Partners have proposed to the
Government of Kenya that the Amosing and Ngamia fields
should be developed as the Foundation Stage of the South
Lokichar development. This stage would include a 60,000 to
80,000 bopd Central Processing Facility (CPF) and an export
pipeline to Lamu. This approach brings significant benefits as
it enables an early FID of the Amosing and Ngamia fields taking
full advantage of the current low-cost environment for both
the field and infrastructure development and provides the
best opportunity to deliver First Oil in a timeline that meets
the Government of Kenya (GoK) expectations. The installed
infrastructure from this initial phase can then be utilised for
the optimisation of the remaining South Lokichar oil fields,
allowing the incremental development of these fields to be
completed at a lower unit cost post-First Oil.
The Foundation Stage is currently planned to involve an initial
210 wells through 18 well pads at Ngamia and 70 wells through
seven well pads at Amosing. This stage will target volumes of
around 210 mmbo of the total estimated 2C resources of
560 mmbo and a plateau rate of 60,000 to 80,000 bopd. The
incremental development of the remaining 2C resources and
the significant upside potential are expected to increase
plateau production to 100,000 bopd or greater. It is anticipated
that the FEED and baseline Environmental and Social Impact
Assessments (ESIA) for the foundation development will
commence in the second quarter of 2018, with FID targeted
for 2019 and First Oil for 2021/22. Total gross capex associated
EAST AFRICA
“ The Exploration and Appraisal campaign in
Kenya has confirmed the presence of substantial
oil resources in the South Lokichar Basin. After
over six years of hard work, we can now move
forward to commercialising these low cost
resources through a phased development of the
basin involving a central processing facility and
an export pipeline to the Kenyan coast. In 2018,
we will focus on taking the project towards FID in
2019 with a prudent and flexible plan of execution
that can take advantage of low oil services costs
and deliver First Oil and cash flow as soon as
possible. With good progress being made in
Uganda towards FID, East Africa is on the verge
of becoming a major oil exporting region.”
MARK MACFARLANE, EXECUTIVE VICE PRESIDENT FOR EAST AFRICA
Kenya
The South Lokichar Basin appraisal programme has confirmed
material oil resources to support substantial oil production and
an export pipeline to the Kenyan coast pending a Final Investment
Decision (FID) which is planned for 2019. The proposed
development plan reflects the Partnership’s desire to sanction
the project in a manner that is commercially robust, ensures
the earliest possible FID and First Oil and supports the
required infrastructure given the location of the South Lokichar
Basin some 750 km from the Kenyan coast.
Appraisal campaign and resource estimates
A total of 21 appraisal wells have been drilled in the South
Lokichar Basin. Tullow has also conducted extended well tests,
water injection tests, well interference tests and water-flood
trials, all of which have proved invaluable for planning the
development of the oil fields. The appraisal campaign has firmed
up the Group’s resource estimates and improved Tullow’s
understanding of the subsurface at the key producing fields.
28
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT with the Foundation Stage is expected to be $2.9 billion,
of which $1.8 billion is investment in the upstream and
$1.1 billion is for the pipeline.
Tullow and its Joint Venture Partners, following the extended
election period, have re-engaged with representatives of the
Government of Kenya on the overall approach and timelines
for progressing the development.
Early Oil Pilot Scheme (EOPS)
The EOPS Agreement between the Joint Venture Partners and
the Government of Kenya was signed on 14 March 2017 allowing
all EOPS upstream contracts to be awarded. Initial injectivity
testing has started at Ngamia-11 and oil production and water
injection facilities are being constructed in the field ready to
commence production/injection in the first quarter of 2018.
Oil produced is being initially stored until all necessary
consents and approvals are granted and work is completed
for the transfer of crude oil to Mombasa by road.
Uganda
Farm-down to Total and CNOOC
On 9 January 2017, Tullow announced that it had agreed to
transfer 21.57 per cent of its 33.33 per cent Uganda interests
to Total for a total consideration of $900 million. CNOOC
subsequently exercised its pre-emption rights under the joint
operating agreements to acquire 50 per cent of the interests
being transferred to Total on the same terms and conditions.
Having signed pre-emption documents with its Joint Venture
Partners and officially notified the Government of Uganda of the
transaction, Tullow and its Joint Venture Partners are awaiting
approval of the transaction from the Government of Uganda.
As previously disclosed, Tullow anticipates that the farm-down
with Total and CNOOC will complete in the first half of 2018
with a cash payment of $100 million on completion and
payment of the working capital completion adjustment and
deferred consideration for the pre-completion period (including
$60 million for the whole of 2017) being received at this time.
A further $50 million cash consideration is due to be received
when FID is achieved.
The Joint Venture Partners are also working towards reaching
FID around mid-year 2018, at which point Tullow’s second cash
instalment from the farm-down will be due. In line with its
post-transaction status, Tullow has been reducing its operational
footprint in Uganda and is now fully prepared for a non-operated
presence only.
Operational activity is continuing as planned, with FEED and
ESIAs for both the upstream and pipeline progressing in line
with the FID schedule. Discussions on the pipeline project
continue amongst Joint Venture Partners and with both the
Ugandan and Tanzanian Governments regarding the key
commercial and transportation agreements.
East Africa Crude Oil Export Pipeline (EACOP)
The Governments of Uganda and Tanzania signed an
Intergovernmental Agreement (IGA) for the pipeline, the
critical infrastructure for this project, on 26 May 2017. This
has secured the pipeline routing and allowed discussions
to commence with the Governments of Uganda and Tanzania
on the Host Government Agreements and other key
commercial agreements.
NEW VENTURES
“ The New Ventures team has worked
exceptionally hard over the past three years
to reset the exploration portfolio for the new
industry environment. Through a series of
farm-downs, country exits and large-scale
licence acquisitions, we now have a prospect and
lead inventory that sits in industry hotspots and in
underexplored or emergent petroleum systems
in geographies and geologies that we know well.
Our high-impact, low-cost, basin-testing
prospects across Africa and South America have
been carefully screened, both technically and
commercially, and we look forward to starting
this new exploration cycle with the Cormorant
well, offshore Namibia, later this year.”
IAN CLOKE, EXECUTIVE VICE PRESIDENT FOR NEW VENTURES
AFRICA
Côte d’Ivoire
Tullow has agreed terms to add a further two exploration
licences in Côte d’Ivoire to its portfolio, CI-524 and CI-520.
These licence awards have been approved by the Ivorian
cabinet and formal signing is anticipated in the first quarter
of 2018.
Block CI-524 sits alongside the maritime border with Ghana,
next to Tullow’s operated TEN fields. The initial work programme
will include reprocessing of the 3D seismic data before a
decision is made whether to drill a well.
Block CI-520, once signed, completes the Group’s coverage of
a transform basin fault play built during 2017 when the Group
was awarded a 90 per cent interest in six onshore licences
(CI-521, CI-522, CI-518, CI-519, CI-301 and CI-302). The Group
plans to conduct a full tensor gradiometry gravity survey (FTG)
across the 8,600 sq km onshore area in the first half of 2018,
before acquiring 2D seismic in 2019.
www.tullowoil.com
29
1 OPERATIONS REVIEW CONTINUED
Mauritania
In the second half of 2017, Tullow completed farm-downs in
respect of its 90 per cent interest in Block C-18 in Mauritania
to Total, Kosmos and BP, leaving Tullow with a 15 per cent
non-operated interest. This followed a 600 sq km 3D survey
completed earlier in 2017. A two-year extension to the licence
term was also granted. In December 2017, the new operator,
Total, commenced a large 9,000 sq km 3D seismic survey
which is expected to be completed in the first quarter of 2018.
A further 3D survey in Block C-3 to cover new shallow water
plays was completed in the fourth quarter of 2017. Both blocks
offer potential drilling candidates for late 2019. Finally, Tullow
relinquished its interest in Block C-10 at the end of November
as insufficient commercial justification could be made to enter
into a third phase of the licence.
Namibia
Tullow plans to drill the high-impact Cormorant prospect in
the PEL37 licence in Namibia in the second half of 2018 and
preparations for drilling are under way. The well will target
light oil and there are a number of similarly sized follow-up
prospects in close proximity. Also in Namibia, Tullow agreed a
farm-down of a 15 per cent interest in the neighbouring PEL30
licence to ONGC Videsh in November 2017. The farm-down is
subject to Government and partner approvals with completion
expected in the first quarter of 2018. This followed the farm-down
of a 30 per cent interest in PEL37 in October 2017, also to
ONGC Videsh.
Zambia
In Zambia, a 20,000 sq km FTG survey and passive seismic
survey to cover frontier Tertiary-age rift basins finished in
October 2017 and the next steps are being evaluated.
SOUTH AMERICA
Peru
Tullow has agreed terms to add six new licences covering
28,000 sq km, offshore Peru, to its portfolio. The Group has
concluded negotiations with Perupetro and agreed to acquire a
100 per cent stake in Blocks Z-64, Z-65, Z-66, Z-67 and Z-68.
The agreements are subject to final approval by the Peruvian
Ministry of Energy and Mines and Ministry of Economy and
Finance, with formal signing of the licences anticipated in
the first quarter of 2018. Tullow has also agreed to acquire a
35 per cent interest in Block Z-38 through a farm-down from
Karoon Gas Australia, also subject to Government approval.
The new oil prone acreage will complement the Group’s South
America position and contains a number of attractive prospects
and leads. Block Z-38 is already covered by high-quality 3D
seismic and includes the Marina prospect which is a potential
candidate for drilling in 2019.
Guyana
Tullow has agreed to increase its equity share in the Kanuku
licence, offshore Guyana, from 30 per cent to 37.5 per cent in
a farm-in deal with Repsol. The deal is subject to Government
approval. Following acquisition of new 3D seismic on the
licence in 2017, the JV Partnership is interpreting the data to
firm up prospects for possible drilling in 2019 in this exciting
area, up-dip from Exxon’s Liza discovery.
Processing 3D seismic data acquired during 2017 on the Orinduik
licence is also ongoing to mature and rank identified prospects.
Uruguay
In Uruguay, a 2,555 sq km 3D seismic survey was completed in
2017. The data from this survey is currently being processed.
Suriname
The Araku-1 well drilled in October 2017 in Block 54 in
Suriname was unsuccessful, but did prove the presence of a
new petroleum system in the Demerara plateau which is now
being followed up. At a gross cost of $35 million (net: $11 million),
Tullow demonstrated its ability to drill high-risk, wildcat frontier
wells at appropriate equity and at low cost. A two-year extension
was granted for the adjacent Block 47 where the Goliathberg
prospect is a potential drilling candidate for 2019.
Jamaica
In November 2017, Tullow agreed, subject to Government
approval, a farm-down of 20 per cent of its 100 per cent interest
in the Walton Morant licence in Jamaica to United Oil & Gas plc.
A nine-month extension to the licence term was also granted,
enabling a 2,100 sq km 3D survey to commence in April 2018.
This follows a successful 667 km 2D seismic survey in Jamaica
in the first half of 2017.
ASIA
Tullow is in the process of selling its Pakistan assets and
expects to complete this process in 2018.
EUROPE
The Group completed its exit from Norway in 2017 allowing the
New Ventures team to focus on Africa and South America.
30
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT FINANCE REVIEW
DELIVERING ON
OUR OBJECTIVES
We have maximised free cash flow through increased production and efficient capital allocation
and cost discipline. This in addition to completing the RBL refinancing and achieving the
best value from portfolio management activities has set us up well for 2018.
“ Tullow’s balance sheet is considerably stronger
at the start of 2018 following the $0.75 billion
Rights Issue, strong free cash flow generation
of $543 million and delivery of key objectives,
including the successful $2.5 billion refinancing.
Our gearing is approaching our target level of
below 2.5x net debt/EBITDAX providing the
financial and operational flexibility we need to
invest in our business. We have also driven down
both our corporate and asset costs and have
embedded financial discipline across the Group.
Tullow is well placed to build on this strong
financial platform in 2018.”
Les Wood, Chief Financial Officer
Production and commodity prices
Working interest production averaged 87,300 boepd, an increase
of 30 per cent for the year (2016: 67,100 boepd). Including the
impact of production-equivalent insurance payment barrels
from the Jubilee field, working interest production averaged
94,700 boepd (2016: 71,700 boepd), an increase of 32 per cent.
The increase resulted from the first full year of production from
the TEN fields and improved operational performance at Jubilee
in response to implementation of the first phases of remediating
the turret. This was offset by declines due to the disposal of the
Netherlands assets during the year, as well as reductions
across the non-operated West Africa portfolio.
The Group’s realised oil price after hedging was $58.3/bbl
and before hedging $54.2/bbl (2016: $61.4/bbl and $41.7/bbl
respectively). The increase in underlying oil prices reduced
the net contribution of the realisation of hedges entered into
by the Group to total revenue. However, hedging remains a key
element of the Group’s risk management strategy. The Group’s
realised European gas price after hedging was 43p/therm
(2016: 34p/therm), an increase of 27 per cent driven by
improvements in underlying European gas prices.
Underlying cash operating costs, depreciation,
impairments, write-offs and administrative expenses
Underlying cash operating costs amounted to $386 million,
$11.1/boe (2016: $377 million, $14.3/boe). Underlying cash
operating costs were net of $51 million of insurance proceeds
(2016: $32 million). The decrease of 22 per cent in underlying
cash operating costs per boe was principally due to the impact
of ongoing cost-saving initiatives and increased working
interest production volumes.
DD&A charges before impairment on production and
development assets amounted to $574 million, $16.6/boe
(2016: $449 million, $17.0/boe).
The Group recognised an impairment charge of $539 million
in respect of 2017 (2016: $168 million) which reflects lower
long-term oil and gas price forecasts than previous years.
This is lower than the impairment charge of $642 million reported
at the Half Year Results, due to the lower Dated Brent forward
curve at that time. The Group did not recognise any impairment
of goodwill during the year as it was fully impaired in 2016
(2016: $164 million).
During 2017, exploration costs written off were $143 million
and included $71 million in Mauritania due to a licence that was
not renewed, $36 million due to the decision to exit Pakistan,
$6 million on disposals of assets in the Netherlands, $10 million
on unsuccessful drilling costs in Suriname, and $17 million of
New Ventures activity. The total exploration costs written off,
net of tax, were $139 million (2016: $424 million).
Administrative expenses of $95 million (2016: $116 million)
include an amount of $33 million (2016: $41 million) associated
with share-based payment charges. The Group is on track
to generate savings, over three years to mid-2018, in excess
of $650 million, ahead of the Company’s original target of
$500 million. Savings of $581 million have been achieved
as at 31 December 2017.
During 2017, the Group recognised an income statement charge
for restructuring costs of $15 million (2016: $12 million) relating to
headcount reductions associated with organisation simplifications
and certain country exits. This has been presented separately from
administrative expenses in the income statement.
www.tullowoil.com
31
1 FINANCE REVIEW CONTINUED
Provision for onerous service contracts
At the end of 2017, Tullow had provided $131 million (2016:
$133 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
credit in 2017 of $1 million (2016: charge of $115 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 re-investment in capital
programmes that are driving business growth. From 2015 to 2017,
this approach generated net revenue of c.$0.85 billion and the
systematic approach will continue even as oil prices appear to
be stabilising. The 2018 hedging programme protects 60 per cent
of Group production at an average floor of $52/bbl, with
40 per cent of Group production capped through collars at an
average of $75/bbl, 20 per cent uncapped and fully exposed to
the upside and the remaining 40 per cent of production unhedged.
At 31 December 2017, the Group’s derivative instruments had a
net negative fair value of $76 million (2016: positive $91 million),
net of deferred premium. While all of the Group’s commodity
derivative instruments currently qualify for hedge accounting,
a pre-tax charge of $12 million (2016: credit of $18 million) in
relation to the change in time value of the Group’s commodity
derivative instruments has been recognised within finance
costs in the income statement for 2017.
Hedge position at
31 December 2017
Oil hedges
Volume – bopd
Average floor price
protected ($/bbl)
2018
2019
2020
45,000
22,232
997
52.23
48.87
50.00
Net financing costs
Net financing costs for the year were $310 million (2016:
$172 million). The increase in financing costs is associated
with a decrease in the value of capitalised interest due to
the completion of the TEN development in 2016, and the
commencement of recording interest on obligations under
the TEN FPSO finance lease. This was offset by a reduction
in interest on borrowings due to a reduction in the average
level of net debt in 2017 compared to 2016. Net financing
costs include interest incurred on the Group’s debt facilities,
foreign exchange gains/losses, the unwinding of discount
on decommissioning provisions, and the net financing costs
associated with finance lease assets, offset by interest earned
on cash deposits and capitalised borrowing costs.
Taxation
The net credit of $111 million (2016: credit of $311 million)
relates to a tax charge in respect of hedging profits, Gabon
and Equatorial Guinea production activities offset by credits
in respect of the Group’s North Sea and Ghana production
activities and non-recurring deferred tax credits associated
with exploration write-offs and impairments.
The Group’s statutory effective tax rate for 2017 is 37.0 per cent
(2016: 34.2 per cent). The increase in the tax rate for 2017 is
mainly due to deferred tax credits associated with the impairment
of property, plant and equipment.
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 is 23.8 per cent (2016: 23.3 per cent). The adjusted tax
rate has remained relatively consistent due to the mix of profits,
notably the impact of increased profits from overseas production
taxed at higher rates offset by hedging profits and business
interruption insurance proceeds taxed at the UK’s effective
corporate tax rate of 19.25 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 again broadly follow the UK’s standard rate of
corporation tax as more of the Group’s profit is forecast to
arise in the UK.
32
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT Loss after tax from continuing activities and loss per share
The loss for the year from continuing activities amounted to
$189 million (2016: $597 million loss). Basic loss per share was
14.7 cents (2016: 55.8 cents loss).
Reconciliation of net debt
Year end 2016 net debt
Sales revenue
Other operating income –
lost production insurance proceeds
Operating costs
Operating expenses
Cash flow from operations
Movement in working capital
Tax received, net
Purchases of intangible exploration
and evaluation assets and property, plant
and equipment
Other investing activities
Rights Issue proceeds
Other financing activities
Foreign exchange gain on cash and debt
Year end 2017 net debt
$m
4,782
(1,723)
(162)
386
199
(1,300)
135
(65)
308
(11)
(721)
340
4
3,471
Capital investment
2017 capital investment (net of Uganda expenditure) amounted
to $225 million, net of prior year accrual reversals of $69 million
(2016: $0.9 billion) with $127 million invested in development
activities and $98 million invested in Exploration and Appraisal
activities. More than 80 per cent of the total was invested in
Kenya and Ghana and over 90 per cent was invested in Africa.
Capital expenditure will continue to be carefully controlled
during 2018. The Group’s 2018 capital expenditure associated
with operating activities is expected to total approximately
$460 million. This total excludes $110 million of forecast
Uganda expenditure which will be repaid from either the working
capital completion adjustment or deferred consideration post
the completion of the Uganda farm-down, which is expected in
the first half of the year. The capex total comprises Ghana capex
of c.$250 million, West Africa non-operated capex of c.$40 million,
Kenya pre-development expenditure of c.$80 million and
Exploration and Appraisal spend of c.$90 million.
At completion of the Uganda farm-down, Tullow is also
due to receive $100 million cash consideration along with
re-imbursement of 2017 capex of $58 million. A further
$50 million cash consideration is due to be received when
FID is achieved.
Portfolio management
Tullow’s farm-down in Uganda continues to progress and the
Joint Venture Partners await approval of the transaction from
the Government of Uganda.
During 2017 Tullow also completed the sale of its remaining
Dutch and Norwegian assets.
Credit ratings
Tullow maintains corporate credit ratings with Standard & Poor’s
and Moody’s Investors Service. In early January, Standard & Poor’s
announced that they had revised the outlook on Tullow’s ‘B’
corporate credit rating to positive from stable. Moody’s Investors
Service upgraded Tullow’s Corporate Family Rating to B1 from
B2. Moody’s Investors Service upgraded its ratings of Tullow’s
corporate bonds to B3 from Caa1.
Balance sheet
On 29 November 2017, Tullow announced that it had completed
the refinancing of $2.5 billion of Reserves Based Lending (RBL)
credit facilities. The $2.5 billion of credit facilities are split between
a commercial bank facility of $2.4 billion and an IFC facility of
$100 million. The fully committed facilities are revolving with a
three-year grace period and final maturity of November 2024.
Tullow also decided to reduce the commitments of its Revolving
Corporate Credit Facility to $600 million from $800 million,
ahead of the scheduled amortisation that was due to occur in
January 2018. As of year end 2017, Tullow has total headroom
including free cash of $1.1 billion with no material near-term
debt maturities, and net debt of $3.5 billion.
During 2017, the Group’s net debt to adjusted EBITDAX gearing
ratio has reduced from 5.1x to 2.6x. This reduction has been
driven by increased adjusted EBITDAX generated by the
business of $1,346 million compared to $941 million in 2016
and lower net debt as a result of the significant free cash flow
generated in 2017 and the $721 million net proceeds from the
Rights Issue. This takes Tullow close to its target gearing
position of below 2.5x.
www.tullowoil.com
33
1 FINANCE REVIEW CONTINUED
Liquidity risk management and going concern
The Group closely monitors and manages its liquidity headroom.
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. The Group had $1.1 billion of debt
liquidity headroom and free cash at the end of 2017. 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
2017 Annual Report and Accounts.
Based on the analysis above, 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.
2018 principal financial risks and uncertainties
The principal financial risks to performance identified for
2018 are:
• inability to progress major portfolio options;
• disruption to business due to community/political/regulatory
influence;
• failure to manage oil price risk; and
• major process safety/equipment/EHS failures.
Events since 31 December 2017
There has not been any event since 31 December 2017 that
has resulted in a material impact on the year-end results.
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
Decommissioning asset additions
Finance lease asset additions
Capitalised share-based
payment charge
Capitalised finance costs
Additions to administrative assets
Norwegian tax refund
Uganda capital investment
Other non-cash capital expenditure
Capital investment
Movement in working capital
Additions to administrative assets
Norwegian tax refund
Uganda capital investment
Cash capital expenditure
per the cash flow statement
2017
$m
2016
$m
887.7
818.5
319.0
291.4
(33.6)
837.6
0.3
66.5
7.0
2.1
57.5
44.7
224.6
16.3
7.0
2.1
57.5
57.1
–
2.7
138.8
1.6
50.5
–
2.2
857.0
122.1
1.6
50.5
–
307.5
1,031.2
Net debt
Net debt is a useful indicator of the Group’s indebtedness,
financial flexibility and capital structure because it indicates the
level of cash borrowings after taking account of cash and cash
equivalents within the Group’s business that could be utilised to
pay down the outstanding cash 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. The Group’s
definition of net debt does not include the Group’s finance
leases as the Group’s focus is the management of cash
borrowings and a finance lease is viewed as deferred capital
investment. The value of the Group’s finance lease liabilities
as at 31 December 2017 was $228.1 million current and
$1,317.5 million non-current; it should be noted that these
balances are recorded gross for operated assets and are
therefore not representative of the Group’s net exposure
under these contracts.
34
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT Current borrowings
Non-current borrowings
Unamortised arrangement fees
Equity component of convertible bonds
Less cash and cash equivalents
Net debt
2017
$m
–
3,606.4
100.2
48.4
(284.0)
3,471.0
2016
$m
591.5
4,388.4
35.5
48.4
(281.9)
4,781.9
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. Adjusted EBITDAX therefore excludes interest on
obligations under finance leases of $46.1 million, and interest
income on amounts due from Joint Venture Partners for
finance leases of $21.0 million, as in assessing business
performance, management considers lease payments in
substance to represent deferred capital expenditure. Had these
been included in the calculation of adjusted EBITDAX,
calculated gearing would have been unchanged at 2.6x.
Underlying cash operating costs
Underlying cash operating costs is a useful indicator of the
Group’s underlying cash costs incurred to produce oil and gas.
Underlying cash operating costs eliminates certain non-cash
accounting adjustments to the Group’s cost of sales to produce
oil and gas. Underlying cash operating costs is defined as cost
of sales less operating lease expense, depletion and amortisation
of oil and gas assets, underlift, overlift and oil stock movements,
share-based payment charge included in cost of sales, and
certain other cost of sales. Underlying cash operating costs are
divided by production to determine underlying cash operating
costs per boe.
Cost of sales
Less
Operating lease expense
Depletion and amortisation
of oil and gas assets
Underlift, overlift and oil
stock movements
Share-based payment charge
included in cost of sales
Other cost of sales
Underlying cash operating costs
Production (mmboe)
Underlying cash operating costs
per boe ($/boe)
2017
$m
1,069.3
2016
$m
813.1
62.5
21.0
574.3
448.5
(2.3)
(76.5)
1.1
47.5
386.2
34.7
2.7
40.2
377.2
26.4
11.1
14.3
2017
$m
2016
$m
Excluding prior year accrual reversals, the underlying cash
operating costs were $11.7/boe.
Loss from continuing activities
(188.5)
(597.3)
Less
Income tax credit
Finance costs
Finance revenue
Loss/(gain) 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
Provision for onerous service
contracts, net
Adjusted EBITDAX
Net debt
Gearing (times)
(110.6)
351.7
(42.0)
11.8
(311.0)
198.2
(26.4)
(18.2)
592.2
466.9
33.9
14.5
1.6
–
143.4
43.9
12.3
3.4
164.0
723.0
539.1
167.6
(1.0)
1,346.1
3,471.0
2.6
114.9
941.3
4,781.9
5.1
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
Net cash used in investing activities
Net cash (used in)/generated by
financing activities
Foreign exchange gain/(loss)
2017
$m
1,222.9
(296.4)
(927.9)
3.5
Net proceeds from issue share capital
(768.1)
Repayment of bank loans
Drawdown of bank loans
Issue of convertible bonds
Free cash flow
2016
$m
512.5
(967.2)
399.3
(18.4)
–
769.1
1,613.6
(305.0)
(1,187.5)
–
542.6
(300.0)
(792.2)
www.tullowoil.com
35
1 RESPONSIBLE OPERATIONS
PRIORITISING
RESPONSIBLE OPERATIONS
As a responsible operator, Tullow manages 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.
Overview
Tullow is committed to sustaining high levels of safety,
environmental and social performance across our operations.
To facilitate this, we have enacted mandatory policies and
standards to guide operational responsibility and to which
we hold all employees and contractors accountable. Our
organisational structure makes clear the accountability of
Business Delivery Teams for operational delivery in accordance
with these requirements and the Corporate Centre’s accountability
for structured and independent assurance. In 2017, we have
continued to strengthen and clarify these policies and standards
to ensure compliance and robust risk management at all our
operational sites, among staff and contractors.
Occupational safety
Providing a safe working environment for our staff and
contractors is a core value and a business priority. Safe and
sustainable performance is also incentivised through Tullow’s
Group scorecard. Our objective is to achieve sustained top
quartile safety performance and in 2017 we achieved a decrease
in the Total Recordable Injuries and High-Potential Incidents
across our operations. Unfortunately, we also experienced
four Lost Time Injuries (LTIs) in the course of the year, which
prompted the establishment and execution of focused
improvement plans with our staff and contractors.
Process Safety Management (PSM)
Major accident events (MAEs) represent a material risk to
Tullow. To address this, Process Safety Management (PSM)
policies, standards and plans are applied to all drilling and
production activities and are incorporated in planning and
decision making throughout the project life cycle, from concept
selection, design and construction through to commissioning,
operations, modifications and decommissioning. In 2017,
Tullow undertook PSM audits for Jubilee and TEN, which
will be closed out in 2018.
In Tullow’s approach to PSM, lessons from earlier projects are
learnt and applied to others. For example, the TEN project –
which came onstream in 2016 – drew valuable lessons from
Jubilee, which have resulted in robust PSM arrangements
being well established early in the operational life of the TEN
fields. There were no Tier 1 or Tier 2 process safety events
recorded at TEN or Jubilee in 2017.
Regrettably, Tullow experienced a third-party fatality in 2017
when a pedestrian was struck by an off-duty vehicle at a town
near to one of our locations in Kenya. The incident was
comprehensively investigated by Tullow. Following this we
instigated additional controls to mitigate recurrence and we
continue to work with our contractors to prevent such incidents.
Environment
Tullow’s environmental management approach incorporates
Environmental and Social Impact Assessments (ESIAs),
associated Management Plans (ESMPs), resource use
minimisation, waste management, protected areas management,
biodiversity management, greenhouse gas (GHG) and emissions
management, and close-out/decommissioning/remediation.
Tullow’s total Scope 1 emissions were 1.1 million tonnes of CO²e
(2016: 754,338 tonnes) and 127 tonnes (2016: 142 tonnes) of CO²e
per 1,000 tonnes of hydrocarbon produced. Although the total
air emissions increased by 46 per cent from last year, the flaring
normalised by production has decreased because of increased
3.4%
score achieved out of a 5% allocation
for safe and sustainable operations
in the Group scorecard
2016: 4.1%
REDUCED
recordable injuries in the last
12 months to 8
2016: 9
SIGNED
Memorandum of Understanding between
Tullow and Kenya National Police
Service, aligned with Voluntary Principles
on Security and Human Rights
36
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT LOST HOURS RESULTING FROM COMMUNITY STOPPAGES
LOST TIME INJURY FREQUENCY (LTIF) RATES
Reduced man hours resulting
Lost man hours resulting from
from community stoppages
community stoppages
% reduced man hours compared
to total man hours – Group
s
r
u
o
h
t
s
o
L
6,000
5,000
4,000
3,000
2,000
1,000
0
1%
%
o
f
G
r
o
u
p
l
o
s
t
h
o
u
r
s
0.5%
0%
s
r
u
o
h
n
a
m
n
o
i
l
l
i
m
r
e
p
F
I
T
L
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
11
11
12
12
13
13
14
14
15
15
16
16
17
17
7
1
n
a
J
7
1
b
e
F
7
1
r
a
M
7
1
r
p
A
7
1
y
a
M
7
1
n
u
J
7
1
l
u
J
7
1
g
u
A
7
1
p
e
S
7
1
t
c
O
7
1
v
o
N
7
1
c
e
D
combined production from TEN and Jubilee. The increase in air
emissions is mostly accounted for by the increase in flaring at
our Ghana operations during commissioning of the TEN facility
and periods of reduced capacity onshore to receive gas. Despite
the increase, all operations remain within statutory flaring limits.
The quality of our ESIAs has continued to improve and reviews
of associated management plans show an improving level of
adherence to identified mitigation measures. In Kenya and
Uganda, we have continued to collect baseline data to support
operations and planned development work. In Kenya, we have
recently completed a Waste Management Infrastructure Study
to inform development planning on waste management options.
A review of all planning to date shows alignment with IFC
Performance Standards. Work was also completed in Kenya
on option selection for sustainable water supply to full field
development and this work has highlighted preferred options
which continue to be progressed.
Tullow acknowledges the global threat posed by climate change
and recognises the need to reduce GHG emissions. We accept
our responsibility to comply with emerging climate change
legislation and regulation, and to reduce our GHG emissions as
far as is reasonably practicable through appropriate initiatives.
In 2018, Tullow will be undertaking a strategic benchmarking
exercise to ensure that our initiatives and commitments are
in line with the legitimate expectations of our stakeholders.
Asset Protection (Security, Business Continuity
and Crisis & Emergency Management)
Tullow’s approach to Asset Protection incorporates the
traditional corporate security function, business continuity,
and crisis & emergency management. Our policies, standards
and plans in this area are applicable to all employees and
contractors. They are designed to protect Tullow’s assets
(people, physical assets and reputation) from sources of
potential and actual harm, while ensuring that Tullow can
rapidly adapt and respond in a resilient way to unforeseen
events that could impact normal business operations.
Tullow LTIF
OGP average LTIF
2017 OGP data not available at time of publication
In Ghana and Kenya, Tullow has large-scale operations which
currently receive direct support from national security services.
In both cases, the nature of this support is captured in a
Memorandum of Understanding (MoU) that is aligned with the
Voluntary Principles on Security and Human Rights (VPSHR)
to which Tullow is a signatory. The MoU between Tullow and
the Kenya National Police Service was signed in July 2017.
We are also working towards VPSHR application in relation
to short-duration exploration activities.
Throughout the year, we undertook a number of Crisis &
Emergency Management preparedness exercises across the
business, which increased awareness among members of the
Crisis Management Team and in-country Incident Management
Teams, and which generated useful feedback for further
improvements to the Crisis Management process.
Social Performance
Building a robust social licence is fundamental to our ability to
operate. Without the engaged support of our host communities,
we would be unable to undertake the technical, infrastructural
and logistical work associated with exploration, development
and production of hydrocarbons onshore and offshore. Focal
areas of our Social Performance therefore include stakeholder
engagement, management of community grievances and
land/sea access – all led by focused Stakeholder Engagement
Teams – with emphasis dependent on project context and
proposed activities.
In Kenya, a key focus of our engagement is to aim for Free, Prior
and Informed Consent (FPIC) with affected communities. The
E&A Stakeholder Engagement Framework is available on our
website. Tullow’s ongoing focus on stakeholder identification
and analysis to inform the establishment broad-based and
representative stakeholder platforms will be a key factor in
achieving FPIC for the development. A development-focused
Land Access and Resettlement Framework has been developed
for discussion with national and county government.
www.tullowoil.com
37
1
GOVERNANCE & RISK MANAGEMENT
ETHICAL & PRUDENT
RISK MANAGEMENT
Our ethical standards and behaviour underpin everything we do across our Group and
we work to ensure that they are upheld and demonstrated at every opportunity.
A culture of ethical behaviour aligned to our values and a
robust Integrated Management System (IMS) are central to
how we run the business. Through clear corporate governance
policies, supported by robust risk, assurance and performance
management processes, we manage the opportunities and
risks in our operations and respond to the concerns of our
shareholders and stakeholders. The Board incentivises such
good governance and risk management measures through
a set of Key Performance Indicators (KPIs) in our Group scorecard,
which are used to determine Executive Directors’ and employees’
variable, performance-related pay. See pages 20 to 23 for
more information.
Risk management is underpinned by the IMS, implemented
in 2016, which sets out all mandatory policies, standards and
controls necessary to manage our activities and associated
risks. During the year, we have incorporated feedback from
the business to make the mandatory requirements clearer.
Business Units have also reviewed their local systems to
confirm compliance with the IMS and local legislation and
regulation. An independent Internal Audit, due to report in the
first quarter of 2018, is assessing how effectively the Corporate
functions have rolled out mandatory requirements across the
Group and how local BU management systems align with
Group requirements.
Risk, assurance and performance management
The Company has a consistent risk management process across
the Group, which ensures risk is considered at every level of the
organisation, and that adequate risk information flows from the
Business Units and functions to the Group and from the Board
down to the Business Units and functions. On an annual basis
the Board of Directors carries out an assessment of the principal
risks facing the Company, including those that would threaten
our business model, future performance, solvency and liquidity.
The management of these principal risks is delegated to the
Executive Team and Senior Management and is overseen by the
Board of Directors and its Committees. A summary of the full
report on these risks is available on pages 42 to 49.
Assurance activities are planned on an annual basis to coordinate
them between the Business Units, functions and Internal Audit
and to align them to key risks and key requirements set out in the
IMS. Bottom-up and top-down reviews of planned assurance
activities are carried out to ensure the right level of assurance
across the Group. Responsibility for assurance activities is clearly
articulated at each of the four organisational tiers (see chart).
Both risk management and assurance are treated as an integral
part of doing business at Tullow and are monitored together
with usual business and operational performance as part of
performance management. Performance scorecards are used
to give Senior Management a clear view of business performance
and a subset of the KPIs are monitored regularly by the Executive
Team and have targets which are linked to remuneration.
TULLOW ASSURANCE MODEL
INDEPENDENT
ASSURANCE
Internal Audit
(Statutory auditor/reserves auditor
RISK
OVERSIGHT
OWNERSHIP &
MANAGEMENT
OF RISK
Government audits, etc. operate above
Tullow’s internal assurance model)
Heads of Group functions
BU embedded functional leads
Site-based functional staff
38
Tullow Oil plc 2017 Annual Report and Accounts
TIER 3
TIER 2
TIER 1
TIER 0
Board,
Audit Committee,
Sub-Committees
Board Committees
Executive Team
BDT Executive Vice President
BU Manager
BU leadership
BU functional leads
STRATEGIC REPORT Stakeholder engagement
Our priority is to ensure that the Company can negotiate and
sustain agreement, legitimacy and trust in our countries of
operation. We aim to maintain and build relationships with
all stakeholders, including national and local governments,
regulators, international and national NGOs, multilaterals,
host communities and their diaspora.
We also look for opportunities to engage stakeholders outside
formal meetings and use these to understand evolving expectations
of Tullow and our industry, and to provide input on key policy
issues and contribute our own views. We took part in Chatham
House New Producers conferences in Guyana and Suriname
and took part in a panel discussion in Nairobi for the launch of
Oxfam’s report on implementation of Free, Prior and Informed
Consent (FPIC) in Turkana.
In Ghana, our engagement focused on the six coastal communities
closest to our operations and we discussed a range of topics
with them including the operating constraints of our Floating
Production Storage and Offloading vessels (FPSOs), the Turret
Remediation Project and ongoing Jubilee and TEN operations.
In Kenya we published our Exploration & Appraisal Stakeholder
Engagement Framework for the South Lokichar Basin,
Turkana, which received positive feedback.
Ethical behaviour
We are fully committed to conducting our business ethically,
legally and in compliance with our own internal Code of Ethical
Conduct (‘the Code’). As in previous years, we implemented a
programme of communication and training on the Code and its
related ethical standards. In particular, all staff are required to
complete an annual e-learning module covering key areas of
the Code, with a special focus on anti-corruption and compliance
controls. In 2017, all staff (100 per cent) completed the e-learning
module as well as their compliance certification with the Code.
The Code certification process obtains confirmation and formal
disclosure from staff on how they complied with the Code.
All Code certificates were reviewed and assured by our Group
Ethics & Compliance function before obtaining formal sign-off
by Les Wood, our Chief Financial Officer, who has executive
responsibility for Ethics & Compliance.
As part of our continued commitment to zero tolerance of bribery
and corruption, we further strengthened our supply chain due
diligence process to cover additional controls, including those
related to beneficial ownership. The revised process also covers
due diligence related to human rights and labour conditions
as part of our compliance with the UK Modern Slavery Act.
Furthermore, in response to the introduction of the UK Criminal
Finances Act 2017, we leveraged our anti-corruption controls to
introduce a specific compliance programme to prevent the
facilitation of tax evasion. This programme will continue to be
our focus in 2018.
In addition to the supply chain due diligence improvements, we
carry out an annual sanctions and trade restrictions review of
all vendors and suppliers across the Company using an external
company to ensure we monitor our compliance with these
requirements. The 2017 review covered over 7,500 vendors
including other third parties and confirmed that we had no
sanction breaches during the year.
SPEAKING UP
60
speaking
up cases
HR
Fraud
Supply chain
Corruption
Speaking up cases
38
8
12
2
60
In 2015, the Board established an Ethics & Compliance
Committee in order to oversee and assist the Executive Team
in ensuring that our policies and codes relating to Ethics &
Compliance were fully reflective of best practices in this area
and that they were thoroughly implemented across our
business. Following the successful implementation of the
revised Code and the Tullow staff’s 100 per cent completion of
the Code of Ethical Conduct e-learning module and compliance
certification in 2017, the Board determined that a standalone
committee was no longer required and that Ethics &
Compliance issues would be best addressed on an ongoing
basis by the Executive Team under the supervision of the Board
as a whole and through the Audit Committee. The Board will
continue to monitor Ethics & Compliance issues as part of its
ongoing risk management remit and the Board maintains
responsibility for overseesing the development and monitoring
the implementation and effectiveness of the Code and other
Company standards in relation to good ethical behaviour. In
addition, Ethics & Compliance features strongly at the Audit
Committee which provides further assurance to the Board.
The Board signs off on the Tullow Code of Ethical Conduct to
ensure this key document is fully supported. The Executive
Team also has regular engagement on strategic Ethics & Compliance
matters to ensure the tone from the top is clear and transparent.
The 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 2017, we recorded 60 ‘speaking up’ cases,
of which seven 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 seven 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.
As in previous years, we provide above a breakdown of
‘speaking up’ cases by category.
www.tullowoil.com
39
1 GOVERNANCE & RISK MANAGEMENT CONTINUED
BOARD OF DIRECTORS
STRONG LEADERSHIP
& FOCUSED EXPERIENCE
The Board provides strategic oversight and stewardship of the Company and has a particular
responsibility for maintaining effective risk management and internal control systems.
1
4
2
3
5
7
1. AIDAN HEAVEY
CHAIRMAN
Aidan Heavey (age 64, Irish) is
the founder of Tullow and was
Chief Executive Officer for 31
years. He has played a key role
in Tullow’s development as a
leading independent oil and
gas exploration and production
group. Aidan was appointed as
non-executive Chairman on
26 April 2017 following Tullow’s
Annual General Meeting for
a transitional period not
exceeding two years.
N
3. LES WOOD
CHIEF FINANCIAL
OFFICER
Les Wood (age 55, British)
was appointed to the Board
of Directors in June 2017 after
acting as Interim CFO for six
months. Les joined Tullow in
2014 and was the Group’s Vice
President for Commercial and
Finance. Before joining Tullow,
Les worked for BP plc for
28 years in various positions
including regional CFO roles
in Canada and the Middle East.
Les has an MSc in Inorganic
Chemistry from Aberdeen
University and also a BSc
in Chemistry from Heriot
Watt University.
2. PAUL McDADE
CHIEF EXECUTIVE
OFFICER
Paul McDade (age 54, British)
was appointed Chief Executive
Officer on 26 April 2017, following
Tullow’s Annual General Meeting,
and was appointed to the Board
of Directors in March 2006.
Paul joined Tullow in 2001 and
was appointed Chief Operating
Officer following the Energy
Africa acquisition in 2004,
having previously managed
Tullow’s UK gas business.
An engineer with over 30 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
Southeast Asia. Paul holds
degrees in civil engineering
and petroleum engineering.
N
4. ANGUS McCOSS
EXPLORATION DIRECTOR
Angus McCoss (age 56, 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 Providence Resources plc,
an Ireland-based oil and gas
exploration company with a portfolio
of appraisal and exploration assets
located offshore Ireland and shares
quoted on the AIM in London and
the ESM in Dublin. Angus is also
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.
EHS
40
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT 8
9
6
5. JEREMY WILSON
NON-EXECUTIVE
DIRECTOR AND SENIOR
INDEPENDENT
DIRECTOR
Jeremy Wilson (age 53, 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.
N*, A, R
6. TUTU AGYARE
NON-EXECUTIVE
DIRECTOR
Tutu Agyare (age 55, 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 Ghana-based
cultural and educational foundation.
R*
7. STEVE LUCAS
NON-EXECUTIVE
DIRECTOR
Steve Lucas (age 63, 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.
A*, N
8. ANNE DRINKWATER
NON-EXECUTIVE
DIRECTOR
Anne Drinkwater (age 62, 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, N
9. MIKE DALY
NON-EXECUTIVE
DIRECTOR
Mike Daly (age 64, 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 advisor 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.
EHS, R
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
Nominations Committee
Remuneration Committee
N
R
>>
Audit Committee
Nominations Committee
EHS Committee
Remuneration Committee
67
73
76
78
www.tullowoil.com
41
1 PRINCIPAL RISKS
MANAGING RISKS &
UNCERTAINTIES
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.
Our ability to identify, assess and successfully manage our risks
is critical to our business success. Managing those risks helps
to protect our business, those who work with us and our
reputation. We use our risk management process to provide
reasonable, but not absolute assurance that the risks we face
are being mitigated and that our assets are protected. This
approach to risk management supports the business in
achieving its strategic objectives.
The Board provides strategic oversight and stewardship of the
Company and has a particular responsibility for maintaining
effective risk management and internal control systems. The
Executive Team, Group functional heads and Business Delivery
Teams are responsible and accountable for monitoring and
managing the risks in their parts of the business. Individual
leaders and managers identify and assess the probability and
impact of particular day-to-day risks and decide, within their
levels of authority, whether they should be terminated or
brought to an acceptable level to meet the Board expectations.
Risk management process
The risk management process is based on risk registers held at
each layer of the organisation (as illustrated in the risk hierarchy).
Key risks in these registers have assigned owners and are
reviewed as part of the quarterly business performance reviews.
The registers identify risks facing the Group and assess these,
at both an inherent and residual level, against two scales:
a) their likelihood; and b) their potential consequence to the
Group. The consequences include financial, safety, reputation,
legal and regulatory impacts. The risk owners use these
assessments to understand how strong existing controls are
and what mitigating actions are taken. They also consider
what additional actions may be needed 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
or Executive will decide are acceptable to enable the pursuit
of particular business opportunities. These decisions are
informed by a risk assessment and are made at an appropriate
authority level and reflect the Group’s defined risk appetite.
RISK HIERARCHY
Board – Oversee identification,
assessment of and response to principal
risks (annual planning) and monitor
effectiveness of risk management
process (delegated to Audit Committee).
Executive Committee – Oversee
identification and assessment of
principal risks from key business
delivery risks and corporate risks and
monitor effectiveness of risk reduction
actions (quarterly).
Business EVPs and BU Managers
– Identify and assess their respective
business risks (at least annually)
and monitor effectiveness of risk
response (quarterly).
Project Steering Groups (PSG)
– Identify, assess and respond
to project risks (monthly).
42
Tullow Oil plc 2017 Annual Report and Accounts
Functional EVPs and heads of Group
functions – Set standards for managing
risks in their respective functional
areas, and review business risks to
get assurance that key business risks
have been identified and assessed and
that effective risk mitigation actions
are planned. Functions may also be
responsible for aggregation of
certain risks across the Group.
If a function is responsible for managing
corporate risks – Identify, assess and
respond to such risks.
PRINCIPAL
RISKS
BUSINESS
DELIVERY RISKS
C
O
R
P
O
R
A
T
E
R
I
S
K
S
PROJECT RISKS
STRATEGIC REPORT
The Audit Committee has delegated responsibility from the
Board for oversight of the risk management process, supported
by Group Internal Audit. Risk management is also an integral
part of the annual business planning process and ongoing
business performance management. This includes risk
identification, but also requires detailed discussions between
all levels of the organisation to agree how risks are to be
mitigated and to ensure there is a clear understanding of
compound risk and where risks are interdependent thus
requiring cross-business or cross-functional collaboration.
Our inherent risk universe
The Group maintains a ‘risk universe’, which lists an extensive
collection of potential risks that could affect the Company’s
performance. This is used to ensure risks are identified in a
complete and systematic way and that the agreed definitions
of risk are used. These risks are separated into four classes:
Strategic, Financial, Operational and Compliance. These are then
divided into ten risk categories. The responsibility for each of these
categories is assigned to Executive Directors and Executive Vice
Presidents with the Board or relevant Board Committees providing
oversight. A summary of our risk universe is detailed below.
Risk appetite
The Board sets the Group’s risk appetite and acceptable risk
tolerance levels for principal risks and ensures compliance
with these agreed tolerances. This year 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
and is reviewed at least annually to ensure that it reflects the
current external and market conditions.
TULLOW’S RISK UNIVERSE
1
STRATEGIC
2
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. Disruption to business
due to community/political/
regulatory influence
4
FINANCIAL
5
About these risks
Financial risks arising from oil
price volatility, cost and capital
discipline and inaccurate
financial reporting
Oversight
Board and Audit Committee
4. Insufficient liquidity and
funding capacity
5. Failure to manage oil price risk
Principal risks
The Group works in collaboration with the business to identify
the principal risks facing Tullow and to consolidate the risk
registers. Principal risks can be a single risk, or a set of
consolidated business risks which, taken together, are
significant for the Group. Principal risks include risks which
are ongoing business or industry risks, but they also include
risks specific to Tullow. The Executive Committee undertakes
a formal review of the principal risks once a year during a risk
workshop attended by Executive Directors and Executive Vice
Presidents. During the workshop held in 2017 we agreed the
principal risks, understood the risk interdependencies and
defined risk tolerances for each risk. Results of the principal
risk assessment were then brought to the Board’s strategy
session, where they formed part of discussions about Tullow’s
business strategy and future plans.
The principal risk assessment also covered emerging risks
such as the risk of climate change, Brexit or cyber threats.
Those risks that the Board considered to have a significant
enough impact during our planning horizon have been
identified as principal risks. The other risks continue to be
managed or monitored by the Senior Management. The
resulting principal risks are presented on pages 44 to 49.
Other risks could emerge in the future and if these risks are
not successfully managed our cash flow, operating results,
financial position, business and reputation could be materially
adversely affected.
6
7
OPERATIONAL
8
9
About these risks
Operational risks arising from
health & safety, information
systems, development,
exploration and other technical
operational process activities
Oversight
Board and Audit and
EHS Committees
6. Major process safety/
equipment/EHS failure
7. Inability to replenish
exploration portfolio
8. Major cyber or information
security incident
9. Failure to have a balanced,
diverse workforce and
attractive employee
proposition
10
COMPLIANCE
About these risks
Legal and compliance
risks arising from unethical
behaviour or violation of
applicable laws and regulations
Oversight
Board and Audit Committee
10. Major breach of business or
ethical conduct standards
www.tullowoil.com
43
1 PRINCIPAL RISKS CONTINUED
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
• Low oil price environment due to
• Inability to deleverage the business
• Robust planning of strategy
• Improved Group capital allocation process and reporting
global supply/demand balances and
shift to alternative energy sources
as a result of climate change
• Inability to monetise chosen assets
• Capital committed to suboptimal projects
• Overheads not matched to asset base
• Portfolio not optimised to sustain
long-term strategy
• Business plan reviewed by the Executive Team and approved
• Optimised 2018 planned capital spend
annually by the Board
• Strict capital allocation process in line with the business plan
• Track delivery through rigorous regular performance
management and reporting
• Board Strategy Day portfolio reviews
• Tested and retained options for increased EBITDA delivery
• Improved focus on overheads
• Focused on deleveraging options
• Detailed portfolio review
• Reduction in market appetite for
• Inability to monetise chosen assets
• Regular portfolio assessments by the Board
• Improved portfolio analysis
E&P assets
and deleverage balance sheet
• Uncertainty around projects
• Write-downs on acquired assets
• Failure to exit mature assets with
low returns
• Exposure to decommissioning costs
STRATEGIC
Principal risks
1. STRATEGY NOT
FULLY ACHIEVABLE IN
SUSTAINED LOW OIL
PRICE ENVIRONMENT
Executive responsibility
Paul McDade
Chief Executive Officer
Link to KPI/scorecard
Strategic Financing
Safe, Sustainable and Efficient Operations
Business Development and Growth
2. INABILITY TO
PROGRESS MAJOR
PORTFOLIO OPTIONS
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Strategic Financing
3. DISRUPTION TO
BUSINESS DUE TO
COMMUNITY/POLITICAL/
REGULATORY INFLUENCE
Executive responsibility
Sandy Stash
EVP – Safety, Operations, Engineering
& External Affairs
Link to KPI/scorecard
Safe, Sustainable and Efficient Operations
Business Development and Growth
• Fiscal pressures on Government
as a result of reduced revenues
due to low oil price
• Local currency exchange
rate challenges
• Uncertainty arising from changes
in Government leadership
• Pace of national content requirements
• Government inability to deliver
infrastructure on time for projects
and provide security for critical
infrastructure
• Significant variance to plans due to delayed
regulatory approvals/lack of support
• Regulatory and tax changes affecting
profitability and viability of projects/
operations
• Inability to achieve community support
for new projects due to opposition/loss
of licence to operate
• Unplanned costs due to community
unrest/opposition
• Significant security risk to Tullow
employees and contractors
• Inability to execute commercial transactions
• Meet relevant commercial and investment appraisal standards
• Biannual portfolio reviews with Business Delivery Teams
• Review all major acquisition or divestment proposals
• Portfolio reviewed by the Board
• Approval process for all major decisions and new country
• Executing current strategic portfolio plan
entry proposals
• Implemented a new Corporate Centre Acquisition
& Divestments role to increase deal expertise
• Focus on securing maximum value in current operations
• Clear identification of level of commitments in new licences
• Successful farm-down of Uganda and disposal of
non-core/mature assets
• 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 agreements
• Social investment projects mapped to business
and delivered TEN successfully
development plans
contracting strategy
• Plans to increase local content incorporated into
• Negotiated settlement of tax disputes
• Improved stakeholder strategy
• Developed an approach and plan to obtain agreements
with communities
• Landscape level approach to development adopted
FINANCIAL
Principal risks
4. INSUFFICIENT LIQUIDITY
& FUNDING CAPACITY
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Strategic Financing
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
• Oil price downturn
• Inability to finance strategic objectives
• Prudent approach to diversified debt and equity, with a balance
• $750 million Rights Issue enabled stepped reduction
• Lack of capital discipline and
• Ability to raise further debt constrained
• Inability to fund capital investment/projects
unsuccessful portfolio management
• Reduced asset quality limiting ability
to raise debt
• Reduced bank/DCM appetite
for E&P sector
• Significant unplanned cash outflows
and elevated leverage
maintained through business planning and performance
in debt
management processes
• Completed $2.5 billion RBL refinancing and one year
• Board-approved funding policy targets in place
tenor extension of RCF
• Optimisation of debt capital structure
• Good relationships with banks and capital market investors
• Regular funding and liquidity projections reported to
• 2017 year-end facility headroom and free cash
of $1.1 billion; net debt of $3.5 billion
• YE2017 Net Debt/EBITDAX 2.6x
management and periodic financing strategy review carried out
• Strength of assets retained of debt capacity despite fall
• Financing standard in place to ensure optimal funding
in low oil price environment
44
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT STRATEGIC
Principal risks
1. STRATEGY NOT
FULLY ACHIEVABLE IN
SUSTAINED LOW OIL
PRICE ENVIRONMENT
Executive responsibility
Paul McDade
Chief Executive Officer
Link to KPI/scorecard
Strategic Financing
Safe, Sustainable and Efficient Operations
Business Development and Growth
2. INABILITY TO
PROGRESS MAJOR
PORTFOLIO OPTIONS
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Strategic Financing
3. DISRUPTION TO
BUSINESS DUE TO
COMMUNITY/POLITICAL/
REGULATORY INFLUENCE
Executive responsibility
Sandy Stash
EVP – Safety, Operations, Engineering
& External Affairs
Link to KPI/scorecard
Safe, Sustainable and Efficient Operations
Business Development and Growth
FINANCIAL
Principal risks
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Strategic Financing
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
• Low oil price environment due to
• Inability to deleverage the business
• Robust planning of strategy
• Improved Group capital allocation process and reporting
global supply/demand balances and
shift to alternative energy sources
as a result of climate change
• Inability to monetise chosen assets
• Capital committed to suboptimal projects
• Overheads not matched to asset base
• Portfolio not optimised to sustain
long-term strategy
• Business plan reviewed by the Executive Team and approved
• Optimised 2018 planned capital spend
annually by the Board
• Strict capital allocation process in line with the business plan
• Track delivery through rigorous regular performance
management and reporting
• Board Strategy Day portfolio reviews
• Tested and retained options for increased EBITDA delivery
• Improved focus on overheads
• Focused on deleveraging options
• Detailed portfolio review
• Reduction in market appetite for
• Inability to monetise chosen assets
• Regular portfolio assessments by the Board
• Improved portfolio analysis
E&P assets
and deleverage balance sheet
• Uncertainty around projects
• Write-downs on acquired assets
• Failure to exit mature assets with
low returns
• Exposure to decommissioning costs
• Meet relevant commercial and investment appraisal standards
• Biannual portfolio reviews with Business Delivery Teams
• Review all major acquisition or divestment proposals
• Portfolio reviewed by the Board
• Approval process for all major decisions and new country
• Executing current strategic portfolio plan
entry proposals
• Implemented a new Corporate Centre Acquisition
& Divestments role to increase deal expertise
• Focus on securing maximum value in current operations
• Clear identification of level of commitments in new licences
• Successful farm-down of Uganda and disposal of
non-core/mature assets
• Fiscal pressures on Government
• Significant variance to plans due to delayed
• Non-technical risk standard sets minimum requirements
• Fully embedded non-technical risk standard
as a result of reduced revenues
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 agreements
• Social investment projects mapped to business
and delivered TEN successfully
development plans
• Plans to increase local content incorporated into
contracting strategy
• Negotiated settlement of tax disputes
• Improved stakeholder strategy
• Developed an approach and plan to obtain agreements
with communities
• Landscape level approach to development adopted
due to low oil price
• Local currency exchange
rate challenges
• Regulatory and tax changes affecting
profitability and viability of projects/
operations
• Uncertainty arising from changes
• Inability to achieve community support
in Government leadership
for new projects due to opposition/loss
• Pace of national content requirements
of licence to operate
• Government inability to deliver
infrastructure on time for projects
• Unplanned costs due to community
unrest/opposition
and provide security for critical
• Significant security risk to Tullow
infrastructure
employees and contractors
• Inability to execute commercial transactions
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
• Inability to finance strategic objectives
• Prudent approach to diversified debt and equity, with a balance
• $750 million Rights Issue enabled stepped reduction
maintained through business planning and performance
management processes
in debt
• Completed $2.5 billion RBL refinancing and one year
• Board-approved funding policy targets in place
tenor extension of RCF
• Optimisation of debt capital structure
• Good relationships with banks and capital market investors
• Regular funding and liquidity projections reported to
• 2017 year-end facility headroom and free cash
of $1.1 billion; net debt of $3.5 billion
• YE2017 Net Debt/EBITDAX 2.6x
management and periodic financing strategy review carried out
• Strength of assets retained of debt capacity despite fall
• Financing standard in place to ensure optimal funding
in low oil price environment
www.tullowoil.com
45
4. INSUFFICIENT LIQUIDITY
• Oil price downturn
& FUNDING CAPACITY
• Lack of capital discipline and
• Ability to raise further debt constrained
• Inability to fund capital investment/projects
unsuccessful portfolio management
• Reduced asset quality limiting ability
to raise debt
• Reduced bank/DCM appetite
for E&P sector
• Significant unplanned cash outflows
and elevated leverage
1 FINANCIAL
Principal risks
5. FAILURE TO MANAGE
OIL PRICE RISK
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Strategic Financing
OPERATIONAL
Principal risks
6. MAJOR PROCESS
SAFETY/EQUIPMENT/
EHS FAILURE
Executive responsibility
Gary Thompson
EVP – West Africa
Mark MacFarlane
EVP – East Africa
Ian Cloke
EVP – New Ventures
Link to KPI/scorecard
Safe, Sustainable and Efficient Operations
7. INABILITY TO
REPLENISH
EXPLORATION PORTFOLIO
Executive responsibility
Angus McCoss
Exploration Director
Link to KPI/scorecard
Business Development and Growth
PRINCIPAL RISKS CONTINUED
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
• Low oil price environment due to
• Reduced cash flows, revenue, EBITDA,
• Board-approved hedge programme to protect against low
• 2017 Net hedge receipts of $110 million
global supply/demand balances and
shift to alternative energy sources as
a result of climate change
asset value and debt capacity
• Insufficient funding to support
investment programme
oil prices
the Board
with the policy
• Programme monitored regularly and communicated to
• Hedging programme executed and approved in accordance
• Regular review of hedge strategy, position and effectiveness
• Approximately 60 per cent of 2017 entitlement
oil production hedged at an average floor price
of $60.32/bbl
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
• Inadequate maintenance of safety
• Multiple fatalities
critical equipment on board Jubilee/
TEN FPSOs
• Loss of wells, subsea equipment or
FPSO systems
• Error in well design, equipment
selection or programme
• Ineffective standards and procedures,
improper work practices or lack
of training
• Loss of rig position
• Serious environmental or asset damage
• Serious financial/reputational damage
• Significant loss of production, injection
or export capacity and disruption to
business operations
• Minimum asset integrity, well integrity requirements,
maintenance and planning requirements mandated
• Analysis of key FPSO systems (power, gas, water, etc.) to
support top quartile reliability and computerised maintenance
management system (CMMS) to manage asset integrity
• All wells designed, constructed and operated in accordance
with appropriate standards and procedures
• Comprehensive all-risk insurance package including
business interruption and construction risk programmes
• Third-party well assurance
• Independently verified safety cases to demonstrate risks
• Safety case verification by industry experts
reduced to ALARP and EHS management system in place
• Competency gaps/losses identified
• Lack of/under investment in portfolio
• Failure to generate a quality drill-ready
• New opportunities are considered against existing portfolio
• Four new PSCs granted in Côte d’Ivoire supporting
high-grading activities
prospect queue
to maintain diversity of prospects
replenishment of the exploration portfolio in an
• Lack of dedicated resources to identify
• Loss of reputation and exploration value
• Exploration portfolio is reviewed at least annually
new business activities
from share price
• An Exploration and Appraisal Values Controls Standard is
• Failure to encourage entrepreneurial/
• Sustained exploration failure results
in place
creative exploration innovation or
demotivation of key staff
in poor or no drill-ready prospects and
diminished future development options
and production ramp-up
• Exploration and Development Geosciences Executive team
works across the business on portfolio planning
• Assurance against production operations standards
• Assurance against Production Well Integrity Procedure
• Original turret manufacturer and JV Partners input to
Case to Operate, with external assurance
• Asset Integrity and Reliability Plan in place
• Well integrity management system, 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
oil-prone area
• Major 3D seismic campaigns in Uruguay (block 15),
Guyana (Orinduik and Kanuku licences) and Mauritania
(C3 and C18), a 2D programme in Jamaica and an
FTG survey in Zambia all complete in 2017 to create
campaign options for 2018/19
• Farm-down of Namibia PEL37 to manage risk exposure
at drilling stage
46
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT FINANCIAL
Principal risks
5. FAILURE TO MANAGE
OIL PRICE RISK
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Strategic Financing
OPERATIONAL
Principal risks
6. MAJOR PROCESS
SAFETY/EQUIPMENT/
EHS FAILURE
Executive responsibility
Gary Thompson
EVP – West Africa
Mark MacFarlane
EVP – East Africa
Ian Cloke
EVP – New Ventures
Link to KPI/scorecard
Safe, Sustainable and Efficient Operations
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
• Low oil price environment due to
• Reduced cash flows, revenue, EBITDA,
• Board-approved hedge programme to protect against low
• 2017 Net hedge receipts of $110 million
global supply/demand balances and
asset value and debt capacity
shift to alternative energy sources as
a result of climate change
• Insufficient funding to support
investment programme
oil prices
• Programme monitored regularly and communicated to
the Board
• 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 $60.32/bbl
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
• Inadequate maintenance of safety
• Multiple fatalities
critical equipment on board Jubilee/
• Serious environmental or asset damage
• Serious financial/reputational damage
• Significant loss of production, injection
or export capacity and disruption to
business operations
TEN FPSOs
FPSO systems
• Loss of wells, subsea equipment or
• Error in well design, equipment
selection or programme
• Ineffective standards and procedures,
improper work practices or lack
of training
• Loss of rig position
• Independently verified safety cases to demonstrate risks
reduced to ALARP and EHS management system in place
• Minimum asset integrity, well integrity requirements,
maintenance and planning requirements mandated
• Analysis of key FPSO systems (power, gas, water, etc.) to
support top quartile reliability and computerised maintenance
management system (CMMS) to manage asset integrity
• All wells designed, constructed and operated in accordance
with appropriate standards and procedures
• Comprehensive all-risk insurance package including
business interruption and construction risk programmes
• Third-party well assurance
7. INABILITY TO
REPLENISH
EXPLORATION PORTFOLIO
Executive responsibility
Angus McCoss
Exploration Director
Link to KPI/scorecard
Business Development and Growth
• Lack of/under investment in portfolio
• Failure to generate a quality drill-ready
• New opportunities are considered against existing portfolio
high-grading activities
prospect queue
to maintain diversity of prospects
• Lack of dedicated resources to identify
• Loss of reputation and exploration value
• Exploration portfolio is reviewed at least annually
new business activities
from share price
• Failure to encourage entrepreneurial/
• Sustained exploration failure results
creative exploration innovation or
demotivation of key staff
in poor or no drill-ready prospects and
diminished future development options
and production ramp-up
• An Exploration and Appraisal Values Controls Standard is
in place
• Exploration and Development Geosciences Executive team
works across the business on portfolio planning
• Safety case verification by industry experts
• Competency gaps/losses identified
• Assurance against production operations standards
• Assurance against Production Well Integrity Procedure
• Original turret manufacturer and JV Partners input to
Case to Operate, with external assurance
• Asset Integrity and Reliability Plan in place
• Well integrity management system, 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
• Four new PSCs granted in Côte d’Ivoire supporting
replenishment of the exploration portfolio in an
oil-prone area
• Major 3D seismic campaigns in Uruguay (block 15),
Guyana (Orinduik and Kanuku licences) and Mauritania
(C3 and C18), a 2D programme in Jamaica and an
FTG survey in Zambia all complete in 2017 to create
campaign options for 2018/19
• Farm-down of Namibia PEL37 to manage risk exposure
at drilling stage
www.tullowoil.com
47
1 PRINCIPAL RISKS CONTINUED
OPERATIONAL
Principal risks
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
8. MAJOR CYBER OR
INFORMATION SECURITY
INCIDENT
Executive responsibility
Angus McCoss
Exploration Director
• 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
• Advanced Security Operations Centre (ASOC) provides global
• Second annual distribution of enterprise-wide
monitoring, analysis, alerting and incident response
information security awareness training
• Bespoke advanced security equipment used at key
and certification
• Automated vulnerability scans matched with published
operations sites
threat information
• Third-party specialists analyse vulnerabilities and provide
network assurance activities
• Ongoing bespoke training for higher risk areas
• Ongoing work to embed cyber security standards
across TEN and Jubilee Industrial Control Systems
Link to KPI/scorecard
Safe, Sustainable and Efficient Operations
9. FAILURE TO HAVE A
BALANCED, DIVERSE
WORKFORCE &
ATTRACTIVE EMPLOYEE
PROPOSITION
Executive responsibility
Claire Hawking
EVP – Organisation Strategy
& Company Performance
Link to KPI/scorecard
Organisation
COMPLIANCE
Principal risks
• Tullow culture and values
• Loss of key personnel/lack of succession
• Succession planning, localisation and diversity objectives are set
• Further embedded organisation operating model
not embedded
and increased staff turnover
and key targets monitored
with clear accountabilities
• Staff do not support our current
• Lack of in-house skills and requirement
• Diversity plan approved by the Board
• Embedded performance management framework
operating model
• Lack of 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 increase
costs
• Negative relations with the Government
due to failure to implement localisation
plans
• Reputational damage
• Periodic reporting to Executives of HR data
• Implemented Action Plan from 2016 employee survey
• Staff engagement plan is agreed with HR, Communications
• Reviewed and revised reward packages aligned with
and Executives, with key actions
Tullow’s Remuneration Policy
• Annual employee engagement survey and annual review of
• Implementation of Diversity & Inclusion Plan
reward package
• Set up Project LEAP, which focuses on talent
development and agile working
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
10. MAJOR BREACH OF
BUSINESS OR ETHICAL
CONDUCT STANDARDS
• Insufficient staff understanding
• Unethical behaviour
of compliance
• Poor leadership behaviour
• Breach of anti-corruption laws
• Tullow investigated resulting in
• Strong oversight and leadership from the Board
• E-learning training modules for Code of Ethical Conduct,
with annual certification for all staff
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Organisation
• Insufficient ‘speaking up’ culture
reputational damage/fines
• Ethics & Compliance standards, policies and procedures in place
• Lack of compliance monitoring in
• Senior officers prosecuted under
• Dedicated Ethics & Compliance Advisers in key Business Units
Business Units and failure to adequately
respond to non-compliance
anti-corruption laws
• Appropriate due diligence carried out in relation to service
providers, contractors and other counterparties
• Delivered a revised e-learning module across
Tullow to promote the Code of Ethical Conduct.
100 per cent of staff completed the training
• Achieved 100 per cent completion of the
self-certification of compliance with the
Code of Ethical Conduct
• Received and investigated 60 ‘speak up’ cases
• Continued local fraud awareness training
VIABILITY STATEMENT
In accordance with provision C.2.2 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
48
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT OPERATIONAL
Principal risks
8. MAJOR CYBER OR
INFORMATION SECURITY
INCIDENT
Executive responsibility
Angus McCoss
Exploration Director
Link to KPI/scorecard
Safe, Sustainable and Efficient Operations
9. FAILURE TO HAVE A
BALANCED, DIVERSE
WORKFORCE &
ATTRACTIVE EMPLOYEE
PROPOSITION
Executive responsibility
Claire Hawking
EVP – Organisation Strategy
& Company Performance
Link to KPI/scorecard
Organisation
COMPLIANCE
Principal risks
10. MAJOR BREACH OF
BUSINESS OR ETHICAL
CONDUCT STANDARDS
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Organisation
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
• External cyber-attack resulting in
• Disruption to or halt of critical business
network compromise or disruptive/
systems resulting in stopped production,
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
• Advanced Security Operations Centre (ASOC) provides global
• Second annual distribution of enterprise-wide
monitoring, analysis, alerting and incident response
• Bespoke advanced security equipment used at key
operations sites
• Automated vulnerability scans matched with published
threat information
• Third-party specialists analyse vulnerabilities and provide
network assurance activities
information security awareness training
and certification
• Ongoing bespoke training for higher risk areas
• Ongoing work to embed cyber security standards
across TEN and Jubilee Industrial Control Systems
• Tullow culture and values
• Loss of key personnel/lack of succession
• Succession planning, localisation and diversity objectives are set
• Further embedded organisation operating model
not embedded
and increased staff turnover
and key targets monitored
with clear accountabilities
• Staff do not support our current
• Lack of in-house skills and requirement
• Diversity plan approved by the Board
• Embedded performance management framework
operating model
to buy in short-term contractors increase
• Lack of confidence in strategy
and senior leadership
• Diversity and localisation plans
not effectively implemented
• Ineffective staff development
and reward programmes
costs
plans
• Negative relations with the Government
due to failure to implement localisation
• Reputational damage
• Periodic reporting to Executives of HR data
• Implemented Action Plan from 2016 employee survey
• Staff engagement plan is agreed with HR, Communications
• Reviewed and revised reward packages aligned with
and Executives, with key actions
Tullow’s Remuneration Policy
• Annual employee engagement survey and annual review of
• Implementation of Diversity & Inclusion Plan
reward package
• Set up Project LEAP, which focuses on talent
development and agile working
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
• Insufficient staff understanding
• Unethical behaviour
of compliance
• Poor leadership behaviour
• Breach of anti-corruption laws
• Tullow investigated resulting in
• Insufficient ‘speaking up’ culture
reputational damage/fines
• Lack of compliance monitoring in
• Senior officers prosecuted under
Business Units and failure to adequately
anti-corruption laws
respond to non-compliance
• Strong oversight and leadership from the Board
• E-learning training modules for Code of Ethical Conduct,
with annual certification for all staff
• Ethics & Compliance standards, policies and procedures in place
• Dedicated Ethics & Compliance Advisers in key Business Units
• Appropriate due diligence carried out in relation to service
providers, contractors and other counterparties
• Delivered a revised e-learning module across
Tullow to promote the Code of Ethical Conduct.
100 per cent of staff completed the training
• Achieved 100 per cent completion of the
self-certification of compliance with the
Code of Ethical Conduct
• Received and investigated 60 ‘speak up’ cases
• Continued local fraud awareness training
scenarios, and combinations thereof, together with associated
supporting analysis provided by the Group’s Finance and
Treasury teams.
Under such downside scenarios the Directors have considered
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 earnings,
such that 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.
www.tullowoil.com
49
1 ORGANISATION & CULTURE
EMBEDDING A PERFORMANCE-
FOCUSED CULTURE
The challenges of the last few years have proved an opportunity to create an organisation
focused on creating value, driving performance and cost management.
This year the Company experienced significant change in the
organisation’s leadership with the appointment of our new
CEO and the introduction of a new eight-member Executive
Team, both in April, replacing the previous Executive Team
of four Executive Directors. All appointments were internal
demonstrating effective succession planning. The transition
to this new management structure was smooth with minimal
disruption to the business. The new Executive Team has a
mandate to drive performance of the business to a new level and
position the Company for future growth. Each Executive Team
member reviewed their portfolio, made structural changes and
set out their business and management plans. We also
continued the implementation of actions arising
from our 2016 employee survey bringing many of
the workstreams to fruition.
The new team is diverse with 25 per cent
female representation and four different
nationalities; they each bring broad
international and industry experience
to their roles. They are responsible for
leading the Group’s three Business
Delivery Teams (BDTs) in West Africa, East
Africa and New Ventures as well as our
Corporate Centre functions. Collectively the
team is accountable for:
• developing strategy and future business plans;
• reviewing Company performance and the efficiency
of the business;
• developing people and their careers and creating a more
diverse and inclusive Company; and
• communicating with staff, sharing feedback and the rationale
behind decisions.
The Executive Committee meets weekly and key discussions
and business decisions are communicated to leadership
teams. Managers then cascade this information to ensure
employees are kept up to date with the focus of the business.
Employee engagement
The Group employee survey, Tullow Pulse, ran in mid-2016 and
the feedback it provided has been used to drive a number of
improvements and changes. Five key areas of concern were
identified and these have been the focus of attention during this
year including improving perceptions of Senior Management;
providing more career and personal development opportunities;
demonstrating our values more visibly and working to build
trust in some parts of the business; streamlining our policies
and procedures; and providing more regular and open
communications to the business.
The Executive Team has implemented a series of recommendations
to address the feedback about Senior Management including
reforms to the management structure, better engagement with
employees, more visibility, devolved accountability to empower
managers, and inspiring trust and loyalty through leadership
and behaviour.
Project LEAP has been set up specifically to dedicate
more time to career and personal development
in Tullow. This two-year project aims to
challenge and change our working
environment to allow employees to clearly
connect their personal development
to the needs of the business.
Our Core Values were revised to better
reflect the Company we have evolved
into in recent years and focus on value,
integrity, collaboration and initiative.
At the end of 2017, they were rolled out by the
Executive Team in a series of town hall
meetings, along with our 2018 Business Plan.
In a focused effort to improve our ways of working a
dedicated workstream was set up which led to, among other
things, the removal of underused financial reports, changing
financial reforecasting from monthly to quarterly and the
simplification of Contract Review Boards in Ghana and Kenya.
Internal communication increased significantly during this year
through more regular and informal face-to-face communication.
CEO-led town hall meetings were broadcast to all of our offices
and provided opportunities for employees to ask questions. The
other Executive Team members increased the number of town
hall meetings they held and also hosted informal breakfast
briefings, and wrote weekly business newsletters.
People
At the end of 2017 Tullow had 922 employees and 108
contractors, of whom 47 per cent (486/1,030) were African
nationals. Women made up 30 per cent (313/1,030) of our total
50
Tullow Oil plc 2017 Annual Report and Accounts
STRATEGIC REPORT s
r
o
t
c
a
r
t
n
o
c
d
n
a
s
e
e
y
o
l
p
m
E
2,500
2,000
1,500
1,000
500
0
TOTAL WORKFORCE
PAY & BONUS GAPS
Lower (mean)
Lower (median)
Total work force:
1,030
PAY QUARTILES
Top quartile
Upper Middle quartile
Lower Middle quartile
Lower quartile
Women’s
hourly rate
Women’s
bonus pay
44%
49%
Men
90%
91%
65%
51%
53%
52%
Women
10%
9%
35%
49%
2013
2014
2015
2016
2017
workforce (2016: 29 per cent, 336/1,152); 15 per cent (10/65) of
our senior managers (2016: 13 per cent, 9/68); and 11 per cent
(1/9) of our Board of Directors (2016: 18 per cent, 2/11).
We aim to include nationals of the countries in which we work
in our leadership teams in Africa. However, skills gaps in the
countries and the multiple locations of some of our Business
Delivery Teams mean this is not always possible.
The agreement for a substantial farm-down of our assets and
to move to a non-operated position in Uganda resulted in voluntary
severance of 38 staff. Twenty-two members of staff left Tullow
following a re-organisation of our Kenya business during the year.
Our operations in Ghana are an important and strategic asset
in our portfolio and, ten years after the discovery of oil, we
initiated an Operational and Business Excellence Project. The
project will ensure we work in ways that deliver and optimise
production, create long-term stakeholder value and provide a
platform for future growth.
Diversity and inclusion
Tullow’s Diversity & Inclusion Plan is focused on nationalities
and gender. We recognise the value that a diverse and inclusive
workforce brings to our business and how it enhances our
reputation and the employee value proposition. We aim to have
a diverse employee population with a nationality mix that is
representative of the countries where our assets are. In particular,
we want to improve the numbers of Africans and women in
leadership roles. We monitor and track progress against our
aspirations and this year introduced leading and lagging key
performance indicators to analyse a series of categories to
ensure we are managing staff development and reward fairly.
We introduced an improved approach to ensuring that we
consider a wider and diverse talent pool when recruiting.
This has been challenging to implement this year because
of the low levels of recruitment but we are extending this
practice to our internal moves and promotions.
Organisation development
This year saw the continuation of our flagship people development
schemes – the Executive Development Programme (EDP)
and the Senior Leadership Programme (SLP). All of the new
Executive Team members have participated in the EDP
programme. The SLP had 15 attendees in 2017 bringing total
numbers to 39 employees, all of whom have robust and
individually tailored development plans.
The RISERS Talent Development Programme in Ghana focuses on
developing high-potential employees into management roles and
enhancing localisation at senior levels. Fifteen of our staff are on
this two-year programme and so far, five of the participants have
been promoted to larger roles and have replaced expatriate staff.
Reward
Tullow offers an attractive reward and benefits package to
engage and motivate staff, drive the success of our business and
attract new employees to the Company. Our reward package is
performance linked and consists of fixed and variable components
including base salary, bonus, share awards, pension, life
assurance and a range of other benefits. All Tullow unexercised
and unvested share awards were adjusted by a multiplier factor
of 1.173 following completion of the Rights Issue in May.
Gender pay gap reporting
In 2017 the UK Government introduced the requirement for
companies with over 250 employees to calculate and report
their gender pay gaps for salary and bonuses. The gender pay
gap is the difference between the average earnings of men
and women, expressed relative to men’s earnings. Tullow is
reporting this data for all our UK permanent employees to fulfil
the requirements of the regulation (see table above).
Tullow’s UK workforce is 30 per cent female and only 22 per cent
of managerial positions are filled by women and this gender
imbalance is the principal reason for Tullow’s gender pay gap.
There is a national shortage of qualified and experienced
women in technical roles in the oil and gas sector and this is
reflected at Tullow with a higher proportion of men in the senior
technical roles. However, we are focused on improving diversity
and are taking action to improve gender equality especially at
senior levels. For example, our career development and senior
leadership programmes are helping to support talented
individuals to progress and this is further underpinned by good
employee policies, benefits and recruitment practices.
As a part of preparing for the gender pay gap regulation
reporting, we have significantly improved our employee data
management and decision making tools used in making salary
and bonus decisions. Such tools are important to ensure there
is no unequal pay or unconscious bias, and when combined
with job level frameworks and competency tools provide a more
robust approach to managing talent.
www.tullowoil.com
51
1
SHARED PROSPERITY
COMMITTED TO
MUTUAL BENEFIT
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 has negotiated and sustained a licence to operate in
Africa and South America by seeking to align our business with
the national development priorities of our host countries.
Through our exploration success over the years, Tullow has
initiated nascent oil industries in Ghana, Kenya and Uganda.
Wherever we operate and enjoy exploration success, there is
clearly a role for us to play in supporting the development of
institutional and industry capacity to help meet our needs and
to allow governments and 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 Key Performance Indicators
(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 20
to 23 for more information.
Tax transparency
Our payments to governments, including payments in kind,
amounted to $224 million in 2017 (2016: $438 million). Total
payments to all major stakeholder groups including employees,
suppliers and communities, as well as governments, brought
our total socio-economic contribution to $667 million
(2016: $1 billion). This included $235 million spent with local
suppliers, $205 million in payroll globally and $3.4 million
in discretionary spend on social projects. Our total payments
made to the Ghanaian Government in 2017 amounted to
$162 million (2016: $236 million).
Socio-economic investment
In 2017, the focus has been on embedding our new
socio-economic investment (SEI) strategy and governance
process, which is based on the implementation of rigorous
project selection criteria and performance measurement
to ensure that SEI projects create measurable value for
both Tullow and host communities.
The SEI strategy targets three objectives:
1) capacity building through education and skills development,
specifically in Science, Technology, Engineering and
Mathematics (STEM), to provide the skills required for
people to participate in the modern economy;
2) strengthening the local economy through activities that
support the growth of local businesses (such as enterprise
development and local business incubation centres); and
3) investing in shared infrastructure and logistics by
adapting and leveraging existing Tullow and jointly funded
infrastructure plans and projects for our business to
benefit host communities.
NATIONALS IN COUNTRY & BUSINESS UNIT (%)
SPEND WITH SUPPLIERS ($ MILLION)
5
8
2
8
6
7
0
5 8
7
5
7
3
8
6
7
6
9
6
9
3
8
3
8
Local nationals as a %
of in-country workforce
Local nationals as a %
of in-country staff
Local nationals as a
% of Business
Unit staff
Local nationals as
a % of Business
Unit workforce
Ghana
Uganda
Kenya
52
Tullow Oil plc 2017 Annual Report and Accounts
National
International suppliers
registered in country
International
2,512
1,008
1,195
309
2015
2,038
719
1,094
225
2014
1,932
752
843
337
2016
898
174
489
235
2017
STRATEGIC REPORT AFRICAN SCIENCE ACADEMY
Tullow is supporting the African Science Academy (ASA) –
a ‘sixth form’ college located in Tema, Ghana, that welcomes
young women from all over Africa who have a passion for
mathematics and science. The girls study three core subjects
at advanced level – Maths, Further Maths and Physics – and
sit the internationally recognised Cambridge International
A Levels at the end of an intense 12-month programme.
This gold standard qualification opens the doors to
engineering, science and computing degrees at leading
universities and sets them apart from their peers.
Tullow contributed towards 40 bursaries and the first
cohort of students graduated in 2017 with impressive results.
10 of the 40 students were in the top quartile when compared
against the United Kingdom secondary schools’ overall
performance in A levels in similar subjects. Three graduates
were awarded MasterCard scholarships to study at
Edinburgh University.
Tullow also funded ASA’s pilot Maths Teaching Skills
Masterclass in August 2017 with 20 maths teachers attending
from senior secondary schools across Ghana. In September
2017 the Tullow Ghana Managing Director and a number of
staff participated in the ASA’s mentoring programme which
was also featured on CNN’s Inside Africa Programme –
opening new doors to STEM for women.
SEI governance and decision making are now the responsibility
of an SEI Board comprised of senior Tullow leaders. This Board
considers proposals and allocates funds to the investment
projects that will deliver the impacts we desire.
In 2017, the SEI Board approved funding for a number of education
projects in Ghana. New projects include the development of a
STEM programme at the Right to Dream Academy, engineering
scholarships to Ashesi University College, bursaries to the
African Science Academy and an integrated STEM school
project in the Western Region in collaboration with Sabre Trust
and Youth Bridge Foundation.
Next year, in addition to awarding scholarships to universities
and polytechnics in Ghana and Kenya, Tullow plans to improve
the measurement and reporting of outputs and impacts related
to SEI projects.
Opportunities for local business
In 2017, our overall supplier spend was lower than last year
owing to the completion of the TEN project on time and on
budget in August 2016 and due to the continued capital
constraints imposed by lower oil prices.
Nevertheless, whilst the absolute supplier spend with local
suppliers in Ghana decreased, as a percentage of the total spend
it increased to 26 per cent, up from 16 per cent. Our spend with
local suppliers in Ghana increased to 26 per cent of total spend
in 2017, up from 16 per cent in 2016. Meanwhile, our spend with
international suppliers fell from 40 per cent in 2016 to 20 per
cent in 2017. While this partly reflects the conclusion of the
capital-intensive phase of development on the TEN fields, it
also reflects our continued efforts to direct spending towards
locally registered international firms and Joint Ventures
between local and international firms. Joint Ventures registered
in country meet the requirements of Ghana’s Local Content and
Local Participation Regulations (LI 2204), 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.
On selected contracts we continue to mandate minimum local
content expectations with our international suppliers. Contracts
with in-country capability in 2017 included: construction, information
services, socio-economic investment projects, civil engineering,
training and consultancy services, aviation and marine transport.
In Kenya, Tullow sustained the 2016 increase in the proportion
of Tullow capital expenditure targeting local suppliers. In 2017,
30 per cent of our overall supplier spend was with Kenyan
businesses, down marginally from 33 per cent in 2016, but with
a higher absolute value due to increased expenditure related to
the 2017 South Lokichar appraisal campaign.
We have continued to promote improved access to supply
chain opportunities for local firms, whether through pre-tender
seminars in Ghana or targeted capacity development initiatives
for local firms in Turkana County, Kenya. In both countries we
have provided training to existing suppliers and have worked
with contractors to build their awareness of the forward
requirements of our development and production operations.
In Ghana, we executed a six-month pilot scheme for placing a
portion of our foreign exchange requirements with local banks.
Local job creation
In Ghana, Tullow has continued to build a robust relationship
with the regulator as we seek to maximise local content and
participation in our business activities. A multi-year localisation
strategy outlining Tullow’s vision, approach and roadmap for
localisation over the next four years is on track. This strategy
captures key initiatives for improving localisation, including the
setting up of a Localisation Steering Committee. The strategy
has led to the localisation of 11 expat positions in 2017 and the
appointment of the first Ghanaian Offshore Installation
Manager (OIM).
In Kenya, we are proactive in identifying opportunities for
localising roles and providing candidates with the development
support required to enable this, which has included sponsorship
for advanced postgraduate qualification, professional certification
such as the National Examination Board in Occupational Safety
and Health (NEBOSH), and job rotation in country and in other
parts of Tullow’s business to provide Kenyan staff with exposure
and hands-on experience.
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
www.tullowoil.com
53
1 MOVING TOWARDS DEVELOPMENT
Appraisal drilling operations in the South Lokichar Basin, Kenya.
54
Tullow Oil plc 2017 Annual Report and Accounts
2 CORPORATE
GOVERNANCE
Directors’ report
Audit Committee report
Nominations Committee report
EHS Committee report
Remuneration report
Other statutory information
56
67
73
76
78
101
www.tullowoil.com
55
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 (2016) (‘the Code’). A copy
of the Code is available at www.frc.org.uk.
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 complied
with all of the provisions of the Code during the year ended
31 December 2017, save for the two provisions set out below.
Section A.3.1 of the Code requires a Chairman on appointment to
meet the independence criteria set out in B.1.1 of the Code and
that a chief executive should not go on to be chairman of the
same company. If exceptionally a board decides that a chief
executive should become chairman, the Code requires that the
board should consult major shareholders in advance and should
set out its reasons to shareholders at the time of the appointment
and in the next annual report. On 11 January 2017, Tullow
announced a number of proposed Board changes, including
the appointment of Aidan Heavey as non-executive Chairman
from the conclusion of the 2017 Annual General Meeting, subject
to shareholder approval. The Company consulted with major
shareholders in advance of the proposed appointment and set
out its reasons to shareholders at the time of the appointment.
The appointment was subject to a maximum term of two years
and the Company has put in place certain mitigations for
Aidan’s lack of independence; for example, it has extended the
responsibilities of the Senior Independent Director. Shareholders
approved the appointment of Aidan Heavey as Chairman of the
Company at the Annual General Meeting in April 2017. The Board
fully recognises the UK Corporate Governance Code implications
of the change but 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 73 in the Nominations
Committee Report.
Section E.2.2 of the Code requires that when, in the opinion of
the board, a significant proportion of votes have been cast against
a resolution at any general meeting, the company should explain
when announcing the results of voting what actions it intends to
take to understand the reasons behind the vote result. At the
Company’s Annual General Meeting in April 2017, the Company
proposed a special resolution to disapply statutory pre-emption
rights up to an additional 5 per cent of the Company’s issued
share capital in connection with an acquisition or a specified
capital investment. The resolution was not passed and a
statement was not issued at the time of announcement as
engagements with the Company’s shareholders following the
publication of the notice of meeting but prior to the Annual
General Meeting sufficiently explained to the Company the
reasons for the vote, and the Board did not consider any
further action to understand the votes was required.
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 2017,
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, the Board received
presentations from each of the Business Delivery Team leaders
and reviewed and approved the Company’s strategy for each of
56
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE its Business Delivery Teams. In addition, the Board reviewed
the effectiveness of 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, members of the Executive Team and 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 2017,
the Board travelled to the Group’s office in Cape Town and was
able to combine the visit with the Africa Oil Week 2017 conference
at which Board members, the Executive Team and Senior Managers
met with a number of the Company’s key stakeholders.
The Chairman, the Senior Independent Director, 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.
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 2017, the Board considered all relevant matters within its
remit, with a particular focus on the following issues:
• strategy and resource allocation;
• finance and treasury;
• risk assessment and mitigation and non-technical risks in
major areas of operation;
• stakeholder engagement;
• portfolio management;
• governance and compliance;
• assurance, risk and internal audit;
• organisational design, development, capacity and diversity;
• process for evaluation entry into new countries; and
• succession planning.
Attendance at meetings
The attendance of Directors at the seven scheduled meetings
of the Board held during 2017 was as follows:
Director
Tutu Agyare
Mike Daly
Anne Drinkwater
Aidan Heavey
Steve Lucas
Angus McCoss
Paul McDade
Jeremy Wilson
Les Wood
Ann Grant*
Ian Springett*
Simon Thompson*
No. of meetings attended
(out of a total possible)
7/7
7/7
7/7
7/7
7/7
7/7
7/7
7/7
4/4
2/2
0/31
2/2
* Denotes Directors who were no longer Directors of the Company as at
31 December 2017.
1. Ian Springett had taken an extended leave of absence in order to
undergo treatment for a medical condition.
In addition to the Board members, a number of the Executive Team
members and Senior Managers attended 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.
www.tullowoil.com
57
2 DIRECTORS’ REPORT CONTINUED
The UK Corporate Governance Code continued
The Chairman
The Chairman leads the Board, setting the agenda and ensuring
that the meetings provide adequate time for discussion.
As explained above in this report, the current Chairman does
not meet the independence criteria set out in the Code and the
Board has set out its reasons why it believes that this is a
necessary and temporary deviation from the principles of the
Code and in the best interests of shareholders, host governments
and other key stakeholders.
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 development projects (e.g. TEN, the Jubilee
Turret Remediation Project and the Kenya Early Oil Pilot Scheme)
and also matters of major strategic significance (e.g. ITLOS and
the Greater Jubilee Full Field Development). Non-executive
Directors with particular expertise in such 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, he 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 four Committees, the Audit
Committee, the EHS 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 67, the EHS Committee
on page 76, the Nominations Committee on page 73, and the
Remuneration Committee on page 78.
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 most recently reviewed
and reaffirmed these terms of reference in December 2017.
Effectiveness
Composition of the Board
At the year end on 31 December 2017, the Board comprised the
non-executive Chairman, the Chief Executive Officer, two other
Executive Directors and five independent non-executive Directors.
Their biographical details are set out on pages 40 and 41.
During the year ended 31 December 2017, there were a number
of Board changes and the number of Executive Directors was
reduced from four to three and the number of non-executive
Directors was reduced from seven to six. The Directors believe
that the Board and its Committees consist of Directors with an
NON-EXECUTIVE DIRECTOR TENURE
BOARD TIME (%)
1–3 yrs
3–6 yrs
6–9 yrs
1
4
1
Strategy & stakeholder management
Financial management
Safety, Sustainability & External Affairs (SSEA)
Development & Operations (D&O)
Exploration & Appraisal (E&A)
Governance
Risk management
35
30
7
10
4
7
7
58
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE appropriate balance of skills, experience, independence
and diversity of background to enable them to discharge their
duties and responsibilities effectively. In our Full Year Results
statement, we announced that Anne Drinkwater had informed
the Board she has decided not to stand for re-election at the
2018 AGM. The Nominations Committee will begin a search for
her replacement in 2018.
Independence
The Board considers each of the non-executive Directors to be
independent in character and judgement, save for the Chairman,
Aidan Heavey, and, as explained above in this report, the Board
has set out its reasons why it believes that this is a necessary
and temporary deviation from the principles of the Code and in
the best interests of shareholders, host governments and other
key stakeholders. The Board is fully satisfied that Jeremy Wilson
demonstrates complete independence and robustness of character
and judgement in his capacity as Senior Independent Director.
The Board is of the view that no individual or group of individuals
dominates decision making.
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. Les Wood was appointed as an Executive Director
and Chief Financial Officer of the Company in June 2017 and
participated in an induction to the role.
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,
Nominations and Remuneration Committees and has direct
access to the Chairs of these Committees.
Board evaluation
In 2017 the Board undertook an externally facilitated evaluation
of its own performance and effectiveness and also that of its
Committees. The evaluation was coordinated by Lintstock Ltd,
which has no other connection to the Company. Each of the
Directors was required to submit responses to a series of
questionnaires designed by Lintstock with the assistance of
the Senior Independent Director and the Company Secretary
and, in particular, to reflect on themes identified in the 2016
exercise, including: the Board’s composition; diversity and
skills; Board dynamics; management of meetings; Board
support and Committees; focus of meetings; strategic and
operational oversight; risk management and internal control;
human resource management; and priorities for change.
It focused heavily on the recent changes to the Board and
their effectiveness. 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 determined that the performance
of the Board was seen to have improved since the last
Board review. Non-executive Director support and challenge
of management were rated highly overall, as were the
management of meetings and the reporting to the Board
from each of the Committees. The management of human
resource and structure of the Company at the senior level
was rated highly and the report identified skills that would
benefit the Board and Senior Management in their succession
planning going forward. Continuing to progress Tullow’s
diversity aspirations was identified as a top priority. Priorities
for the Board in 2018 were identified in the report and have
been used to formulate the Board objectives for 2018 agreed
by all the Directors and set out on pages 60 to 63.
Board objectives
We remain confident that the Board has the experience and
track record to meet the Company’s aims of delivering both
its immediate and long-term strategic objectives. The Board
sets its specific future objectives at the end of each year and
they reflect the focus of the Company in the year ahead.
Progress against each objective is tracked by the Company
Secretary and reviewed with the Chairman periodically.
The following table shows how the Board performed against
the 2017 objectives and also details the priorities and rolling
agenda items that the Board will focus on in 2018.
Re-election
All Directors seek re-election every year and accordingly,
with the exception of Anne Drinkwater, all Directors will
stand for re-election in 2018 or, in the case of Les Wood,
election for the first time. The Board will set out in the Notice
of AGM its reasons for supporting the re-election or election
of each of the Directors at the forthcoming AGM. The Notice
of AGM will be mailed to shareholders separately.
www.tullowoil.com
59
2 DIRECTORS’ REPORT CONTINUED
2017 Objectives
2017 Performance
2018 Objectives
Strategy and
execution
• Review Tullow’s strategy in light of the changed external environment.
• Ensure West Africa is managed to maximise cash flow, 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.
• Refocus the Company on value growth through a combination of exploration and new investment opportunities.
Risk
management
• Continue to assess our risk appetite and identify and mitigate key risks in our business.
• The Board regularly reviewed Tullow’s risk management systems and
• Receive and review the report of the Board’s
• Ensure, through the Board Committee structure, an active overview of and interaction with the Company’s
Enterprise Wide Risk (EWR) process.
• Ensure there is an ongoing consideration of the Company’s top risks and that these are identified in the EWR
process and are being actively managed by the Executive.
Governance
and values
• Maintain and enhance Tullow’s culture and values as 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 & 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.
60
Tullow Oil plc 2017 Annual Report and Accounts
• The Company executed a Rights Issue to reduce gearing and provide financial
• Develop, review and test Tullow’s strategy with a strong
and operational flexibility to enable growth over the next three to five years. At
focus on value creation and growth.
year end 2017, net debt was $3.5 billion, a reduction of c.$1.3 billion from year
end 2016. In 2017, $543 million of positive free cash flow was generated.
• The Company successfully refinanced its RBL credit facility, obtaining
commitments of $2.5 billion.
• The strategy was debated at the Board’s annual strategy offsite session in June
and regularly reviewed throughout the year as market conditions evolved. The
outcome of that debate resulted in refinements to the Company strategy and
the objectives for its implementation.
• Production performance on both Jubilee and TEN was strong and resulted in
an upwards revision of our full-year West Africa net oil production guidance.
• The Greater Jubilee Full Field Development Plan was approved by the
Government of Ghana and significant progress was made on the Jubilee Turret
Remediation Project.
• The TEN FPSO commissioning was completed and, following the conclusion of
the ITLOS arbitration between the Governments of Ghana and Côte d’Ivoire,
plans for resumption of drilling were approved.
• In Kenya, good progress has been made on the Early Oil Pilot Scheme. The
Joint Development Agreement was signed, setting out a structure for the
Government of Kenya and the Kenya Joint Venture Partners to progress the
development of an oil export pipeline.
• In Uganda, the Joint Venture Partners have commenced engagement with the
Government of Uganda in order to progress the farm-down to CNOOC and Total
towards completion.
• Maintain a disciplined approach to execution and delivery
of strategy.
• Continue to deleverage the balance sheet and maximise
capital efficiency to increase positive free cash flow.
• Enhance performance and value growth from West Africa,
including our non-operated business.
• Develop and commercialise our East African assets,
including: in Uganda, the completion of the farm-down
deal; and in Kenya, oil production with the Early Oil Pilot
Scheme and progression towards FID in 2019.
• Pursue opportunities for growth and value creation
through portfolio management, cost-effective exploration
and the New Ventures programme.
• Continue to develop the Chairman Succession Plan.
procedures, including as part of the strategy offsite session in June.
• A Board working group on risk management and risk appetite for Tullow’s
‘Tier 1’ risks was established towards the end of the year.
• The Board receives quarterly political risk reports, highlighting emerging
issues in countries and regions where Tullow is active. The Board also receives
interim updates on any evolving issues.
• The Enterprise Wide Risk Register is a consolidated register of the risks to the
Group and is managed by the Executive Team and monitored by the Board.
Assurance over the process for its maintenance is the responsibility of the
Audit Committee.
working group and define Tullow’s Tier 1 risks
and a corresponding risk appetite and mitigation
strategy for each.
• Review and approve the structure of risk management
within Tullow, including Committee and Board
responsibilities and interaction with management
and other key stakeholders.
• Following the Employee Pulse Survey undertaken in 2016, a number of specific
• Continue to enhance and communicate Tullow’s culture
initiatives have been implemented throughout the business and these are
and values within its Group and to Tullow’s stakeholders
regularly maintained, monitored and reported on to enhance Tullow’s culture
and business partners.
and values.
• Ensure the Board retains oversight of adherence
• The Code of Ethical Conduct e-learning module was deployed again in 2017
to the Code of Ethical Conduct and ensure all levels
and self-certification against the Code reached a 100 per cent response rate
of the Company continue to retain accountability
(up from 97 per cent the year before).
for its compliance.
• Since the introduction of the IMS, internal audit and assurance reviews have
• Ensure that, as Tullow’s policies, standards and
been carried out in conjunction with reviews by functional heads to ensure the
procedures are developed and improved within
individual policies, standards and procedures of the IMS are being appropriately
the IMS, they continue to be understood and
implemented and integrated within the business and, where amendments and
followed by the Company.
improvements have been required, these have been adopted and will continue
to be monitored.
• Ensure that strong corporate governance remains a
priority for the Board.
CORPORATE GOVERNANCE 2017 Objectives
Strategy and
execution
• Ensure West Africa is managed to maximise cash flow, 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.
• Refocus the Company on value growth through a combination of exploration and new investment opportunities.
Risk
management
• Continue to assess our risk appetite and identify and 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 (EWR) process.
• Ensure there is an ongoing consideration of the Company’s top risks and that these are identified in the EWR
process and are being actively managed by the Executive.
Governance
and values
• Maintain and enhance Tullow’s culture and values as 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 & 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.
• Review Tullow’s strategy in light of the changed external environment.
• The Company executed a Rights Issue to reduce gearing and provide financial
• Develop, review and test Tullow’s strategy with a strong
2017 Performance
2018 Objectives
and operational flexibility to enable growth over the next three to five years. At
year end 2017, net debt was $3.5 billion, a reduction of c.$1.3 billion from year
end 2016. In 2017, $543 million of positive free cash flow was generated.
• The Company successfully refinanced its RBL credit facility, obtaining
commitments of $2.5 billion.
• The strategy was debated at the Board’s annual strategy offsite session in June
and regularly reviewed throughout the year as market conditions evolved. The
outcome of that debate resulted in refinements to the Company strategy and
the objectives for its implementation.
• Production performance on both Jubilee and TEN was strong and resulted in
an upwards revision of our full-year West Africa net oil production guidance.
• The Greater Jubilee Full Field Development Plan was approved by the
Government of Ghana and significant progress was made on the Jubilee Turret
Remediation Project.
• The TEN FPSO commissioning was completed and, following the conclusion of
the ITLOS arbitration between the Governments of Ghana and Côte d’Ivoire,
plans for resumption of drilling were approved.
• In Kenya, good progress has been made on the Early Oil Pilot Scheme. The
Joint Development Agreement was signed, setting out a structure for the
Government of Kenya and the Kenya Joint Venture Partners to progress the
development of an oil export pipeline.
• In Uganda, the Joint Venture Partners have commenced engagement with the
Government of Uganda in order to progress the farm-down to CNOOC and Total
towards completion.
• The Board regularly reviewed Tullow’s risk management systems and
procedures, including as part of the strategy offsite session in June.
• A Board working group on risk management and risk appetite for Tullow’s
‘Tier 1’ risks was established towards the end of the year.
• The Board receives quarterly political risk reports, highlighting emerging
issues in countries and regions where Tullow is active. The Board also receives
interim updates on any evolving issues.
• The Enterprise Wide Risk Register is a consolidated register of the risks to the
Group and is managed by the Executive Team and monitored by the Board.
Assurance over the process for its maintenance is the responsibility of the
Audit Committee.
focus on value creation and growth.
• Maintain a disciplined approach to execution and delivery
of strategy.
• Continue to deleverage the balance sheet and maximise
capital efficiency to increase positive free cash flow.
• Enhance performance and value growth from West Africa,
including our non-operated business.
• Develop and commercialise our East African assets,
including: in Uganda, the completion of the farm-down
deal; and in Kenya, oil production with the Early Oil Pilot
Scheme and progression towards FID in 2019.
• Pursue opportunities for growth and value creation
through portfolio management, cost-effective exploration
and the New Ventures programme.
• Continue to develop the Chairman Succession Plan.
• Receive and review the report of the Board’s
working group and define Tullow’s Tier 1 risks
and a corresponding risk appetite and mitigation
strategy for each.
• Review and approve the structure of risk management
within Tullow, including Committee and Board
responsibilities and interaction with management
and other key stakeholders.
• Following the Employee Pulse Survey undertaken in 2016, a number of specific
initiatives have been implemented throughout the business and these are
regularly maintained, monitored and reported on to enhance Tullow’s culture
and values.
• The Code of Ethical Conduct e-learning module was deployed again in 2017
and self-certification against the Code reached a 100 per cent response rate
(up from 97 per cent the year before).
• Since the introduction of the IMS, internal audit and assurance reviews have
been carried out in conjunction with reviews by functional heads to ensure the
individual policies, standards and procedures of the IMS are being appropriately
implemented and integrated within the business and, where amendments and
improvements have been required, these have been adopted and will continue
to be monitored.
• Continue to enhance and communicate Tullow’s culture
and values within its Group and to Tullow’s stakeholders
and business partners.
• Ensure the Board retains oversight of adherence
to the Code of Ethical Conduct and ensure all levels
of the Company continue to retain accountability
for its compliance.
• Ensure that, as Tullow’s policies, standards and
procedures are developed and improved within
the IMS, they continue to be understood and
followed by the Company.
• Ensure that strong corporate governance remains a
priority for the Board.
www.tullowoil.com
61
2 DIRECTORS’ REPORT CONTINUED
2017 Objectives
2017 Performance
2018 Objectives
Organisational
capacity
• Work with the new CEO and Executive Team to ensure 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.
Stakeholder
engagement
• 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.
• New CEO and CFO formally appointed with a smooth transition process
• Ensure the Executive Team is provided with the support
established. The Senior Independent Director met regularly with the Chairman
from the Board to implement Tullow’s strategy.
and the CEO to ensure successful transition of key relationships ahead of the
Chairman’s retirement in or before the AGM in April 2019.
• Good progress on CEO transition to date with a clear division of roles established.
• Continue to review the Board structure and the skill
matrix required to deliver the strategy of the Company.
• Continue effective succession planning for the Executive
• The Nominations Committee met frequently throughout the year to consider
and non-executive Directors and Senior Management,
and advance succession planning and the skill matrix of the Board as a whole.
with a particular focus on the diversity aspirations of
• External search consultants appointed to commence Chairman succession
the organisation.
process. Candidate lists under periodic review and discussions on timing of
• Review the effectiveness of each Committee.
transition under way.
• Continue to assess and improve the organisational
• During the year, the number of Board members reduced from 11 to nine.
efficiency, effectiveness and accountability of the
• Succession planning and diversity were discussed periodically at the Board
business as the demands on different functions evolve.
meetings and were reviewed in depth at the Board’s strategy offsite meeting.
• Implement Project LEAP and ensure the values it
creates are embedded throughout the organisation for
• Broad consensus that Board diversity requires improvement, but considered
preferable to appoint successor Chair in seat in order for him/her to actively
the future.
participate in any future Board changes.
• A new Executive Team comprised of the Executive Directors and diverse Senior
Management was established.
• Our new Project LEAP was launched to create a significant and sustainable
change in Tullow’s culture and approach to people development and diversity
in the workplace.
• The Chairman and the Board worked closely with the new CEO and met
• Ensure that Tullow’s strategy for growth is clearly
with a number of high-level stakeholders during the year.
communicated to its shareholders.
• Members of the Board and the new Executive Team engaged with
• Ensure the CEO and Executive Team maintain and create
shareholders, civil society organisations, employees and other stakeholders
strong relationships with the Company’s stakeholders
to discuss and strengthen the understanding of our strategy.
and business partners.
• Internal communications and business updates took place more frequently
• Continue to work with all levels of Tullow’s stakeholders
and continued to be improved upon, focusing on specific items such as shared
to implement our strategy of shared prosperity.
prosperity in the countries we work with.
• The Senior Independent Director and the Company Secretary met key
stakeholders independent of management and were available throughout
the year.
62
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE Organisational
capacity
• Work with the new CEO and Executive Team to ensure 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.
Stakeholder
engagement
• 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.
2017 Objectives
2017 Performance
2018 Objectives
• New CEO and CFO formally appointed with a smooth transition process
• Ensure the Executive Team is provided with the support
established. The Senior Independent Director met regularly with the Chairman
and the CEO to ensure successful transition of key relationships ahead of the
Chairman’s retirement in or before the AGM in April 2019.
• Good progress on CEO transition to date with a clear division of roles established.
• The Nominations Committee met frequently throughout the year to consider
and advance succession planning and the skill matrix of the Board as a whole.
• External search consultants appointed to commence Chairman succession
process. Candidate lists under periodic review and discussions on timing of
transition under way.
• During the year, the number of Board members reduced from 11 to nine.
• Succession planning and diversity were discussed periodically at the Board
meetings and were reviewed in depth at the Board’s strategy offsite meeting.
• Broad consensus that Board diversity requires improvement, but considered
preferable to appoint successor Chair in seat in order for him/her to actively
participate in any future Board changes.
• A new Executive Team comprised of the Executive Directors and diverse Senior
Management was established.
• Our new Project LEAP was launched to create a significant and sustainable
change in Tullow’s culture and approach to people development and diversity
in the workplace.
from the Board to implement Tullow’s strategy.
• Continue to review the Board structure and the skill
matrix required to deliver the strategy of the Company.
• Continue effective succession planning for the Executive
and non-executive Directors and Senior Management,
with a particular focus on the diversity aspirations of
the organisation.
• Review the effectiveness of each Committee.
• Continue to assess and improve the organisational
efficiency, effectiveness and accountability of the
business as the demands on different functions evolve.
• Implement Project LEAP and ensure the values it
creates are embedded throughout the organisation for
the future.
• The Chairman and the Board worked closely with the new CEO and met
• Ensure that Tullow’s strategy for growth is clearly
with a number of high-level stakeholders during the year.
communicated to its shareholders.
• Members of the Board and the new Executive Team engaged with
shareholders, civil society organisations, employees and other stakeholders
to discuss and strengthen the understanding of our strategy.
• Ensure the CEO and Executive Team maintain and create
strong relationships with the Company’s stakeholders
and business partners.
• Internal communications and business updates took place more frequently
• Continue to work with all levels of Tullow’s stakeholders
and continued to be improved upon, focusing on specific items such as shared
prosperity in the countries we work with.
• The Senior Independent Director and the Company Secretary met key
stakeholders independent of management and were available throughout
the year.
to implement our strategy of shared prosperity.
www.tullowoil.com
63
2 DIRECTORS’ REPORT CONTINUED
RELATIONS WITH SHAREHOLDERS
Communication and dialogue
2017 was a year of significant news flow for Tullow, requiring
regular and proactive engagement with our shareholders. Early
in the year we announced a series of Board changes and the
farm-down of our Uganda asset. This was followed by a Rights
Issue in March; the introduction of a new management team at
the Group’s Half Year Results; resolution of the ITLOS border
dispute in September; and finally the successful refinancing of
our RBL facility in November.
The combination of these events presented a timely opportunity
to conduct an in-depth investor perception study, through an
independent third-party provider, to gauge investor sentiment
and ultimately inform our investor relations (IR) plans going
forward. Interviews were conducted with 37 buy-side investors
and 10 sell-side analysts. The results were presented and discussed
in detail with the Board in June, and the feedback continues to
inform the content and style of our messaging to the market.
The IR team plans to run a follow-up perception study in 2018
to track progress in key areas of the study that required improvement.
Tullow is committed to regular dialogue with its shareholders
and the wider investment community and the IR team and
Executives have maintained open and transparent dialogue
throughout the year. Ongoing communication has been through
regulatory announcements, regular meetings, presentations,
investor conferences and ad hoc events. Over the year, the IR
team and Senior Management met with over 250 institutions
comprising 70 per cent of the share register, and 170 firms that
are non-holders. Targeted roadshows, conferences and investor
meetings were conducted in England, Scotland, Ireland, East &
West Coast USA, Germany, Switzerland, Spain, France, Ghana,
Abu Dhabi and South Africa.
The Executive, Group Finance and IR teams have continued
their engagement with our bond investors through a number
of high yield conferences and one-on-one meetings throughout
the year. Going forward, a conscious effort is being made to
better integrate our engagement with debt investors into our
annual IR programme.
Tullow also proactively organised roadshows for governance
analysts, led by the Senior Independent Director (SID), who was
joined by the Company Secretary. Institutional shareholders are
offered the opportunity to meet the Chairman or the SID 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.
SHAREHOLDER ANALYSIS
BY CATEGORY (%)
SHAREHOLDER ANALYSIS
BY GEOGRAPHY (%)
SHAREHOLDER ANALYSIS
BY INVESTMENT STYLE (%)
Mutual fund manager
Asset manager
Pension fund manager
Insurance fund manager
Private banking
Corporate
Other
UK
Europe
North America
ROW
31
20
14
11
7
6
11
61
21
14
4
Value & growth
Retail
Value
Hybrid
Corporate
Other
44
16
13
9
6
12
64
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE 2018 KEY SHAREHOLDER ENGAGEMENTS
January
Trading Statement and Operational Update
February
Full Year Results
April
Annual General Meeting
Annual General Meeting Trading Update
July
June Statement and Operational Update
Half Year Results
November
November Trading Update
Tullow conducted a series of meetings with socially responsible
investors (SRI) when requested, to discuss topics including
health and safety, the environment, country and political risk
and other operational matters. These meetings are generally
hosted by our Executive Vice President of Safety, Operations,
Engineering & External Affairs and the IR team.
Tullow’s sixth Ghana Investor Forum took place in May 2017 in
Accra. The event gave key institutional and retail shareholders
the chance to hear presentations and question the Executive
Directors and Senior Managers from the Ghana Business Unit.
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 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 through social media.
Another important way we keep shareholders informed is through
regular formal reporting and Tullow’s Annual and Corporate
Responsibility Reports are available on the corporate website.
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.
2017 Annual Report and Accounts: www.tullowoil.com/reports.
www.tullowoil.com
65
2 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 78.
Constructive use of the AGM
At the AGM held on 26 April 2017, 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 2017 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
Aidan Heavey
Chairman
6 February 2018
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 67.
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 71.
>>
Governance & Risk management
Viability statement
38
48
66
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE AUDIT COMMITTEE REPORT
“ The Audit Committee is confident of the
Executive’s commitment to the strong financial
risk and control environment strategy which
supports Tullow’s business model”
Steve Lucas
Chairman of the Audit Committee
Committee members
Meetings attended
Steve Lucas
Anne Drinkwater
Jeremy Wilson
Tutu Agyare*
Mike Daly*
Ann Grant*
4/4
4/4
4/4
3/3
3/3
1/1
* Denotes Directors who were no longer members of the Committee as
at 31 December 2017.
2017 highlights
• Approval of half-year and full-year Financial Statements.
• 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 financial controls, including focused reviews of
control improvements in Ghana Business Unit.
• Monitoring of enhancements to supplier due diligence process.
• Review of information systems risks and controls.
• Review of tax and formulation of tax strategy disclosure.
• Review of whistleblowing reporting and investigations.
• Ongoing review of the effectiveness of risk management
and internal control systems.
DEAR SHAREHOLDER
Tullow observed a number of changes in 2017, within its
business, organisation and governance at both the Board and
Executive level. The most significant from the Audit Committee
perspective was a change in the CFO position with Les Wood
taking over the role from Ian Springett in June, after six months
as Interim CFO. Previously, Les was operating as head of the
Commercial and Finance functions, so his appointment to
CFO was a smooth transition within the finance organisation.
Having Les as the CFO allows Tullow to continue to focus on
refining and improving its financial risk and controls strategy.
Subsequent changes to the Finance function provided confidence
to the Audit Committee over the commitment of the Executive
to the strong risk and control environment which supports
Tullow’s business model.
The Audit Committee continued to oversee the financial reporting
process in order to ensure that the information provided to the
shareholders is fair, balanced and understandable and allows
accurate assessment of the Company’s position, performance,
business model and strategy. The continued low oil price and
changes to the forward curve were the key factors that had the
largest impact on our financial reporting, which required us to
revise our models, leading to further asset write-offs this year.
On the other hand, the Rights Issue and completion of the
refinancing of RBL provided additional flexibility for Tullow in
terms of liquidity, thus having a positive impact on the going
concern assessment.
In 2017, the Audit Committee continued to oversee the risk
management and internal control systems. By disposing of
non-core assets, progressing the farm-down in Uganda and
consolidating activities within New Ventures, Tullow is now a
much more streamlined organisation in terms of responsibilities
and accountabilities for controls. The internal control environment
has seen improvements during the year, predominantly due to
the enhancements to the financial control systems in Ghana
and the internal financial control initiatives being driven by
Group Finance. The supplier due diligence processes have
been enhanced with a robust roll-out across the Group and
improvements in monitoring and assurance at Group level.
The IMS, being embedded across the Group, provides clarity
around the control requirements. The successful embedding
of the e-learning modules on the Code of Ethical Conduct, as
well as initiating the development of an automated Enterprise
Risk Management tool to increase transparency and visibility
of risks across the business, ensures that we continue to
improve the overall risk and internal controls environment
across the Group.
Steve Lucas
Chairman of the Audit Committee
6 February 2018
ALLOCATION OF
AUDIT COMMITTEE TIME (%)
Financial results
Internal audit
Risk and controls
Governance
41
19
27
13
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2 AUDIT COMMITTEE REPORT CONTINUED
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 Anne Drinkwater and Jeremy Wilson.
Biographies of the Committee members are given on pages 40
and 41. Together the members of the Committee demonstrate
competence in the oil and gas industry with 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 Group Head of Finance and representatives of the external
auditor are invited to attend each meeting of the Committee and
participated in all of the meetings during 2017. The Chairman of
the Board also attends meetings of the Committee by invitation
and was present at the majority of the meetings in 2017. The
external auditor and the Group Internal Audit Manager have
unrestricted access to the Committee Chairman.
In 2017, 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 UK Corporate Governance Code 2016,
the FRC’s 2016 Guidance on Audit Committees, the FRC’s 2014
Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting, 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 7 December 2017.
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;
• monitor and review the adequacy and effectiveness of the
Company’s internal financial controls and internal control
and risk management systems;
• consider the level of assurance being provided on the risk
management and internal controls systems and whether
it is sufficient for the Board to satisfy itself that they are
operating effectively;
• review the adequacy of the whistleblowing system, and the
Company’s procedures for detecting and preventing fraud;
• review and assess the annual internal audit plan, its alignment
with key risks of the business and coordination with other
assurance providers and receive a report on the results of
the Internal Audit function’s work on a periodic basis;
• oversee its 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.
The Ethics & Compliance Function maintains responsibility for
monitoring systems and controls to prevent bribery and
corruption, and the Audit Committee continues to receive
updates from the Group Ethics & Compliance Manager on
any significant non-compliances.
Key areas reviewed in 2017
The Committee fully discharged its responsibilities during the
year and the following describes the work completed by the
Audit Committee in 2017:
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;
• review and, where necessary, challenge the consistency
• comprehensive guidance issued to key report contributors
of significant accounting policies, and whether appropriate
accounting standards have been used;
across the Group;
• validation of data and information included in the report both
• review the content of the Annual Report and Accounts
internally and by the external auditor;
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;
• 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 review and sign-off.
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE 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 annual audit planning and the full-year and half-year accounts approval
process. The Committee considered the key audit risks identified as being significant to the 2017 accounts and the most appropriate
treatment and disclosure of any new or judgemental matters identified during the audit and half-year 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 2017 accounts and how these were addressed are detailed below:
Significant financial judgements for 2017
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 field (Ghana) FPSO. Management was required to exercise judgement
to determine when the FPSO should be recognised as a finance lease in accordance
with IAS 17, what discount rate to apply to future minimum lease payments and the
expected length of the contract. The finance lease was recognised as of 1 August 2017
on the issue of the Certificate of Offshore Completion for the FPSO. Management were
not able to identify a rate implicit in the lease contract as such has used its incremental
cost of borrowing to discount future minimum lease payments. Finally given the number
of potential options for the length of the contract management has selected the most
economically efficient outcome.
Recognition of assets held for sale: The Group signed a sales and purchase agreement
to farm down 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 retained as held for sale. The
critical judgement in determining that the assets were held for sale was regarding the
point that management were committed to the sale. Management continue to conclude
that the sale is highly probable.
Carrying value of intangible exploration and evaluation assets: 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; the assessment of whether
sufficient data exists to indicate that, although a development in the specific area is likely
to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be
recovered in full from successful development or by sale, and the success of a well result
or geological or geophysical survey.
The Committee and Deloitte LLP reviewed and
challenged management’s judgement that the
TEN FPSO lease met the IAS 17 finance lease
recognition criteria at year end 31 December 2017,
that there was no rate implicit in the lease contract
and that most economically efficient outcome was
an appropriate lease term.
The Committee and Deloitte LLP reviewed
and challenged management’s judgement that
completion of the farm-down was highly probable.
The Group has a very active Exploration and
Appraisal work programme and the Committee
reviews and challenges management assumptions
and judgements underlying the valuation 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: 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 of impairments
or impairment reversals are present and an impairment or impairment reversal test is
required, the calculation of the recoverable amount requires estimation of future cash
flows within complex impairment models.
Results of the impairments 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 and the
outcomes. 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, mid-term price assumptions for three
years after this and the long-term inflated corporate economic assumption thereafter,
pre-tax discount rates that are adjusted to reflect risks specific to individual assets,
commercial reserves and the related cost profiles.
Going concern: Refer to page 34 of the Directors’ report.
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. The Committee receives
written and oral reporting from Deloitte LLP on its
conclusions on management’s assessment of
going concern, and it was noted that Deloitte LLP
reduced the level of risk associated with the going
concern assumption during 2017.
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Significant financial judgements for 2017
How the Committee addressed these judgements
Decommissioning costs: 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: Due to the historical reduction in original
planned future work programmes the Group identified a number of onerous service
contracts in prior years. Management has estimated the value of any future economic
outflows associated with these contracts.
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
decommissioning 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 reviews 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.
External auditor
Making recommendations to the Board on the appointment
or re-appointment of the Group’s external auditor, overseeing
the Board’s relationship with the external auditor and, where
appropriate, the selection of a new external auditor, and assessing
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 2018 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 “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 qualifications, expertise
and 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 2017 the Committee held private
meetings with the external auditor. The Audit Committee
Chairman also maintained regular contact with the audit
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 them by management, maintaining the
independence of the audit, and how they have exercised
professional challenge.
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE • 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 2017 audit, the key audit risks identified included carrying
value of exploration and evaluation assets, carrying value
of property, plant and equipment, provision for tax claims,
provisions for onerous contracts, decommissioning provisions,
revenue recognition, risk of management override and going
concern. 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.
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. In concert with the whole Board,
the Audit Committee completed a robust assessment of the
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. The results and outcomes of that assessment are
provided on page 42 of this report under the section entitled
‘Principal Risks’.
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 function;
• assurance activities undertaken by the Group functions;
• enhancement of the enterprise risk management and
assurance processes;
• The Committee closely monitors the level of audit and non-audit
• the external auditor’s observations on internal financial
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. In 2017 the most significant non-audit service
provided by Deloitte to Tullow related to its role as a reporting
accountant on the Rights Issue. An internal Tullow standard
for the engagement of the external auditor to supply non-audit
services is in place to formalise these arrangements. It is
reviewed annually and has been revised in 2017 to reflect
changes in the regulatory environment. Among others, it
requires Audit Committee approval for all non-trivial categories
of non-audit work. 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.
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. Senior
Management representatives from the business were also
invited to the Audit Committee meetings to provide updates
on key matters such as Ghana Business Unit finance, tax
strategy and proposed disclosure as well as improvements
made in the SCM due diligence process.
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.
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Whistleblowing procedure
Ensuring that an effective whistleblowing procedure is in place.
• In line with best practice and to ensure Tullow works to the
highest ethical standards, an independent whistleblowing
procedure was in operation throughout 2017 to allow staff to
confidentially raise any concerns about business practices.
This procedure complements established internal reporting
processes. The whistleblowing 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 whistleblowing 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 has undergone 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 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
business and corporate levels. During 2017, 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 2017 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 the Audit Committee meetings.
Forty-three 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 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. Internal Audit also runs a systematic programme
of audits of suppliers’ compliance with commercial and
business ethics clauses, including bribery and corruption,
of the significant contracts.
• 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
and the results of audits reported, and through the thorough
self-assessment review report provided by the Group
Internal Audit Manager. Resourcing levels in Internal Audit
are assessed by the Audit Committee with a view to ensuring
that it can fully discharge its duties. Results of the review
were discussed at the Committee and actions to further
improve Internal Audit effectiveness are being implemented.
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE NOMINATIONS COMMITTEE REPORT
“ The majority of the Committee’s time during the year was spent on the
search for and the appointment of a new CFO and the preparation for
Chairman succession planning and implementation.”
Jeremy Wilson
Chairman of the Nominations Committee
Committee members
Anne Drinkwater
Aidan Heavey
Paul McDade
Steve Lucas
Jeremy Wilson
Tutu Agyare*
Mike Daly*
Ann Grant*
Simon Thompson*
Meetings attended
4/4
3/3
2/2
4/4
4/4
1/1
1/1
1/1
1/1
* Denotes Directors who were no longer members of the Committee as
at 31 December 2017.
2017 highlights
• Appointed Paul McDade as CEO and Aidan Heavey as Chairman.
• Commencement of Chairman search and review of
candidate longlist.
• Appointmented Les Wood as Interim CFO in January 2017 and
subsequently as CFO and Executive Director in June 2017.
• Identifying the skill matrix, structure, size and composition
of the Board to deliver the long-term strategic aims of
the Company.
DEAR SHAREHOLDER
The main function of the Nominations Committee is to ensure
that the Board and its Committees are appropriately constituted
and have the necessary skills and expertise to support the
Company’s current and future activities. Below Board level,
the Committee continues 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.
At the beginning of 2017, the Committee completed its
work on CEO and Chairman succession culminating with a
recommendation to the Board that Paul McDade succeed
founder Aidan Heavey as CEO, with Aidan taking on an interim
role as Chairman for a transitional period of up to two years
from the April 2017 AGM. This recommendation was approved
by the Board and announced on 11 January 2017, concluding
a long and successful effort by the Committee to manage one
of the most significant transitions in Tullow’s history. Following
the announcement, the Committee shifted its focus towards
ensuring that the transition of these key roles was executed
smoothly and with minimal disruption to the business. Aidan’s
appointment as Chairman for this interim period 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.
At the outset of the year, the Committee primarily focused on
ensuring that the succession of Paul McDade to the role of CEO
and of Aidan Heavey to the role of Chairman was executed with
minimal interruption to the business. Apart from supporting
the transition of these two important roles, the majority of the
Committee’s time during the year was spent on: 1) the search
for and the appointment of a new CFO to replace Ian Springett
who stepped down from the Board due to ill health; and 2) the
search for a new Chairman to succeed Aidan Heavey, Aidan’s
appointment as Chairman being limited to a two-year
transitional period as previously announced.
In our Full Year Results statement we announced that
Anne Drinkwater had informed the Board that she has decided
not to stand for re-election at the 2018 AGM. The Nominations
Committee will begin a search for her replacement in 2018.
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2 NOMINATIONS COMMITTEE REPORT CONTINUED
The Committee also reviewed the balance of skills and attributes
on the Board as a whole and how that compares to the skills
that will be needed to complement and support Paul McDade
as our new CEO. This work included a skills assessment facilitated
by Lintstock Ltd as part of our annual Board evaluation in October.
The Committee has also debated the structure, size and
composition of the Board and how the Board can best help
deliver the long-term strategic aims of the Company after a
new Chairman has been appointed. In doing so, the Committee
recognises the importance of establishing a Board that is more
reflective of the value we place on diversity and inclusion within
our business.
Committee’s role
The Committee reviews the composition and balance of the
Board and senior executives 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 its selection of the shortlist. The Committee’s terms of
reference are reviewed annually and are set out on the
corporate website.
The Committee appointed Spencer Stuart to complete an
executive search process for a new CFO which resulted in a
recommendation to the Board that Les Wood be appointed as an
Executive Director and Chief Financial Officer, which was approved
by the Board and announced in June 2017. Spencer Stuart was
also appointed to commence work on the search for the new
Chairman which has resulted in the Committee receiving and
reviewing a preliminary longlist of candidates which was prepared
and presented by Spencer Stuart and which reflected the criteria
set by the Committee for relevant experience, background,
diversity and personal characteristics. The Committee has
deliberately commenced this search well ahead of the April 2019
deadline in order to maximise our ability to find the right
candidate to lead Tullow’s Board.
During the course of 2018, the Committee will continue with
this work in addition to reviewing the recruitment, development
and retention of managers who will occupy the most senior
positions in the Company in the future, with a particular focus
on achieving a diverse employee population with a nationality
mix representative of our assets’ geographic footprint and
improving gender diversity.
Jeremy Wilson
Chairman of the Nominations Committee
6 February 2018
Committee’s main responsibilities
The Committee’s main duties are:
• 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 during the year.
Jeremy Wilson, the Senior Independent Director, was appointed
Chairman of the Committee following the conclusion of the AGM
in April 2017. The membership and attendance of members at
Committee meetings held in 2017 are shown in the adjacent table.
In addition to four formal meetings, the Committee held a
number of informal discussions, telephone conference calls
and interviews during the year.
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE Committee activities
• CEO succession implementation – Detailed planning for the
identification of a successor to founder Aidan Heavey was
completed in January 2017 with a recommendation to the
Board that Paul McDade be appointed as Chief Executive Officer,
subject to shareholder approval. The Board and Tullow’s
shareholders approved the recommendation and Paul McDade
was appointed CEO following the AGM in April 2017. The
services of executive search consultants Egon Zehnder and
other external advisers were employed. There is no other
connection between Egon Zehnder and Tullow.
• Chairman succession implementation – In January 2017,
the Committee recommended, and the Board approved, the
appointment of Aidan Heavey as non-executive Chairman,
subject to shareholder approval from the conclusion of the
2017 AGM for a transitional period not exceeding two years.
Given Aidan Heavey’s unique role as founder of Tullow Oil
and CEO for 31 years, the Committee, in recommending
Aidan’s appointment as Chairman, 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. The Committee believes that this phased transition
is in the best interests of shareholders, host governments
and other key stakeholders, but fully recognises the need to
appoint an independent Chair at the end of this transitional
period. Accordingly, the Committee appointed Spencer Stuart
to conduct a search for an independent Chairman, which has
resulted in the Committee approving a role specification and
ensuring that search parameters reflected an appropriate
emphasis on Tullow’s diversity aspirations and then
subsequently receiving and reviewing a preliminary longlist
of candidates. The Committee has deliberately started its
search early in Aidan’s two-year transitional period in order
to maximise our ability to find the right candidate to lead
Tullow’s Board in the future.
• 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 Commercial and Finance, as Interim CFO.
• CFO succession planning and implementation – The Committee
led an executive search process for a new Chief Financial
Officer and recommended to the Board that Les Wood be
appointed as an Executive Director and Chief Financial Officer
and Les was appointed in June 2017.
• Senior Independent Director and membership of Board
Committees – Following the scheduled retirement of Ann Grant
at the AGM in April 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
of this review, the Committee recommended the appointment
of Jeremy Wilson as Chairman of the Nominations Committee
and Tutu Agyare as Chairman of the Remuneration Committee.
All of these changes were approved by the Board and occurred
with effect from the conclusion of the 2017 AGM. Following a
further review of Board Committee membership later in the
year, the Committee recommended reducing the number of
non-executive Directors on each of the Audit Committee and
Nominations Committee and the Board approved.
• Board size and composition – In 2017 (following the AGM)
the Board comprised nine Directors: three Executive and six
non-executive Directors, and included one woman and one
African. The Board continues to support the aspirations set
out in the 2011 Davies Report ‘Women on Boards’ and those
in the Hampton-Alexander Review and will seek to redress
the current imbalance in the representation of women during
the coming years. The Committee acknowledges that our
Board is not currently reflective of the value that we place
on diversity and inclusion within our business and has
recognised a need to take appropriate corrective action
in this regard. In the Committee’s recently announced search
for the replacement of Anne Drinkwater, we have placed the
highest priority on ensuring diversity in the appointment.
Beyond the immediate search, the Committee believes that
broader action to advance our diversity aspirations must form
part of a long-term Board strategy which must be led by
whoever Tullow selects as its new Chairman.
• 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 the
Organisation & Culture section on pages 50 and 51) diversity
was 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 2017, 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 internal Board
evaluation process.
www.tullowoil.com
75
2 EHS COMMITTEE REPORT
“ The Committee monitors the performance and
key risks that the Company faces in relation to
occupational and process safety, security, health
and environmental management.”
Anne Drinkwater
Chair of the EHS Committee
Committee members
Anne Drinkwater
Mike Daly
Angus McCoss (part year)
Paul McDade*
Simon Thompson*
Meetings attended
3/3
3/3
2/2
1/1
1/1
* Denotes Directors who were no longer members of the Committee as
at 31 December 2017.
2017 highlights
• Overseeing EHS arrangements for the Jubilee Turret
Remediation Project.
• Reviewing how lessons learnt from Jubilee are being factored
into TEN production operations.
• Conducting environmental risk review.
DEAR SHAREHOLDER
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 considers emerging risks that
the business might face in its operations.
Process safety is a key focus area for the Committee. In addition
to monitoring process safety risk management across the
Group the Committee reviewed progress on the Jubilee Asset
Integrity Plan and findings from the 2017 process safety audits
of Jubilee and TEN.
As the Jubilee Turret Remediation Project progresses
towards a permanent solution, the Committee had an in-depth
review of the assurance processes used to support safe
execution operation.
A particular focus in the Committee’s environmental review in
2017 was the Kenya Waste Management Infrastructure Study,
which will inform development planning on waste management
options as the project progresses.
The Committee monitors implementation of Tullow’s Human
Rights policy; the Kenya National Police Service MOU, which was
signed in July 2017, is a solid step forward in fully operationalising
the UN Voluntary Principles on Security and Human Rights.
Anne Drinkwater
Chair of the EHS Committee
6 February 2018
Committee’s role
The Committee has been established by the Board to monitor
the performance and key risks that the Company faces in
relation to occupational and process safety, security, health
and environmental management, with a particular ongoing
focus on process safety. The Committee oversees the
processes and systems put in place by the Company to meet
our stated objectives of protecting employees, the communities
in which we operate, and the natural environment. Additionally
it monitors the effectiveness of operational organisations
across the Company in delivering continuous improvement
in EHS through reviewing a wide range of EHS leading and
lagging indicators to gain an insight into how EHS policies,
standards and practices are being implemented. In particular,
the Committee reviews high-potential incidents, especially
where they have occurred repeatedly in one location or activity
(also see Responsible Operations, pages 36 and 37). It also
scrutinises the outcome of audits and investigations.
Committee’s main responsibilities
The Committee’s main responsibilities are:
• to review and provide advice regarding the environmental,
health, security and asset protection, and safety policies
of the Company;
• to monitor the performance, including regulatory compliance,
of the Company in the progressive implementation of its
environmental, health, security and asset protection, and
safety policies, including process safety management;
• to receive reports covering matters relating to material
environmental, health, security and asset protection, and
safety risks; and
• to consider material regulatory and technical developments
in the fields of environmental, health, security and asset
protection, and safety management.
The Committee’s terms of reference are reviewed annually
and are available on the corporate website. The Committee’s
membership changed during the year. Angus McCoss joined
the Committee, while Paul McDade and Simon Thompson
relinquished their roles as part of the Company’s Board
re-organisation. The Committee currently comprises two
non-executive Directors and one Executive Director. Sandy Stash,
EVP Safety & Sustainability, Operations & Engineering and
External Affairs (SOEEA), 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 extractive industries.
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE Meetings
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 2017 those attending the meetings
included Senior Management from Tullow’s operations and
management team members from the Safety, Sustainability
& External Affairs and Operations & Engineering functions.
• Tullow’s East Africa developments require a significant
onshore presence involving the future construction and
installation of pipelines in a complex social and geopolitical
setting. In order to understand the EHS challenges and
lessons learnt from a recent similar project, the Committee
invited the Vice President of BP’s Southern Gas Project to
present on its EHS risks and mitigation approach. This
presentation provided valuable insights into the challenges
faced and techniques employed to address EHS risks in
complex onshore projects.
• The Committee reviewed process safety risk management
including plant, process, people and performance management
to assess priorities, progress and challenges in 2017 and
2018. The Committee also reviewed risk management in
drilling and completion operations including processes,
tools and performance.
• Tullow’s environmental performance and key environmental
risks were reviewed together with the mitigation and
management techniques employed to minimise their impact.
Looking forward to 2018
• The Committee will have a continuing emphasis on process
safety, and will monitor close-out of the 2017 process safety
management audits of Jubilee and TEN.
• The Committee will provide ongoing oversight of appropriate
EHS risk management of the Jubilee Turret Remediation
Project as a permanent solution is implemented.
• The Committee will review assurance work focused on land
transport safety and the application of business continuity
plans implemented by the business.
• The Committee will continue to review the EHS elements of
the East Africa development project plans.
Committee activities in 2017
• In 2017, the Committee reviewed the EHS elements of the
Safety & Sustainability Plan. The plan sets out milestones
that need to be reached to meet Safety & Sustainability’s
multi-year objectives and covers all aspects of EHS.
Examples of these milestones include:
• assuring that Company and Business Unit plans are
in alignment with the EHS and non-technical risk
standards incorporated in Tullow’s Integrated
Management System (IMS);
• supporting Business Delivery Teams in the implementation
of the Human Rights Policy including compliance with the
Modern Slavery Act;
• conducting process safety and asset integrity audits of the
Jubilee and TEN FPSOs; and
• operationalising the new socio-economic investment
strategy and governance process.
• The Committee reviewed EHS aspects of the Jubilee
Turret Remediation Project with a deep dive of the controls
established to support safe operations as the project moves
towards installing a permanent technical solution.
• Following commissioning of the TEN FPSO in 2017, the
Committee reviewed how the TEN project team had learnt and
applied the lessons from early Jubilee production operations.
Effective application of these lessons was a key factor in
delivering the TEN project safely, on time and within budget.
• At each meeting the Committee tracked performance against
EHS key performance indicators (KPIs), which include both
leading and lagging indicators. In addition to providing a
snapshot of Tullow’s progress, EHS KPIs were used to identify
areas where more focus may be required, such as asset
integrity, occupational safety and land transport safety.
A number of the EHS KPIs are part of the corporate
scorecard and are linked to remuneration; these are
overseen by the Committee.
• Assurance activity on key EHS risk areas was reviewed during
2017. Such assurance included the review of results from
audits of malaria management processes across our Ghana,
Kenya and Uganda operations. Committee assurance also
included review of the process safety and asset integrity
audits of Ghana production operations, including an
assessment of the delivery of the Jubilee Asset Integrity
Management Plan.
www.tullowoil.com
77
2 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 2017 on Directors’
remuneration. The report is divided into three main sections:
• our Annual Statement, which provides a summary of the year
under review and the Committee’s intentions going forward;
• the Directors’ Remuneration Policy Report, which was
formally approved by shareholders at the 2017 Annual
General Meeting (AGM) on 26 April 2017 and sets out the
forward‑looking three‑year Directors’ Remuneration Policy
for the Company which commenced 1 January 2017; and
• the 2017 Annual Report on Remuneration, which provides
details of the remuneration earned by Directors in the year
ended 31 December 2017.
“ Our shareholder
consultation on the
policy demonstrates
our commitment to
provide you with
clarity and
transparency.”
Summary of major decisions and activities in 2017
In 2016, assisted by PwC, the Committee conducted a thorough
review of the Remuneration Policy. The review took into account
feedback 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. A number
of amendments to our Directors’ Remuneration Policy for
the period 2017 to 2019 (‘the 2017 Policy’) were made and
were approved by shareholders at the AGM in April 2017.
2017 Board changes
On 11 January 2017, Tullow announced a number of changes to
its Board which became effective following the Company’s AGM
on 26 April 2017:
• Paul McDade, formerly Chief Operating Officer, was
appointed Chief Executive Officer. Paul’s remuneration
package was set in accordance with the 2017 Remuneration
Policy – see pages 84 to 87.
• Simon Thompson stepped down from the role of Chairman
and from the Tullow Board.
• Aidan Heavey, formerly Chief Executive Officer, was appointed
as non‑executive Chairman for a transitional period of up to
two years. For the period up to the AGM (when Aidan was CEO)
and for a period of six months thereafter Aidan’s remuneration
was unchanged. 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 the six‑month period. After this period, Aidan received
a Chairman’s fee of £280,000 per annum and is expected to
dedicate at least 70 days per year to his duties as Chairman.
• Ann Grant retired and was replaced as Senior Independent
Director (SID) by Jeremy Wilson. With the previous Chief
Executive Officer becoming non‑executive Chairman, the
SID role will have increased responsibilities and will require
more time and effort than in previous years. Accordingly, the
SID fee was increased from £10,000 as at January 2017 to
£40,000 from 26 April 2017.
TUTU AGYARE, CHAIRMAN OF THE REMUNERATION COMMITTEE
78
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE 2017 Remuneration Policy
The Policy is based on a structure linking the Group’s ongoing
strategy and business goals to performance. Set out below are
the main features of the 2017 Policy (which are explained in
greater detail in the Remuneration Policy Report).
Tullow Incentive Plan (TIP)
• The maximum annual award opportunity is 400 per cent
of base salary.
• Full vesting of the TSR performance condition to be triggered
at upper quartile (75th percentile) performance.
• Discretion to settle any portion of the annual cash bonus
component of a TIP award in deferred shares.
The Committee believes that the Policy at these levels align
interests of management and shareholders and incentivise,
motivate and retain our valued Executive Directors. Further
details are shown in the Directors’ Remuneration Policy Report.
Performance and reward for 2017
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. The Committee used the approved 2017 Policy
during 2017.
In conjunction with the Board changes, salaries for the Executive
Directors were adjusted to take into account Tullow’s market
position and benchmark data for the international oil and gas
sector. The overall impact of this change was a reduction in CEO,
CFO and Exploration Director salaries: on his appointment to
CEO, Paul McDade’s salary was increased to £725,000; on his
appointment to CFO, Les Wood’s salary was set at £435,000;
and Angus McCoss’ salary was adjusted to £410,000. In summary,
the totality of these changes reduces the ED salary cost by
18.2 per cent compared with the salaries for these positions
in 2016. The totality of these changes in 2017 reduced the
Executive Directors’ salary cost by 18 per cent compared with
the salaries for these positions in 2016. Furthermore, this
reduction and the reduction in senior managers as a result
of establishment of the new Executive Team (see pages 12
and 13) has led to a 19 per cent reduction in salary costs
for Tullow’s senior leadership team, compared with 2016.
For 2018, in view of UK inflation, salary inflation and benchmarking
data, the Committee decided to increase the salaries of the
Executive Directors by 3 per cent. This decision is consistent
with the wider decisions made regarding employee pay.
The Chairman’s fee is £280,000 and the base non‑executive
Directors’ fee is set at £60,000.
The performance targets set for 2017 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.
Regarding Total Shareholder Return (TSR) measured over a
three‑year period, performance has been poor and consequently
a score of zero per cent is attributed to this performance
metric. Conversely, the Group performed well on its strategic,
financial and operational targets for the year. The Committee is
particularly pleased with the achievement of strategic financing,
capital management and production, all of which support the
deleveraging of Tullow’s balance sheet and generation of free
cash flow. The net result of these various factors produced an
overall scorecard performance of 39.7 per cent, resulting in a
cash bonus of 79.4 per cent of salary and a further 79.4 per cent of
salary awarded in shares deferred for five years. Full details of
performance against the KPIs is shown on pages 20 to 23.
Shareholder dialogue
Your views of remuneration are important to the Board and for
that reason the Committee consulted with shareholders on the
2017 Policy in late 2016 and early 2017. This consultation was
important and demonstrated our commitment to provide you
with clarity and transparency about our 2017 Policy. We expect
the 2017 Policy to be in operation for a period of three years;
however, should any changes be considered appropriate to
propose, major shareholders shall be consulted.
Finally, on behalf of the Committee, I would like to thank
shareholders for their significant vote approving the 2016 Annual
Statement and Annual Report on Remuneration at the last AGM
and look forward to your continued support over the coming year.
If you have any comments or questions on any element of the
report, please email me at remunerationchair@tullowoil.com.
Tutu Agyare
Chairman of the Remuneration Committee
6 February 2018
www.tullowoil.com
79
2 REMUNERATION REPORT CONTINUED
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 (VOLUNTARY DISCLOSURE)
Although Tullow is not required to present the current
Remuneration Policy Report this year, nor to submit the
Remuneration Policy to a binding vote, in line with best practice
on corporate reporting, we have included for reference on the
following pages the Remuneration Policy for the Company which
commenced 1 January 2017 and became formally effective
following approval from shareholders through a binding
vote at the 2017 AGM. This section also explains how the
Remuneration Policy will be operated during 2018.
Policy overview
The principles of the Remuneration Committee (‘Committee’)
are to ensure that remuneration is linked to Tullow’s strategy
and promote 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, Executive Vice President,
Organisational Strategy & Company Performance (EVP – OS&CP).
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:
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 300 per cent of 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
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE • 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
The table on pages 84 to 87 sets out a summary of each
element of the Directors’ remuneration packages, their link to
the Company’s strategy, the policy for how these are operated,
the maximum opportunity and the performance framework.
Although not part of the Remuneration Policy Report, the
column to the right of the table also sets out how the
Committee intends to apply the policy for 2018.
Key changes in 2017
The Committee believes that the basic structure of the previous
Remuneration Policy worked well to align the interests of our
Executives and our shareholders. The changes which were
proposed by the Committee and were approved by our
shareholders at the Annual General Meeting in 2017 are reflected
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 included:
1) Executive Directors
The maximum annual award opportunity for the TIP was
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 believed 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 therefore recommended 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
reserved 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 is 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.
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 provides 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 previous shareholding policy prohibited Executive
Directors from selling more than 50 per cent of post‑tax
vesting share awards until such time as their shareholding
exceeded 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.
www.tullowoil.com
81
2 REMUNERATION REPORT CONTINUED
2) Non-executive Directors
Non‑executive Director fees are reviewed annually and in 2017,
the Committee and the Board (with each Director abstaining
from any decision on their own remuneration) recommended
that the 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 remained unchanged, save that the fee paid
to the Chair of the Ethics & Compliance Committee was
increased from £5,000 to £10,000. That Committee has since
been dissolved since the transition of its responsibilities were
passed to the Executive. 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 above, the fee for our former
Senior Independent Director, Ann Grant, was decreased from
£15,000 to £10,000 until her retirement date. However, in
view of the increased responsibilities and time commitment
of the SID role in the new Tullow Board since 26 April 2017,
the SID fee was then increased to £40,000.
• From the conclusion of the AGM, Aidan Heavey continued to
receive his then existing remuneration including all benefits for
a period of six months. That amount was determined to be
appropriate by the Committee and included 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 that six‑month period. Following the conclusion of
the six‑month period, Aidan now receives 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 that
initial six‑month period, Aidan is 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.
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
82
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE would otherwise normally vest), instead of vesting over five
years the deferred TIP shares granted in 2014 have vested
50 per cent after three years (i.e. 2017) and 50 per cent will
vest 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 were 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
and subsequent TIP awards, was and 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.
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.
www.tullowoil.com
83
2 REMUNERATION REPORT CONTINUED
SUMMARY DIRECTORS’ REMUNERATION POLICY
Base salary
Purpose and link
to strategy
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.
Operation
Maximum opportunity
of sums paid/payable
on Remuneration and not part of the Policy Report)
Framework used to assess performance and provisions for the recovery
Application of policy in 2018 (this forms part of the Annual Report
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 2018’ 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 part of
Current Executive Director base salaries:
the salary review. No recovery provisions apply.
Paul McDade
Angus McCoss
Les Wood
2018
£746,750
£422,300
£448,050
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.
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE 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 2018 (this forms part of the Annual Report
on Remuneration and not part of the Policy Report)
Base salary
To provide an
Generally reviewed annually with increases
Any increases to current Executive Director
normally effective from 1 January. Base
salaries, presented in the ‘Application of
salaries will be set by the Committee taking
Policy in 2018’ column to the right of this
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:
Paul McDade
Angus McCoss
Les Wood
2018
£746,750
£422,300
£448,050
appropriate level of
fixed cash income.
To attract and retain
individuals with the
personal attributes, skills
the role;
and experience required
to deliver our strategy.
into account:
• the scale, scope and responsibility of
• 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.
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
Company does not operate or have any
and experience required
legacy defined benefit pension schemes.
salary supplement in lieu of pension. The
to deliver our strategy.
Benefits: The range of benefits that may be
provided is set by the Committee after taking
into account local market practice in the
Medical insurance, income protection and
country where the Executive is based. No
life assurance. Additional benefits may be
monetary maximum is given for benefits
provided as appropriate.
Executive Directors may participate in the
Tullow UK Share Incentive Plan (SIP).
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.
www.tullowoil.com
85
2
REMUNERATION REPORT CONTINUED
SUMMARY DIRECTORS’ REMUNERATION POLICY CONTINUED
Purpose and link
to strategy
Operation
Maximum opportunity
of sums paid/payable
on Remuneration and not part of the Policy Report)
Framework used to assess performance and provisions for the recovery
Application of policy in 2018 (this forms part of the Annual Report
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.
A balanced scorecard of stretching financial and operational objectives, linked to the
The corporate scorecard for 2018 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
period prior to grant, against a comparator group of oil and
with strategic priorities but may include targets relating to: relative or absolute
gas exploration companies with a threshold (25 per cent of
Total Shareholder Return (TSR); earnings per share (EPS); Environmental,
the award) vesting at median performance and a maximum
Health and Safety (EHS); financial; production; operations; project; exploration;
(100 per cent) vesting at upper quartile performance;
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.
• 5 per cent based on strategic financing measures;
• 22 per cent based on production, operational, safety and
organisational measures; and
• 18 per cent based on business development and
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.
growth 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 5 per cent of the corporate scorecard
will be determined by the Committee, based on
leadership effectiveness.
Details of actual performance against KPIs will be given
retrospectively in the 2018 Annual Report.
Minimum
shareholding
requirement
To align the interests
of management and
shareholders and
promote a long‑term
approach to performance
and risk management.
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.
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.
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.
Not applicable.
Not applicable.
No change.
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.
Not applicable.
Current non‑executive Director fees:
Chairman2
£280,000
£280,000
Non‑executive base fee
Senior Independent Director3
Audit Committee Chair
Remuneration Committee Chair
EHS Committee Chair
E&C Committee Chair
2018
2017
£60,000
£40,000
£20,000
£20,000
£15,000
N/A
£60,000
£40,000
£10,000 4
£20,000
£20,000
£15,000
£10,000
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.
86
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE
SUMMARY DIRECTORS’ REMUNERATION POLICY CONTINUED
To provide a simple,
An annual TIP award consisting of up to
The maximum amount of any Award shall be
Incentive Plan
competitive,
Tullow
(TIP)
400 per cent of base salary which is divided
established by the Committee at the beginning
evenly between cash and deferred shares up
of each year of this policy, provided it shall not
to the first 200 per cent of base salary. Any
exceed 400 per cent of salary for Executive
amount above 200 per cent of base salary
Directors.
is awarded entirely in deferred shares1.
Dividend equivalents will accrue on TIP
Deferred shares are normally subject for
deferred shares over the vesting period, and
deferral until the fifth anniversary of grant,
will be payable in respect of shares that vest.
normally subject to continued service.
In the event that Tullow is a member of the
TIP awards are non‑pensionable and
FTSE 100 Index for a full financial year during
will be made in line with the Committee’s
the term of this Remuneration Policy, the
assessment of performance targets.
Committee reserves the discretion to increase
objectives and deliver
any portion of the cash component of
superior shareholder
a TIP award can be satisfied by granting
At the discretion of the Committee,
deferred shares with a vesting date set by
the Committee being not earlier than the
first anniversary of grant.
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.
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 at
Not applicable.
least 50 per cent of post‑tax share awards
until a minimum shareholding equivalent
promote a long‑term
to 300 per cent of base salary is achieved
approach to performance
in owned shares. Unvested TIP shares
and risk management.
will not count towards the minimum
shareholding requirement.
Shares included in this calculation are those
held beneficially by the Executive Director
and his or her spouse/civil partner.
Non-
executive
Directors
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.
non‑executive Directors are paid a base fee
determined within the limits set by the Articles
and additional responsibility fees for the role
of Association.
of Senior Independent Director or for chairing
a Board Committee.
There is no maximum prescribed fee increase
although fee increases for non‑executive
Fees are normally reviewed annually.
Directors will not normally exceed the average
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.
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 2018 (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.
The corporate scorecard for 2018 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;
• 5 per cent based on strategic financing measures;
• 22 per cent based on production, operational, safety and
organisational measures; and
• 18 per cent based on business development and
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.
growth 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 5 per cent of the corporate scorecard
will be determined by the Committee, based on
leadership effectiveness.
Details of actual performance against KPIs will be given
retrospectively in the 2018 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:
Chairman2
Non‑executive base fee
Senior Independent Director3
Audit Committee Chair
Remuneration Committee Chair
EHS Committee Chair
E&C Committee Chair
2018
2017
£280,000
£60,000
£40,000
£20,000
£20,000
£15,000
N/A
£280,000
£60,000
£40,000
£10,000 4
£20,000
£20,000
£15,000
£10,000
2. Aidan’s Executive salary of £886,080 payable to 31 October 2017. Thereafter, Aidan received 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. After 26 April 2017.
4. Up to 26 April 2017.
www.tullowoil.com
87
2
REMUNERATION REPORT CONTINUED
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:
Paul
McDade
Les
Wood
Angus
McCoss
Fixed
Target
Maximum
Fixed
Target
Maximum
Fixed
Target
Maximum
£m
0.5
1
1.5
2
2.5
3
3.5
4
Fixed pay
TIP (cash)
TIP (deferred shares)
1. Base salaries are those effective as at 1 January 2018.
2. Fixed pay includes pensions which 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 2018 (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 2018.
5. No share price appreciation has been assumed.
Service agreements
Each Executive Director has entered into a new service
agreement with Tullow Group Services Limited during 2017.
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.
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 2017, Angus McCoss sought the Board’s permission,
which was agreed, to take up a non‑executive Director role with
Providence Resources plc. 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 Angus’ appointment, the Board agreed
that he would retain his fee of €45,000 per annum. Angus McCoss
has also 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 in
respect of this nomination 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. Les Wood was appointed as an Executive Director and
CFO in June 2017 with an annual base salary of £435,000.
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.
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE 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
Tutu Agyare
Mike Daly
Anne Drinkwater
Aidan Heavey
Steve Lucas
Jeremy Wilson
Number of
complete
years on
the Board
7
3
5
0
5
4
Date of current
engagement
commenced
24.08.16
31.05.17
10.02.15
26.04.17
14.03.15
21.10.16
Year
appointed
2010
2014
2012
2017
2012
2013
Expiry of
current
term
23.08.19
30.05.20
09.02.18
25.04.19*
13.03.18
20.10.19
* Being the anticipated date of the Company’s Annual General Meeting in 2019. Aidan Heavey was appointed non‑executive Chairman on 26 April for
a period not exceeding two years but, as set out in the Nominations Report on page 73, he is the founder and former Chief Executive Officer of the
Company and was an Executive Director since incorporation.
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. There are no arrangements under which any non‑executive
Director is entitled to receive compensation upon the early termination of his or her appointment. Given the fixed, transitional and
short‑term nature of his appointment, Aidan Heavey’s appointment letter does not permit him to terminate his appointment ahead
of the Annual General Meeting in 2019, though the appointment may be terminated by Tullow on three months’ notice.
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89
2 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:
• Paul McDade, Chief Executive Officer;
• Les Wood, Chief Financial Officer;
• Claire Hawkings, EVP – OS&CP; and
• further to a formal tender process, including consideration
of its independence and objectivity, PwC LLP was appointed
as adviser to the Remuneration Committee in June 2016 for
the purpose of advising on the Company’s 2017 Directors’
Remuneration Policy.
The total fees paid to PwC in respect of the advice provided
for 2017 totalled £10,000 (excluding VAT) and related to the
review of the 2016 Directors’ Remuneration Report 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.
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 2017 (including payment and awards in respect
of incentive arrangements) and how shareholders voted at
the 2017 AGM.
Remuneration Committee membership and meetings
The Committee currently comprises three non‑executive
Directors and is chaired by Tutu Agyare. The membership and
attendance of members at Committee meetings held in 2017
are shown below.
Committee member
Tutu Agyare (Chair)1
Mike Daly
Jeremy Wilson
Anne Drinkwater*
Steve Lucas*
Simon Thompson*
Meetings attended
5/5
2/2
5/5
4/4
1/1
1/1
1. Tutu Agyare was appointed Chair of the Committee from 26 April 2017,
prior to which the Chair was Jeremy Wilson.
* Denotes Directors who were no longer members of the Committee as
at 31 December 2017.
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 website.
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE Directors’ remuneration (audited)
The remuneration of the Directors for the year ended 31 December 2017 payable by Group companies and comparative figures for
2016 are shown in the table below:
Executive Directors
Aidan Heavey
Angus McCoss
Paul McDade
Ian Springett7
Les Wood8
Graham Martin9
Subtotal
Non-executive Directors
Aidan Heavey10
Tutu Agyare
Mike Daly
Anne Drinkwater
Ann Grant11, 14
Steve Lucas
Simon Thompson12
Jeremy Wilson13
Subtotal
Total
Fixed pay
Salary/fees1
£
Pensions2
£
Taxable
benefits3
£
Tullow Incentive Plan
TIP cash4
£
Deferred TIP
shares5
£
2017 6
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
295,360
886,080
462,920
501,110
654,460
501,110
309,040
532,080
431,945
n/a
n/a
167,037
2,096,970
2,587,417
489,710
n/a
73,570
69,500
60,000
69,500
75,000
84,500
33,340
89,500
80,000
89,500
93,340
310,500
100,000
89,500
1,004,960
802,500
3,101,930
3,389,917
184,600
221,520
115,730
125,278
163,615
125,278
77,260
133,020
78,890
n/a
n/a
41,759
620,095
646,855
–
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
620,095
646,855
65,380
66,638
12,270
10,758
10,500
9,017
8,480
15,751
1,310
n/a
n/a
3,614
97,940
105,778
–
n/a
22,192
–
–
–
10,240
–
–
–
–
–
–
–
5,630
–
38,062
–
136,002
105,778
585,968
859,497
367,557
486,076
519,641
486,076
245,381
516,117
277,516
n/a
n/a
162,025
1,996,063
2,509,791
–
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,996,063
2,509,791
585,968
859,497
367,557
486,076
519,641
486,076
245,381
516,117
277,516
n/a
n/a
–
1,996,063
2,347,766
–
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,996,063
2,347,766
Total
£
1,717,276
2,893,232
1,326,034
1,609,298
1,867,857
1,607,557
885,542
1,713,085
1,067,177
n/a
n/a
374,435
6,863,886
8,197,607
489,710
n/a
95,762
69,500
60,000
69,500
85,240
84,500
33,340
89,500
80,000
89,500
93,340
310,500
105,630
89,500
1,043,022
802,500
7,906,908
9,000,107
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 have 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 (£47,833). Travel and subsistence benefits
provided to NEDs have also been included on a grossed‑up basis as Tullow
meets the UK tax liability on behalf of the NEDs.
4. TIP cash figures have been calculated based on total base salary receivable
in FY17 taking into account all pay changes agreed and implemented for
Executive Directors in 2017. In addition Aidan Heavey’s bonus is based on
base pay (£737,995) receivable up to 31 October 2017.
5. These figures represent that part of the TIP award required to be deferred
into shares.
6. Aidan Heavey resigned as Chief Executive Officer with effect from
26 April 2017. Following this date he became a non‑executive Director and
related pay for this period to 31 December is shown in the non‑executive
Directors section above. Taxable benefits, pension and bonus are applicable
to his office of Chief Executive Officer and are included in the Executive
Directors section of the above table.
7. Ian Springett resigned as Chief Financial Officer with effect from
20 June 2017.
8. Les Wood became Chief Financial Officer with effect from 20 June 2017.
Figures shown are for the full year and include the following in respect
of the interim period acting as CFO from 5 January 2017 to 20 June 2017:
salary of £157,690, pension of £23,650 and taxable benefits of £660. A bonus
was of £56,755 was also paid in August in respect to the period before
appointment as Executive Director (this number is included as salary/fees).
9. Graham Martin resigned as an Executive Director effective 28 April 2016
10. Aidan Heavey became a non‑executive Director on 26 April 2017.
Remuneration for periods prior to this are shown in the Executive
Directors section.
11. Ann Grant retired on 26 April 2017.
12. Simon Thompson stepped down as Chairman on 26 April 2017.
13. Salary/fees for Jeremy Wilson include an additional payment of
£6,356 as a result of an administrative error, with the agreement
of Jeremy, the Company has taken steps to reclaim the monies overpaid.
14. Salary/fees for Ann Grant included an additional payment of £7,909 as a
result of an administrative error, with the agreement of Ann, the Company
has taken steps to reclaim the monies overpaid.
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91
2 REMUNERATION REPORT CONTINUED
Ian was unable to return to work for an indefinite period of
time. A claim was accepted on 1 August 2017 and cover
affirmed from this date. Ian has since received regular
payments under this insurance policy in line with his existing
service agreement with the Company. The Remuneration
Committee awarded Ian a TIP award over £245,381 in cash and
a deferred TIP share award to the same cash value for his
service to the Company and will treat his existing awards under
TIP and other incentive plans as being tantamount to ‘good
leaver’ status.
Details of variable pay earned in the year
Determination of 2018 TIP award based on performance to 31
December 2017 (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 2017 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 2017 financial year, the corporate scorecard KPI
performance was 39.7 per cent of the maximum and the
Committee awarded Executive Directors a total TIP award
equating to 158.8 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 2023). Details of the performance targets
which operated and performance against those targets are as
follows:
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.
Payments to past Directors
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.
As previously reported Mr Martin received his salary, benefits and
personal allowance in respect of his employment until
28 April 2016. As Mr Martin worked for part of the 2016 financial
year, the Committee determined that he would remain eligible
to receive the cash part of the Tullow Incentive Plan in respect
of the portion of the year worked; a cash bonus of £162,025 was
paid to Mr Martin on 25 February 2017.
Payments for loss of office
Aidan Heavey stepped down as CEO on 26 April 2017 and was
appointed as non‑executive Chairman for a transition period of
up to two years. Aidan continued to receive his CEO
remuneration including all benefits for a period of six months.
This will include an amount payable in February 2018 as the
equivalent to the Tullow Incentive Plan award Aidan would have
received for the six‑month period had he remained employed
as the CEO. This amount was determined to be appropriate by
the Committee in consideration of (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. With effect from the expiry of the six‑month period,
Aidan’s fee for the provision of services as non‑executive
Chairman will be £280,000 per annum in line with the reduced
Chairman’s fee in effect as at 1 January 2017.
Ian Springett went on extended medical leave on 4 January 2017
and on 20 June 2017 the Company announced that he had
resigned from the Board with immediate effect. Ian received full
pay, benefits and pension allowance for seven months to 31 July
2017. Under Ian’s service contract, Tullow maintained
insurance cover to provide income protection in the event that
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE Performance metric
Performance
Strategic Financing
Key targets relating
to ensuring sufficient
liquidity and executing
a long‑term strategic
solution to deleverage
and rebase the
balance sheet
Safe & Efficient
Business Operations
Quantitative targets
relating to Production,
Opex, Net G&A and
Capex and SSEA targets
focused on delivering
business activities
safely whilst minimising
environmental impacts
and delivering
sustainable benefits
Ensuring sufficient liquidity to deliver the business plan was achieved
by successfully refinancing our RBL at $2.5 billion and extending the
Rolling Corporate Facility by one year.
The Q1 Rights Issue and generation of free cash flow from our low cost,
producing assets have resulted in a significant reduction in our debt since the
end of 2016. As a result we were able to deleverage the balance sheet and
reduce our debt ratio to 2.6 debt:EBITDAX.
As part of the review of our Strategic Financing targets, the Board considered
our capital structure, scale of funding, timing and related costs before arriving
at a score of 9.5%.
Production
Production
mboepd
Payout
Trigger target
71.7
0%
Base target
77.1
50%
Stretch target
82.5
100%
2017
performance
87.3
100%
The above production numbers exclude the lost production covered by
business interruption insurance. Including the impact of insured barrels from
the Jubilee field, Group working interest production is 94,700 boepd.
Opex/boe
Opex/boe
$/boe
Payout
Trigger target
14.2
0%
Base target
13.3
50%
Stretch target
12.4
100%
The operating costs are net of insurance proceeds.
Net G&A
Net G&A
Net G&A ($)
Payout
Capex
Capex
Capex
Payout
Trigger target
123.1
0%
Base target
115
50%
Stretch target
107
100%
Trigger target
373
0%
Base target
348
50%
Stretch target
324
100%
2017
performance
11.1
100%
2017
performance
95
100%
2017
performance
225
100%
The capex numbers have been adjusted to remove Uganda. Decommissioning
capex is not included above and is $34 million (budget: $61 million).
SSEA
Tullow’s SSEA targets are focused on reducing process safety events; making
improvements to our asset integrity; occupational health and safety focused on
Lost Time Injury Frequency (LTIF) and malaria prevention; and sustainability,
including metrics such as environmental and social performance.
In 2017 there were no Tier 1 process safety incidents; process safety targets
were partially achieved for TEN and Jubilee; our LTIF rate rose to 0.37 as a
consequence of four Lost Time Injuries reported in the year (2016: nil). There
were no serious malaria cases reported, our ESIA obligations were met and
there were no significant environment regulatory non‑compliances. We met
most of our local content expenditure targets in Ghana, Kenya and Uganda.
In view of the above performance the Committee determined a 3.4%
achievement out of a maximum 5% allocation.
% of award
(% of salary
maximum)
10%
(40%)
Actual
9.5%
(38%)
12%
(48%)
10.4%
(41.6%)
www.tullowoil.com
93
2 % of award
(% of salary
maximum)
15%
(60%)
Actual
10.8%
(43.2%)
REMUNERATION REPORT CONTINUED
Details of variable pay earned in the year continued
Determination of 2018 TIP award based on performance to 31 December 2017 (audited) continued
Performance metric
Performance
Business Development
and Growth
West Africa Production
East Africa
developments
New Ventures portfolio
management
The Business Development and Growth targets reflect the portfolio and
long‑term growth strategy of the Company. They focus on value creation and
seeking opportunities.
KPI
West Africa
• Returning Jubilee to plateau
production levels
• Preparing Ghana for
exploration drilling
in 2018
• Enhancing the value
of the West African
non‑operated BU
East Africa
• Efficiently deliver Kenya
operations with a strong
focus on safety, environment
and local communities
• Progress Kenya
development to support
end 2018 FID
• Complete Total transaction
and progress Uganda
development to FID
New Ventures
• Access and portfolio
management
• Inventory progress
• Exploration outcome
Target
2017
5% 3.5%
5% 3.5%
5% 3.8%
Outcome
Ghana Government approval was
secured for Jubilee Full Field
Development Plan and drilling will
commence in early 2018. The
Government has also approved a
shuttle offtake solution that will
lead to an increase in production
and permission to execute a
long‑term TRP solution.
In the non‑operated Business
Unit, the growth plan for Gabon
roll‑out is under way and review
of near‑field exploration in
Equatorial Guinea and Côte
d’Ivoire has been completed.
Resources of 20 mmbbl and
Reserve additions of 8 mmbbls
have been booked since the
last audit in 2016.
Strong safety and environmental
performance has been maintained
with initiatives being prepared and
focus on community relations and
capacity building to support
local content.
Strategic direction changed to
value over volume and focus on
phased development. Joint
Development Agreement to
construct oil pipeline has been
signed with Government.
In Uganda our Partners, Total and
CNOOC, have signed the Sales and
Purchase agreement to farm‑down
our interest and the FID is still on
track for early 2018.
New licences in Côte d’Ivoire and
Peru were secured.
The exit of Madagascar and
Greenland was completed.
Progress was made on prospects
in Suriname.
All operations in Jamaica,
Uruguay, Zambia, Suriname and
Mauritania completed safely and
under budget.
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Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE % of award
(% of salary
maximum)
3%
(12%)
Actual
2%
(8%)
50%
(200%)
0%
(0%)
10%
(40%)
7%
(28%)
Performance metric
Performance
Organisation
Targets relating to Staff
Engagement; Diversity
and Inclusion; and
Ethics & Compliance
Relative TSR (Total
Shareholder Return)
Discretionary based
on: the full year’s
performance in relation
to unforeseen business
and operational
events, value creation,
management and
leadership, and
external commentary
A mini staff survey conducted in Q3 showed that actions taken as a result
of the feedback from the biennial engagement survey in 2016 were yielding
results, in particular, in communications and employee engagement as well
as addressing feedback in other areas.
A diversity & inclusion workshop was held with the new Executive Team to
endorse the forward plan of management and a new Executive Sub‑Group
was established to promote the D&I aims. Some positive progress has been
made on improving workforce diversity.
100% compliance was achieved when all employees completed the Code of
Ethical Conduct online course and our Code Certification process was achieved.
There were two breaches of compliance regarding the Company’s ExPo Standard.
Performance against a bespoke group of listed exploration and production
companies measured over three years to 31 December 2017 – 25% is payable
at median, increasing to 100% payable at upper quartile. We scored zero for our
performance in TSR because our share price continues to perform below the
median against our industry peer group over a three‑year period.
The following items were considered in the scoring of the
discretionary elements:
• The CEO and executive leadership team transition which was a major change
to Tullow’s leadership and was viewed to have been very well managed and
executed without business disruption. A short‑form staff survey in September
indicated positive feedback regarding the leadership changes and
improvement on leadership communications.
• The preparation for the ITLOS judgement, focusing on the key risks,
engagement plans and communications, was viewed as very well managed,
in particular, use of cross functional resourced teams to fully understand
the breadth of the issues and the focus on managing relationships in the
respective jurisdictions.
• The continued, relentless focus and drive on performance and capital
management and free cash flow generation (resulting in the achievement
of $0.5 billion FCF vs. a budget of $0.2 billion) was viewed as very positive.
• A significant effort was made in resolving legacy issues and managing
the portfolio during 2017. Positive results were achieved in Congo and
Netherlands exits and the resolution of a tax dispute in Equatorial Guinea.
• The need for improvements to SAP and the requisition to pay process in Ghana
reduced the discretionary score avocation as in this area performance fell short
of the performance expected.
Total
100%
(400%)
39.7%
(158.8%)
1. The TSR comparator group for the 2017 TIP award was as follows: Afren, Anadarko, Apache, 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 and Woodside Petroleum.
Further information on Tullow Group’s performance against the corporate scorecard is shown on pages 20 to 23 of the
Annual Report and Accounts.
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95
2 REMUNERATION REPORT CONTINUED
TIP awards granted in 2017 (audited)
The fourth set of TIP awards were granted to Executive Directors on 27 April 2017, based on the performance period ended
31 December 2016, as follows:
Executive
Aidan Heavey
Angus McCoss
Paul McDade
Les Wood
Number of TIP
shares awarded1
401,260
226,927
226,927
240,951
Face value of awards at
grant date
£859,497
£486,076
£486,076
£516,117
Normal vesting dates
(end of exercise window)
Pre‑grant
performance period
26.04.2022 to
26.04.2027
01.01.2016 to 31.12.2016
(TSR 01.01.2014 to 31.12.2016)
1. Awards made in the form of nil‑cost options, the face value of the awards is equal to the TIP cash bonus awarded for the year ended 31 December
2016 and the number of shares awarded is calculated using the price on the day preceding the grant date which on 26 April 2017 was 214.2p.
UK SIP shares awarded in 2017 (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
Les Wood
Shares held
01.01.17
7,756
13,697
5,937
1,061
Partnership
shares acquired
in year
998
997
997
299
Matching
shares awarded
in year
998
997
997
299
Total shares held
31.12.17
9,752
15,691
7,931
1,659
SIP shares that
became
unrestricted
in year
254
254
262
–
Total unrestricted
shares held at
31.12.17 1
3,052
8,991
1,231
–
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.
CEO – total pay versus TSR
For 2017 the CEO total pay is based on an annualised summation of base pay, pension, benefits and TIP cash bonus and share
award equivalent value for Paul McDade.
CEO – TOTAL PAY VERSUS TSR
TOTAL SHAREHOLDER RETURN
TOTAL SHAREHOLDER RETURN
250
200
150
100
50
0
Total pay £000
5,000
500
300
4,000
3,000
2,000
1,000
250
400
200
300
150
200
100
100
50
0
0
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2009
2008
2010
2009
2010
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
TSR
CEO total pay
Tullow
Tullow
FTSE 100
FTSE 100
FTSE 250
FTSE 250
96
Tullow Oil plc 2017 Annual Report and Accounts
94
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE 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 re‑invested dividends over a nine‑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 nine financial years are shown in the table below. For 2017, total remuneration figures are shown
for Aidan Heavey based on the period he held the office of Chief Executive Officer and for the transition period up to 31 October 2017
and for Paul McDade from 27 April 2017 when he commenced in his office of Chief Executive. The total remuneration figure includes
the annual bonus based on that year’s performance (2008 to 2017), PSP awards based on three‑year performance periods ending
in the relevant year (2009 to 2012) and the value of TIP awards based on the performance period ending in the relevant year
(2013 to 2017). 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.
Year ending in
2009
2017
Aidan Heavey
2012
Total remuneration £4,516,580 £3,558,698 £4,688,541 £2,623,116 £2,750,273 £2,378,316 £2,835,709 £2,893,232 £1,717,276
–
70%
Annual bonus
–
23%
PSP vesting
86%
100%
58%
100%
80%
100%
–
–
–
–
–
–
–
–
2014
2015
2016
2011
2010
2013
TIP
–
–
–
–
30%
23%
38%
39%
40%
Paul McDade
Total remuneration
Annual bonus
PSP vesting
TIP
2009
n/a
n/a
n/a
–
2010
n/a
n/a
n/a
–
2011
n/a
n/a
n/a
–
Year ending in
2013
n/a
n/a
–
n/a
2012
n/a
n/a
n/a
–
2014
n/a
n/a
–
n/a
2015
n/a
n/a
–
n/a
2016
2017
n/a £1,416,281
–
n/a
–
n/a
–
40%
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 2016 and 31 December 2017, compared to that of
the average for all employees of the Group. This table reflects the change in Chief Executive Officer in 2017. The negative percentage
change reflects the fact that the current CEO receives a lower salary than the former CEO.
Chief Executive
Average employees
Salary
‑18%
6.5%
% change from 2016 to 2017
Benefits
‑84%
0%
Bonus
‑33%
7.8%
www.tullowoil.com
97
2 REMUNERATION REPORT CONTINUED
Shareholder voting at the AGM
At last year’s AGM on 26 April 2017 the remuneration‑related resolution received the following votes from shareholders:
2016 Annual Statement & Annual Report on Remuneration
For
Against
Total votes cast (for and against)
Votes withheld
For
Against
Total votes cast (for and against)
Votes withheld
Total number of votes
558,111,494
103,059,851
661,171,345
54,242
2017 Remuneration Policy Report
Total number of votes
582,011,448
79,143,373
661,154,821
73,467
% of votes cast
84.41
15.59
100
% of votes cast
88.03
11.97
100
Summary of past TIP awards
Details of nil‑cost options granted to Executive Directors under the TIP:
Director
Aidan Heavey
Angus McCoss
Paul McDade
Ian Springett
Les Wood2
Award grant
date
19.02.14
18.02.15
11.02.16
27.04.17
Share price on
grant date
774p
400p
148p
214p
As at 01.01.17
102,992
152,772
565,423
19.02.14
18.02.15
11.02.16
27.04.17
19.02.14
18.02.15
11.02.16
27.04.17
19.02.14
18.02.15
11.02.16
27.04.17
18.02.15
11.02.16
27.04.17
774p
400p
148p
214p
774p
400p
148p
214p
774p
400p
148p
214p
400p
148p
214p
821,187
58,246
86,398
319,767
464,441
58,246
86,398
319,767
464,441
61,845
91,737
339,529
493,111
26,756
136,422
163,178
Granted
during year
–
–
–
401,260
401,260
–
–
–
226,927
226,927
–
–
–
226,927
226,927
–
–
–
240,951
240,951
–
–
101,249
101,249
Rights Issue
adjustment
17,840
26,462
97,944
10,088
14,966
55,390
10,088
14,966
55,390
10,712
15,890
58,814
4,634
23,631
As at 31.12.17
120,832
179,234
663,367
401,260
1,364,693
68,334
101,364
375,157
226,927
771,782
68,334
101,364
375,157
226,927
771,782
72,557
107,627
398,343
240,951
819,478
31,390
160,053
101,249
292,692
Earliest date
shares can be
acquired1
19.02.17
18.02.19
11.02.21
27.04.22
Latest date
shares can be
acquired
19.02.24
17.02.25
10.02.26
26.04.27
19.02.17
18.02.19
11.02.21
27.04.22
19.02.17
18.02.19
11.02.21
27.04.22
19.02.17
18.02.19
11.02.21
27.04.22
18.02.18
11.02.19
27.04.20
19.02.24
17.02.25
10.02.26
26.04.27
19.02.24
17.02.25
10.02.26
26.04.27
19.02.24
17.02.25
10.02.26
27.04.27
18.02.25
11.02.26
27.07.27
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 the 2015 award vests on 18.02.19 and 50 per cent vests
on 18.02.20.
2. Les Wood – TIP awards granted prior to appointment as an Executive Director have a three‑year vesting period. In addition to the TIP awards,
Les Wood has outstanding Employee Share Award Plan (ESAP) awards totalling 82,601.
98
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE 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
Award grant
date
15.05.08
18.03.09
17.03.10
Share price on
grant date
924.5p
778p
1,281p
01.09.08
18.03.09
17.03.10
791p
778p
1,281p
As at 01.01.17
80,277
98,355
13,972
192,604
68,873
104,438
14,836
188,147
Exercised
during year
94,182
–
–
94,182
80,803
–
–
80,803
Rights Issue
adjustment
13,905
17,037
2,420
33,362
11,930
18,091
2,569
32,590
As at 31.12.17
0
115,392
16,392
131,784
0
122,529
17,405
139,934
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
31.08.18
17.03.19
16.03.20
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
Paul McDade
Ian Springett
Award grant
date
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
As at 01.01.17
14,686
28,374
15,941
11,308
25,819
25,816
121,944
16,927
12,007
27,415
27,411
83,760
Exercised
during year
17,229
–
–
–
–
–
17,229
–
–
–
–
–
Rights Issue
adjustment
2,543
4,915
2,761
1,958
4,472
4,471
21,120
2,932
2,079
4,748
4,748
14,507
As at 31.12.17
0
33,289
18,702
13,266
30,291
30,287
125,835
19,859
14,086
32,163
32,159
98,267
Earliest date
shares can be
acquired
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
Latest date
shares can be
acquired
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
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.
Share price range
During 2017, the highest mid‑market price of the Company’s shares was 284.1p and the lowest was 145.6p. The year‑end price
was 206.6p.
www.tullowoil.com
99
2 REMUNERATION REPORT CONTINUED
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 2017 or during FY2017, are set out in
the table below:
of salary
%
under 2017
Remuneration
Policy
shareholding
guidelines 1
Ordinary shares held
31.12.16
31.12.17
TIP awards
PSP awards
DSBP awards
ESAP awards
SIP
Total
Unvested
Vested Unvested
Vested Unvested
Vested Unvested
Vested Restricted Unrestricted
31.12.17
324,703
520,738
14,462
–
2,930
4,795
7,000
12,000
274,702
305,801
Angus
McCoss
Paul
McDade2
Ian
Springett3
Les Wood
Non-executive Directors
Tutu Agyare
Mike Daly
Anne
Drinkwater
Aidan
Heavey
Steve
Lucas
Jeremy
Wilson
6,178,813
45,000
3,175
1,940
7,000
600
720
67,959
7,000,000
164
737,615
34,167
148
737,615
34,167
6
–
–
–
–
783,199
36,279
292,692
–
–
–
–
–
–
–
n/a
1,304,277
60,416
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
131,784
220,737
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
125,835
98,267
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
82,601
–
–
–
–
–
–
6,700
3,052
1,106,237
6,700
8,991
1,565,830
5,668
1,659
–
–
–
–
–
–
1,105
1,159,717
–
–
–
–
376,952
2,930
4,795
7,000
–
8,364,693
–
–
720
67,959
1. Calculated using share price of 206.6p 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 On 21 December 2017, Paul McDade exercised 94,182 PSP awards and 17,229 DSBP awards, the share price at exercise was 194.25p.
3 As at date of resignation from office of Chief Financial Officer on 20 June 2017.
On 5 January 2018 Angus McCoss, Paul McDade and Les Wood were each awarded 484 SIP shares, all of which are restricted.
Accounting for certain restricted SIP shares becoming unrestricted SIP shares in the period between 1 January 2018 and the date
of this report, Angus McCoss holds 7,184 restricted SIP shares and 3,052 unrestricted SIP shares (total 10,236), Paul McDade holds
7,184 restricted SIP shares and 8,991 unrestricted SIP shares (total 16,175) and Les Wood holds 2,143 restricted SIP shares and 0
unrestricted SIP shares (total 2,143).
There have been no other changes in the interests of any Director between 1 January 2018 and the date of this report.
Approval
This report was approved by the Board of Directors on 6 February 2018 and signed on its behalf by:
Tutu Agyare
Chairman of the Remuneration Committee
100
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE
OTHER STATUTORY INFORMATION
Results and dividends
The loss on ordinary activities after taxation of the Group for the
year ended 31 December 2017 was $188.5 million (2016: loss of
$597.3 million).
No dividends have been recommended by the Board in 2017
(2016: £nil).
Subsequent events
On 6 February 2018, Anne Drinkwater informed the Board
she has decided not to stand for re‑election at the 2018 AGM.
Her directorship will therefore cease with effect from the close
of the 2018 AGM, which is currently anticipated to take place
on 25 April 2018.
Share capital
As at 6 February 2018, the Company had an allotted and fully
paid up share capital of 1,387,515,818 ordinary shares each
with a nominal value of £0.10.
Substantial shareholdings
As at 6 February 2018, the Company had been notified in
accordance with the requirements of provision 5.1.2 of the
Financial Conduct Authority’s Disclosure Guidance and
Transparency Rules of the following significant holdings
in the Company’s ordinary share capital:
Shareholder
Standard Life Aberdeen plc
Prudential plc group of companies
Commonwealth Bank of Australia
Genesis Asset Managers, LLP
Majedie Asset Management Limited
IFG International Trust Company Ltd1
Number of
shares
128,721,895
69,271,752
36,836,077
54,857,056
29,209,276
38,960,366
% of issued
capital (as
at date of
notification)
9.30
5.01
4.03
5.99
3.20
5.98
• voting rights – voting at any general meeting may be
conducted 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;
1. Based on notification received 14 November 2006. IFG is now known
• return of capital – in the event of the liquidation of the
as First Names Trust Company.
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;
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
www.tullowoil.com
101
2 CORPORATE GOVERNANCE
OTHER STATUTORY INFORMATION CONTINUED
Shareholders’ rights continued
• 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 $2.4 billion (or up to $2.9 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, Crédit Agricole Corporate
and Investment Bank, Lloyds Bank plc, ING Bank N.V.,
DNB Bank ASA and The Standard Bank of South Africa
Limited and the lenders specified therein,
• the Company is obliged to notify the agent (who
notifies the lenders) upon the occurrence of a change
of control;
• if any lender so requires, it 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. So long as such lender
states its requirement to be repaid within 20 business
days of being notified by the agent (such period being the
“notice period”), the repayment amount will become due
and payable by no later than 10 business days after the
end of such notice period and, in respect of each letter of
credit issued under the agreement, full cash cover will
be required by no later than 10 business days after the
end of such notice period;
• under the $100 million senior secured revolving credit
facility agreement between, among others, the Company
and certain subsidiaries of the Company and International
Finance Corporation and the lenders specified therein,
• the Company is obliged to notify the agent (who
notifies the lenders) upon the occurrence of a change
of control;
• if any lender so requires, it 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. So long as such lender
states its requirement to be repaid within 20 business
days of being notified by the agent (such period being the
“notice period”), the repayment amount will become due
and payable by no later than 10 business days after the
end of such notice period; and
• under the $600 million 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,
• the Company is obliged to notify the agent (who
notifies the lenders) upon the occurrence of a change
of control;
• if any lender so requires, it 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. So long as such lender
states its requirement to be repaid within 20 business
days of being notified by the agent (such period being the
“notice period”), the repayment amount will become due
and payable within 10 business days after the end of
such notice period.
• 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:
102
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE • 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
• 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 40 and 41.
Details of Directors’ service agreements and letters of
appointment can be found on pages 88 and 89. 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.
www.tullowoil.com
103
2 OTHER STATUTORY INFORMATION CONTINUED
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.
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.
• 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 a
maximum of 91,517,442 ordinary shares. The authority lasts
until the earlier of the conclusion of the Annual General
Meeting of the Company in 2018 or 26 July 2018.
• 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.
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.
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.
104
Tullow Oil plc 2017 Annual Report and Accounts
CORPORATE GOVERNANCE 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 and town hall meetings.
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 36 and 37 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.
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.
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 70.
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
25 April 2018 at Tullow Oil plc’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
6 February 2018
Registered office:
9 Chiswick Park
566 Chiswick High Road
London W4 5XT
Company registered in England and Wales No. 3919249
www.tullowoil.com
105
2 HIGH-GRADED & RESET EXPLORATION PORTFOLIO
Exploration drilling operations, offshore Suriname.
106
Tullow Oil plc 2017 Annual Report and Accounts
3 FINANCIAL
STATEMENTS
Statement of Directors’ responsibilities
Independent auditor’s report for the
Group and Company 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
117
153
162
163
164
168
169
176
179
181
www.tullowoil.com
107
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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 the Group
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 judgments and accounting estimates that are
reasonable and prudent;
• state whether applicable UK Accounting Standards 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 position and performance, business model and
strategy.
By order of the Board
Paul McDade
Chief Executive Officer
Les Wood
Chief Financial Officer
6 February 2018
6 February 2018
108
114 Tullow Oil plc 2017 Annual Report and Accounts
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
INDEPENDENT AUDITOR’S REPORT FOR THE GROUP AND COMPANY 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 2017 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 Financial Reporting Standard 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.
We have audited the financial statements of Tullow Oil plc (the ‘Parent Company’) and its subsidiaries (together the ‘Group’)
which comprise:
• the Group income statement;
• the Group statement of comprehensive income and expense;
• the Group and Parent Company balance sheets;
• the Group and Parent Company statements of changes in equity;
• the Group cash flow statement;
• the Group and Parent Company statements of accounting policies;
• the related notes 1 to 31 to the Group financial statements; and
• the 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, including FRS 101 “Reduced
Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services
prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
109
3www.tullowoil.com INDEPENDENT AUDITOR’S REPORT FOR THE GROUP AND COMPANY FINANCIAL STATEMENTS
CONTINUED
Summary of our audit approach
Key audit matters
The key audit matters 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’); and
• provision for onerous service contracts.
Materiality
The materiality that we used for the Group in the current year was $50 million (2016: $44 million) which
represents approximately 2 per cent of net assets and approximately 4 per cent of Adjusted EBITDAX.
Scoping
Significant changes
in our approach
The Parent Company materiality that we used in the current year was $40 million (2016: $20 million)
which represents approximately 1 per cent of the Company’s net assets.
The Group comprises three reporting units and the corporate business unit, all of which were
included in our assessment of the risks of material misstatement. Full scope audits were performed
on those operations audited by the Group team and by the component teams in Ghana and Gabon.
Specified audit procedures were performed in all of the Group’s other locations. The materialities
applied to components ranged from $25 million to $40 million (2016: $20 million to $30 million).
There have been no significant changes to our approach to the audit, aside from our conclusion
that the going concern assumption was not a key audit matter for this year’s audit. Following the
completion of the Group’s refinancing process in respect of its Reserves Based Lending facility in
November 2017 we concluded that the going concern assumption was not a key audit matter for
the year ended 31 December 2017.
We confirm that we have nothing
material to report, add or draw attention
to in respect of these matters.
We confirm that we have nothing
material to report, add or draw attention
to in respect of these matters.
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the directors’ statement on page 34 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
and Company’s ability to continue to do so over a period of at least twelve months
from the date of approval of the financial statements.
We are required to state whether we have anything material to add or draw attention
to in relation to that statement required by Listing Rule 9.8.6R(3) and report if the
statement is materially inconsistent with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they
were consistent with the knowledge we obtained in the course of the audit, including
the knowledge obtained in the evaluation of the directors’ assessment of the Group’s
and the Company’s ability to continue as a going concern, we are required to state
whether we have anything material to add or draw attention to in relation to:
• the disclosures on pages 42 – 49 that describe the principal risks and explain
how they are being managed or mitigated;
• the directors’ confirmation on page 34 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; or
• the directors’ explanation on pages 48 – 49 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.
We are also required to report whether the directors’ statement relating to the
prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent
with our knowledge obtained in the audit.
110
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
In the prior year, the going concern assumption was also included as a key audit matter. Following the completion of the Group’s
refinancing process in respect of its Reserves Based Lending facility in November 2017 we concluded that the going concern
assumption was not a key audit matter for the year ended 31 December 2017.
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.
Carrying value of exploration and evaluation (‘E&E’) assets
Key audit matter
description
The carrying value of E&E assets as at 31 December 2017 is $1,933.4 million and the Group has
written off E&E expenditure totalling $143.4 million in the year then ended.
The assessment of the carrying value of E&E assets requires management to exercise judgement
as described in the ‘critical accounting judgements’ section of the Annual Report and Accounts
on page 126. 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.
We have pinpointed the key audit matter in this area to those E&E assets in the Group’s portfolio
which are at higher risk of future impairment in both Kenya and Ghana.
The costs capitalised in respect of Kenya constitute $1,058.2 million of the Group’s E&E assets.
Please refer to note 10 on page 135 of the Annual Report and Accounts and the Audit Committee
Report on page 67 for further information.
How the scope of our
audit responded to
the key audit matter
We evaluated management’s assessment of E&E assets held on the balance sheet at
31 December 2017 with reference to the criteria of IFRS 6 Exploration for and Evaluation
of Mineral Resources and the Group’s accounting policy (see page 123).
Our work to assess the assets at higher risk of future impairment included, but was not limited
to, the following audit procedures:
• participating in meetings with operational and finance staff in Kenya, Ghana and London to
discuss Exploration and Appraisal activities;
• challenging management to provide confirmations of budget allocations, confirmations of the
licence phase and ongoing appraisal activity; and
• challenging management to provide evidence in respect of the continuance or otherwise of
appraisal activity, licence validity, the status of applications for licence extensions and
management’s expectations of approval, their consideration of the likelihood of recovery of the
balance sheet value and conclusion on commerciality where relevant.
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.
Based on the audit evidence gathered, we are satisfied that the judgements made by management
are reasonable.
111
3www.tullowoil.com INDEPENDENT AUDITOR’S REPORT FOR THE GROUP AND COMPANY FINANCIAL STATEMENTS
CONTINUED
Carrying value of Property, Plant and Equipment (‘PP&E’)
Key audit matter
description
In 2017 Tullow recognised an impairment charge of $539.1 million against the value of its
PP&E assets, of which $535.5 million relates to the TEN asset. Please refer to note 11 on
page 136 and the Audit Committee Report on page 67 for further details.
As described in the ‘key sources of estimation uncertainty’ section of the Annual Report
and Accounts on page 126, the assessment of the carrying value of PP&E assets requires
management to compare it against the recoverable amount of the asset. 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.
We have identified the TEN asset in Ghana as the Group’s only field whose impairment
assessment represents a key audit matter as a result of its material size and sensitivity to
changes in underlying assumptions. Given the asset’s importance to the Group in terms of future
production and the judgemental nature of the determination of its recoverable amount, we also
considered there to be a fraud risk that the assumptions applied to the valuation are
inappropriate.
How the scope of our
audit responded to the
key audit matter
We examined management’s assessment of impairment indicators, which concluded that continued
volatility in the oil price during the year represented an indicator of impairment for the Group’s oil
and gas assets.
The assumptions that underpin management’s calculation of the recoverable amounts of the
TEN asset are inherently judgemental. Our audit work therefore assessed the reasonableness
of management’s key assumptions when calculating its recoverable amount.
Specifically our work included, but was not limited to, the following procedures:
• benchmarking and analysis of oil price assumptions against forward curves and other
market data;
• agreement of hydrocarbon production profiles and proven and probable reserves to third-party
reserve reports;
• verification of estimated future costs by agreement to approved budgets and assessment of
their appropriateness with reference to field production profiles, with involvement from Deloitte
petroleum engineering experts;
• recalculation and benchmarking of discount rates applied, with involvement from Deloitte
industry valuation specialists; and
• consideration of evidence of management bias in the assumptions selected and the application
of professional scepticism to address the risk of fraud.
Key observations
• The assumptions made by management when determining the TEN asset’s recoverable
amount fall within a reasonable range, although we note that the discount rate applied is
towards the lower end of this range.
• Overall, 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 137.
112
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts Provision for onerous service contracts
Key audit matter
description
In 2016 the Group reduced its future work programmes in response to lower commodity prices
and certain legal restrictions, and in consequence a number of service contracts became onerous.
Judgement is required to estimate the appropriate level of provision required for the onerous
element of the contracts and the ultimate outcome of the contract claims in line with IAS 37
Provisions, Contingent Liabilities and Contingent Assets. The assumptions made include the
estimated usage under the contract, the likelihood of cash outflows and the valuation of any
liability arising, including consideration of any contract claims and disputes.
Contract provisions are included in the Group’s disclosure of key sources of estimation
uncertainty on page 127. Please refer the Audit Committee Report on page 67 of the Annual
Report and Accounts. These provisions are included within $135 million of ‘other provisions’ in
note 22 on page 145, and disclosed within ‘other contingent liabilities’ in note 27 on page 150.
How the scope of our
audit responded to the
key audit matter
We performed the following procedures to gain assurance that all claims have been identified and
to challenge whether, in line with IAS 37, management has appropriately recognised a provision
where the likelihood of a payment by the Group is probable, or a contingent liability where it is
possible that the Group will make a payment:
• obtained an update on the latest claims from in-house legal counsel and reviewed the
documentation and correspondence with counterparties and external legal counsel as applicable
for each potentially material claim;
• challenged management to demonstrate compliance with the requirements of IAS 37 and assessed
this on a case by case basis; and
• performed corroborative enquiries of senior management regarding any additional claims.
Key observations
We are satisfied that the estimates made by management are reasonable based on the audit
evidence gathered.
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:
Materiality
Group: $50 million (2016: $44 million)
Parent Company: $40 million (2016: $20 million)
Basis for determining
materiality
Rationale for the
benchmark applied
Group: Approximately 2 per cent of Group net assets, consistent with the prior year approach.
Parent Company: Approximately 1 per cent of the Parent Company’s net assets.
Group: 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. We have determined that using a balance sheet metric, rather
than a profit-based metric, will provide a more stable base for materiality. However, for reference
we note that materiality equates to approximately 4 per cent of the alternative performance
measure Adjusted EBITDAX. Management has presented a reconciliation of Adjusted EBITDAX
to loss from continuing activities on page 35 of the Annual Report and Accounts.
Parent Company: We have determined materiality based on the net asset position of the
Company as its principal activity is to hold investments in subsidiaries and external debt.
113
3www.tullowoil.com INDEPENDENT AUDITOR’S REPORT FOR THE GROUP AND COMPANY FINANCIAL STATEMENTS
CONTINUED
Net assets
$2,716 million
Net assets
Group materiality
threshold $2.5 million97+3
Group materiality $50 million
Component materiality range
$25 million to $40 million
Audit Committee reporting
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $2.5 million
(2016: $2.2 million) in respect of both the Group and Parent Company, 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.
An overview of the scope of our audit
The Group comprises three reporting units and the corporate business unit, all of which were included in our assessment
of the risks of material misstatement. Full scope audits were performed on those operations audited by the Group team and
by the component teams in Ghana and Gabon. Specified audit procedures were performed at the Group’s other locations.
The materialities applied to components ranged from $25 million to $40 million (2016: $20 million to $30 million).
The Group team took direct responsibility for the audit work in certain locations including the UK, Kenya and Uganda as well as
the consolidation process. The Group team planned and oversaw the work performed by component auditors; the level of direct
involvement varied by location and included, 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 and senior members of his Group audit team visited Ghana and Gabon to direct and review
the audit work performed by the component auditors.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
We have nothing to
report in respect
of these matters.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s position and performance, business
model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting – the section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
directors’ statement required under the Listing Rules relating to the company’s compliance with the
UK Corporate Governance Code containing provisions specified for review by the auditor in accordance
with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the
UK Corporate Governance Code.
114
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
Responsibilities of directors
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, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have
no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
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.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• 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 the light of the knowledge and understanding of the Group and of the Parent Company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
115
3www.tullowoil.com INDEPENDENT AUDITOR’S REPORT FOR THE GROUP FINANCIAL STATEMENTS CONTINUED
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.
We have nothing to report in respect
of these matters.
Other matters
Auditor tenure
Following the recommendation of the audit committee, we were appointed by the directors on 1 August 2002 to audit the
financial statements for the year ended 31 December 2002 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 16 years, covering the years ended 31 December 2002
to 31 December 2017.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance
with ISAs (UK).
Dean Cook MA FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
6 February 2018
116
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts GROUP INCOME STATEMENT
GROUP INCOME STATEMENT
YEAR ENDED 31 DECEMBER 2017
YEAR ENDED 31 DECEMBER 2017
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 profit/(loss)
(Loss)/gain 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
2017
$m
2016
$m
2
6
4
4
4
9
10
11
22
20
5
5
7
25
8
1,722.5
162.1
(1,069.3)
1,269.9
90.1
(813.1)
815.3
(95.3)
(14.5)
(1.6)
–
(143.4)
(539.1)
1.0
22.4
(11.8)
42.0
(351.7)
546.9
(116.4)
(12.3)
(3.4)
(164.0)
(723.0)
(167.6)
(114.9)
(754.7)
18.2
26.4
(198.2)
(299.1)
110.6
(908.3)
311.0
(188.5)
(597.3)
(189.5)
1.0
(599.9)
2.6
(188.5)
(597.3)
¢
(14.7)
(14.7)
¢
(55.8)
(55.8)
Comparative basic and diluted loss per ordinary share from continuing activities have been re-presented as a result of the Rights Issue (note 8).
GROUP STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
YEAR ENDED 31 DECEMBER 2017
Loss for the year
Items that may be reclassified to the income statement in subsequent periods
Cash flow hedges
Gain/(loss) arising in the year
Reclassification adjustments for items included in loss on realisation
Exchange differences on translation of foreign operations
Other comprehensive loss
Tax relating to components of other comprehensive loss
Net other comprehensive loss for the year
Total comprehensive expense for the year
Attributable to:
Owners of the Company
Non-controlling interest
116 Tullow Oil plc 2017 Annual Report and Accounts
Notes
2017
$m
2016
$m
(188.5)
(597.3)
20
20
20
6.7
(161.8)
9.0
(146.1)
24.3
(121.8)
(135.3)
(415.2)
17.1
(533.4)
108.8
(424.6)
(310.3)
(1,021.9)
(311.3)
1.0
(1,024.5)
2.6
(310.3)
(1,021.9)
117
3www.tullowoil.com
GROUP BALANCE SHEET
GROUP BALANCE SHEET
AS AT 31 DECEMBER 2017
AS AT 31 DECEMBER 2017
ASSETS
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
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 6 February 2018.
Paul McDade
Chief Executive Officer
Les Wood
Chief Financial Officer
Notes
2017
$m
2016
$m
10
11
12
13
20
23
14
15
13
7
20
16
17
18
22
19
20
18
19
22
23
20
24
24
20
25
1,933.4
5,254.7
1.0
789.8
0.8
724.5
8,704.2
168.0
171.4
768.3
57.7
1.8
284.0
873.1
2,324.3
11,028.5
(1,025.6)
(230.8)
–
(45.0)
(53.1)
(1,354.5)
(1,422.6)
(3,606.4)
(801.6)
(1,101.2)
(25.8)
(6,957.6)
(8,312.1)
2,716.4
208.2
1,326.8
48.4
(223.2)
(2.6)
740.9
607.5
2,706.0
10.4
2,716.4
2,025.8
5,362.9
1.0
175.7
15.8
758.9
8,340.1
155.3
118.4
838.9
138.3
91.7
281.9
837.1
2,461.6
10,801.7
(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
118
www.tullowoil.com 117
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
GROUP STATEMENT OF CHANGES IN EQUITY
GROUP STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 DECEMBER 2017
YEAR ENDED 31 DECEMBER 2017
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
–
–
–
(249.3)
–
–
569.9
–
(441.7)
740.9
–
–
1,336.4 3,154.9
(599.9)
(441.7)
(599.9)
–
19.8 3,174.7
(597.3)
2.6
(441.7)
–
Share
capital
$m
Share
premium
$m
147.2
–
–
609.8
–
–
–
–
–
–
0.3
–
9.5
–
–
–
–
17.1
48.4
–
–
–
–
–
–
–
–
147.5
–
–
–
619.3
–
–
–
48.4
–
–
–
(232.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9.4)
17.1
48.4
9.8
(9.4)
50.9
50.9
–
–
–
128.2
–
(130.8)
740.9
–
–
778.0 2,230.1
(189.5)
(189.5)
(130.8)
–
–
–
60.0
693.8
0.7
–
13.7
–
–
–
–
–
–
–
–
–
–
–
9.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.0
753.8
–
(15.2)
14.4
(15.2)
34.2
34.2
–
–
–
–
–
17.1
48.4
9.8
(9.4)
50.9
(10.0)
(10.0)
12.4 2,242.5
(188.5)
(130.8)
-
1.0
–
–
–
–
–
–
9.0
753.8
14.4
(15.2)
34.2
–
–
(3.0)
(3.0)
Notes
20
24
26
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 25
At 1 January 2017
Loss for the year
Hedges, net of tax
Currency translation
adjustments
Issue of shares –
Rights Issue
Issue of employee
share options
Vesting of PSP shares
Share-based payment
charges
Distribution to non-
controlling interests
25
26
24
20
24
At 31 December 2017
208.2 1,326.8
48.4
(223.2)
(2.6)
740.9
607.5 2,706.0
10.4 2,716.4
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 26).
4. Non-controlling interest is described further in note 25.
118 Tullow Oil plc 2017 Annual Report and Accounts
119
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GROUP CASH FLOW STATEMENT
GROUP CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 2017
YEAR ENDED 31 DECEMBER 2017
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
Decommissioning expenditure
Share-based payment charge
Loss/(gain) on hedging instruments
Finance revenue
Finance costs
Operating cash flow before working capital movements
Decrease/(increase) in trade and other receivables
Increase in inventories
Decrease in trade payables
Cash generated from operating activities
Income taxes received/(paid)
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 (used in)/provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange gain/(loss)
Notes
2017
$m
2016
$m
(299.1)
(908.3)
11
9
10
11
22
22
22
26
20
5
5
9
31
31
31
31
31
25
16
592.2
1.6
–
143.4
541.1
(1.0)
–
(25.7)
33.9
11.8
(42.0)
351.7
1,307.9
122.0
(20.8)
(251.4)
1,157.7
65.2
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)
1,222.9
512.5
8.0
(189.7)
(117.8)
3.1
62.8
(275.2)
(756.0)
1.2
(296.4)
(967.2)
768.1
(56.4)
(1,613.6)
305.0
–
(62.6)
(265.4)
(3.0)
9.9
(31.7)
(769.1)
1,187.5
300.0
(3.3)
(284.0)
(10.0)
(927.9)
399.3
(1.4)
281.9
3.5
(55.4)
355.7
(18.3)
Cash and cash equivalents at end of year
16
284.0
281.9
120
www.tullowoil.com 119
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
ACCOUNTING POLICIES
ACCOUNTING POLICIES
YEAR ENDED 31 DECEMBER 2017
YEAR ENDED 31 DECEMBER 2017
(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
The Group will adopt IFRS 9 Financial Instruments for
the year commencing 1 January 2018. IFRS 9 addresses the
classification, measurement and recognition of financial
assets and financial liabilities, introduces a new impairment
model for financial assets, as well as new rules for hedge
accounting. It replaces the old standard of IAS 39 in its
entirety.
The classification and measurement of financial assets is
now based on the entity’s business model for managing the
financial asset, and the contractual cash flow characteristics
of the financial asset.
The classification and measurement of financial liabilities is
materially consistent with that required by IAS 39 with the
exception of the treatment of modification or exchange of
financial liabilities which do not result in de-recognition. The
Group has identified that retrospective application of IFRS 9
will increase the carrying value of the Reserves Based
Lending credit facility by $144 million, as a retrospective
modification loss as a result of the November 2017
refinancing of the facility. This will reduce opening retained
earnings in 2018, as well as lowering the finance costs
recognised over the life of the facility compared to the
treatment under IAS 39. No other material impact as a result
of IFRS 9’s classification and measurement requirements has
been identified.
The new impairment model requires the recognition of
‘expected credit losses’, in contrast to the requirement to
recognise ‘incurred credit losses’ under IAS 39.
The Group has undertaken an assessment of the classification
and measurement requirements, as well as the new
impairment model, and does not expect a significant impact
on the financial statements.
The new hedge accounting rules will align the hedge
accounting treatments more closely with the Group risk
management strategy, and address previous inconsistencies
and weakness in the hedge accounting model in IAS 39. The
Group plans to adopt the hedge accounting requirements of
IFRS 9.
The Group has identified a change in the treatment of the ‘cost
of hedging’ of options upon adoption, specifically with respect
to the fair value movement of time value.
The fair value movement of time value, to the extent which it
relates to the hedged item, will be presented in a separate
component in the statement of comprehensive income and
expenses. This will have the effect of reducing the amount
presented in the income statement under gain/loss on
hedging instruments, with the cost of hedging being reflected
within sales revenue on maturity of the hedge.
This requirement will be applied retrospectively on adoption of
IFRS 9.
The new standard will also expand the Group’s disclosure
requirements on financial instruments, and in particular the
impact of hedge accounting in its financial statements.
Extended disclosures in the initial period of adoption will also
be required.
IFRS 15
Revenue from Contracts with Customers
The adoption of IFRS 15 Revenue from Contracts with
Customers, which the Group will adopt for the year
commencing 1 January 2018, will impact the disclosures of
revenue arrangements. Tullow has completed its detailed
assessment of the implications of adopting the standard, and
has concluded that it will not have a material quantitative
impact on the financial results of the Group. As such, no
material financial impact is expected on transition. However,
Tullow will include increased qualitative disclosures regarding
the terms of the Group’s sales arrangements, including the
basis for determining pricing, significant payment terms, and
elements of variable consideration (if any).
IFRS 16
Leases
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 over a low value
threshold and with terms longer than one year. The lease
expense recognition pattern for lessees will generally be
accelerated. Additional lease liabilities and right of use assets
are expected to be recorded. Where leases are contracted by
Tullow as operator of a Joint Venture these lease liabilities are
expected to be recorded on a gross basis, along with
additional Joint Venture receivables to represent Joint
Venture partner contributions expected to meet the lease
obligations. The cash flow statement will be affected as
payments for the principal portion of the lease liability will be
presented within financing activities. Tullow is in the process
of identifying all lease agreements that exist across the
Group. Tullow has yet to complete its full assessment of the
expected financial impact of transition to IFRS 16.
(c) Changes in accounting policy
The Group’s accounting policies are consistent with the
prior year.
120 Tullow Oil plc 2016 Annual Report and Accounts
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ACCOUNTING POLICIES CONTINUED
YEAR ENDED 31 DECEMBER 2017
(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.
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.
(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.
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FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
ACCOUNTING POLICIES CONTINUED
YEAR ENDED 31 DECEMBER 2017
(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) 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.
(l) 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.
(m) 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.
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 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 a 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.
122 Tullow Oil plc 2017 Annual Report and Accounts
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ACCOUNTING POLICIES CONTINUED
YEAR ENDED 31 DECEMBER 2017
(n) 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 at a risk-free discount rate,
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.
(o) 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.
(p) 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.
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.
(q) Share issue expenses and share premium account
Costs of share issues are written off against the premium
arising on the issues of share capital.
(r) 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.
(s) Pensions
Contributions to the Group’s defined contribution pension
schemes are charged to operating profit on an accruals basis.
(t) 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.
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.
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.
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.
124
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FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
ACCOUNTING POLICIES CONTINUED
YEAR ENDED 31 DECEMBER 2017
(u) 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.
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.
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.
(v) 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.
(w) 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
(x) 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.
(y) 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.
(z) 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.
(aa) 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.
(ab) Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into.
124 Tullow Oil plc 2017 Annual Report and Accounts
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ACCOUNTING POLICIES CONTINUED
YEAR ENDED 31 DECEMBER 2017
(ac) 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.
(ad) 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.
(ae) 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.
(af) 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 (ag),
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 (note 21):
The Group has a contract with a supplier for the lease of the
TEN field (Ghana) FPSO. Management was required to
exercise judgement to determine when the FPSO should be
recognised as a finance lease in accordance with IAS 17, what
discount rate to apply to future minimum lease payments and
the expected length of the contract. The finance lease was
recognised as of 1 August 2017 on the issue of the Certificate
of Offshore Completion for the FPSO. Management were not
able to identify a rate implicit in the lease contract as such
has used its incremental cost of borrowing to discount future
minimum lease payments. Finally given the number of
potential options for the length of the contract management
has selected the most economically efficient outcome.
• Recognition of assets held for sale (note 17):
The Group signed a sales and purchase agreement for farm-
down of a portion of its interest in Uganda on 9 January 2017.
Management has exercised judgement in determining the
present value of the consideration expected from the sale, and
that this disposal met the requirements of IFRS 5 and that the
associated assets and liabilities should be retained as held for
sale. The critical judgement in determining that the assets
were held for sale was the probability of completion within
twelve months. Management continue to conclude that the
sale is highly probable within twelve months.
• Carrying value of intangible exploration and evaluation
assets (note 10):
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 judgement.
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; the
assessment of whether sufficient data exists to indicate that,
although a development in the specific area is likely to
proceed, the carrying amount of the exploration and
evaluation asset is unlikely to be recovered in full from
successful development or by sale, and the success of a well
result or geological or geophysical survey.
(ag) 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 property, plant and equipment
(note 11):
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 of impairments or impairment
reversals are present and an impairment or impairment
reversal 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, mid-term price assumptions for three years
after this and the long-term inflated corporate economic
assumption 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 11):
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.
126
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FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
ACCOUNTING POLICIES CONTINUED
YEAR ENDED 31 DECEMBER 2017
(ag) 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:
Refer to page 34.
• Decommissioning costs (note 22):
There is uncertainty around the cost of decommissioning as
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 22):
Due to the historical reduction in original planned future
work programmes the Group identified a number of onerous
service contracts in prior years. Management has estimated
the value of any future economic outflows associated with
these contracts.
126 Tullow Oil plc 2017 Annual Report and Accounts
127
3www.tullowoil.com NOTES TO GROUP FINANCIAL STATEMENTS
NOTES TO GROUP FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 2017
YEAR ENDED 31 DECEMBER 2017
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 2017 and 31 December 2016.
2017
Sales revenue by origin
Other operating income – lost production
insurance proceeds
Segment result
Loss on disposal
Unallocated corporate expenses
Operating profit
Loss 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
1,722.5
–
–
–
–
–
–
1,722.5
162.1
162.1
86.9
(2.2)
(133.9)
183.0
133.8
(1.6)
(109.8)
22.4
(11.8)
42.0
(351.7)
(299.1)
110.6
(188.5)
7,857.2
2,585.2
306.0
280.1
11,028.5
(4,295.6)
(169.2)
(97.1)
(3,750.2)
(8,312.1)
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
11
10
11
11
10
43.1
5.5
(577.1)
(539.1)
(6.9)
1.1
257.5
(0.5)
–
(2.3)
0.3
56.0
–
–
(134.2)
5.6
–
(14.6)
–
–
50.1
319.0
(592.2)
(539.1)
(143.4)
Capital expenditure on property, plant, and equipment excludes the addition of the TEN FPSO right of use asset of
$837.6 million.
All sales are to external customers. Included in revenue arising from West Africa are revenues of approximately $357.9 million,
$316.3 million and $287.7 million relating to the Group’s customers who each contribute more than 10% of total sales revenue
(2016: $213.0 million and $92.7 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.
128
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FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 1. Segmental reporting continued
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
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
Total revenue / non-current assets
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)
11
10
11
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)
Sales revenue
2017
$m
Sales revenue
2016
$m
Non-current
assets
2017
$m
Non-current
assets
2016
$m
8.8
42.3
92.2
251.8
1,196.1
13.8
29.4
88.1
–
1,722.5
–
–
–
–
–
–
–
1,722.5
22.8
61.3
141.4
241.2
666.6
23.9
31.5
81.2
–
1,269.9
–
–
–
–
–
–
–
1,269.9
–
74.5
134.7
161.9
5,675.1
–
–
–
–
6,046.2
1,064.8
574.4
1,639.2
13.5
194.6
208.1
85.4
7,978.9
–
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
7,565.4
129
Non-current assets excludes derivative financial instruments and deferred tax assets.
128 Tullow Oil plc 2017 Annual Report and Accounts
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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
Total revenue
Finance revenue has been presented as part of net financing costs (refer to note 5).
Notes
2017
$m
2016
$m
20
6
1,592.6
110.0
1,702.6
19.9
1,722.5
162.1
886.2
363.0
1,249.2
20.7
1,269.9
90.1
1,884.6
1,360.0
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
2017
Number
2016
Number
563
609
628
710
1,172
1,338
2017
$m
183.5
6.9
14.8
2016
$m
203.3
7.5
16.6
205.2
227.4
The decrease in staff costs is due to decreased employee numbers as a result of continued cost reduction initiatives.
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 $48.0 million (2016: $59.8 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.
130
www.tullowoil.com 129
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 4. Other costs
Operating loss is stated after charging/(deducting):
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 restructuring
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
Corporate finance services
Other services
Total non-audit services
Total
Notes
2017
$m
2016
$m
11
26
26
11
386.2
62.5
574.3
(2.3)
1.1
47.5
1,069.3
32.8
17.9
1.6
43.0
95.3
14.5
0.3
1.6
1.9
0.3
1.1
0.1
1.5
3.4
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
0.3
1.8
2.1
0.4
–
0.2
0.6
2.7
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.
Corporate finance services included services in relation to the Rights Issue. 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 1.3:1.
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 67 to 72. No services were provided pursuant to contingent fee arrangements.
Note 5. Net financing 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
Interest income on amounts due from joint venture partners for finance leases
Other finance revenue
Total finance revenue
Net financing costs
Notes
10,11
22
2017
$m
290.7
46.1
336.8
(66.5)
270.3
2.8
1.8
57.1
19.7
351.7
(21.0)
(21.0)
(42.0)
309.7
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 7.5% (2016: 6.5%) to cumulative expenditure on such assets.
130 Tullow Oil plc 2017 Annual Report and Accounts
2016
$m
304.7
1.8
306.5
(138.8)
167.7
5.4
–
–
25.1
198.2
–
(26.4)
(26.4)
171.8
131
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Note 6. Insurance proceeds
During 2017 the Group continued to issue insurance claims in respect of the Jubilee Turret Remediation Project. Insurance
proceeds of $220.9 million were recorded in the year ended 31 December 2017 (2016: $145.0 million). Proceeds related to lost
production under the Business Interruption insurance policy of $162.1 million (2016 $90.1 million) 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 $50.9 million
(2016: $31.8 million) 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 $7.9 million (2016: $23.1 million) were
recorded within additions to property, plant and equipment (see note 11).
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
Notes
2017
$m
30.1
6.2
36.3
(2.1)
2016
$m
67.3
(18.5)
48.8
(1.1)
34.2
47.7
(8.7)
(114.6)
9.4
(369.8)
(123.3)
(21.5)
(360.4)
1.7
23
(144.8)
(358.7)
(110.6)
(311.0)
132
www.tullowoil.com 131
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
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 tax credit shown above and the amount calculated by
applying the standard rate of UK corporation tax applicable to UK profits of 19% (2016: 20%) to the loss before tax is as follows:
Group loss on ordinary activities before tax
Tax on Group loss on ordinary activities at the standard UK corporation
tax rate of 19% (2016: 20%)
Effects of:
Non-deductible exploration expenditure
Other non-deductible expenses
Derecognition of deferred tax previously recognised
Recognition of deferred tax previously unrecognised
Impairment of goodwill
Utilisation of tax losses not previously recognised
Net losses not recognised
Petroleum revenue tax (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
Tax incentives for investment
Other income not subject to corporation tax
2017
$m
2016
$m
(299.1)
(908.3)
(56.8)
(181.7)
21.6
12.6
–
(21.5)
–
(0.3)
18.4
–
1.9
12.6
13.1
(88.0)
(15.4)
(2.8)
(6.0)
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)
–
Group total tax credit for the year
(110.6)
(311.0)
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, such as Ghana (35%), Gabon (55%), and Equatorial Guinea (35%). 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 $3,642.0 million (2016: $2,844.0 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.
The Group has recognised deferred tax assets of $530.0 million (2016: $535.3 million) in relation to tax losses only to the extent
of anticipated future taxable income or gains in relevant jurisdictions.
No deferred tax liability is recognised on temporary differences of $7.9 million (2016: $8.2 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 2017 $24.3 million (2016: $108.8 million) of tax has been recognised through other comprehensive income of which
$24.9 million (2016: $107.8 million) is current and $0.6 million (2016: $1.0 million) is deferred tax relating to all debit
(2016: credits) on cash flow hedges arising in the year.
Current tax assets
As at 31 December 2017, current tax assets were $57.7 million (2016: $138.3 million) of which $44.6m relates to the UK
(2016: $29.0 million) and $3.1 million relates to Norway (2016: $90.0 million), where 78% of exploration expenditure is
refunded as a tax refund in the year following the incurrence of such expenditure.
132 Tullow Oil plc 2017 Annual Report and Accounts
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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 incurred in 2017 and 2016 all potential ordinary shares are antidilutive.
Comparative basic and diluted earnings per share and weighted average number of shares have been re-presented as a result
of the Rights Issue. The shares in issue have been amended by an adjustment factor to reflect the bonus element inherent in a
discounted Rights Issue, and to allow meaningful comparison between periods.
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
2017
$m
2016
$m
(189.5)
–
(189.5)
(599.9)
–
(599.9)
2017
Number
2016
Number
1,286,235,130
44,294,728
1,069,701,289
121,082,933
1,330,529,858
1,190,784,222
Note 9. Disposals
The divestment of the Norway business completed during 2017. During 2016, four licences, including the Wisting oil discovery,
were sold to Statoil, eight licences, including the Oda asset, were sold to Aker BP ASA and two further licences were sold to
ConocoPhillips. A further two sales were executed in December 2016 and completed during 2017 with two separate parties.
These sales, covering a further 13 licences include the 2016 Cara oil and gas discovery. The Group no longer holds any licences
on the Norwegian Continental Shelf.
On 10 November 2017 Tullow completed the sale of its remaining Dutch assets to Hague and London Oil plc (HALO).
This resulted in a loss on disposal of $1.6m.
134
www.tullowoil.com 133
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 10. Intangible exploration and evaluation assets
At 1 January
Additions
Disposals
Amounts written-off
Write-off associated with Norway-contingent consideration provision
Transfer to property, plant, and equipment
Net transfer to assets held for sale
Currency translation adjustments
At 31 December
Notes
1
9
11
17
2017
$m
2,025.8
319.0
(40.0)
(143.4)
–
(188.7)
(43.4)
4.1
2016
$m
3,400.0
291.4
–
(723.0)
(36.5)
–
(912.3)
6.2
1,933.4
2,025.8
Included within 2017 additions is $66.5 million (note 5) of capitalised interest (2016: $50.2 million). The Group only capitalises
interest in respect of intangible exploration and evaluation assets where it is considered that development is ongoing.
Transfers to property, plant, and equipment related to the Greater Jubilee Full Field Development Plan approval and the cost
associated with the Mahogany and Teak discovery.
The below table provides a summary of the exploration costs written off on a pre and post-tax basis by country.
Country
CGU
Kenya
Madagascar
Mauritania
Netherlands
Pakistan
Suriname
Other
New Ventures
Total write-off
Country
Various
Blocks C6, C10 & C18
Licence E18 & F16
Various
Block 31 & Coronie
Various
Various
Rationale for
2017
write-off
2017
Pre-tax write-
off /(reversal)
$m
2017
Post-tax write-
off /(reversal)
$m
a
d
b,c
e
e
a
b
f
2.3
(4.0)
71.1
6.2
36.1
10.3
4.3
17.1
2.3
(4.0)
71.1
3.2
36.1
10.3
2.8
17.1
143.4
138.9
2017
Remaining
recoverable
amount
$m
1,058.2
–
22.4
–
5.5
30.7
–
–
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.
f. New Ventures expenditure is written off as incurred.
134 Tullow Oil plc 2017 Annual Report and Accounts
135
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Note 11. 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
2017
Oil and gas
assets
$m
2017
Other fixed
assets
$m
Notes
2017
Total
$m
2016
Oil and gas
assets
$m
2016
Other fixed
assets
$m
2016
Total
$m
1,6
10
4
10,772.5
880.7
(362.6)
188.7
113.3
11,592.6
(5,500.8)
(574.3)
(584.5)
43.4
300.0
(109.1)
(6,425.3)
5,167.3
251.9
7.0
(1.6)
–
22.4
279.7
11,024.4
887.7
(364.2)
188.7
135.7
11,872.3
10,439.9
816.9
(276.1)
–
(208.2)
10,772.5
289.5
1.6
(2.7)
–
(36.5)
251.9
10,729.4
818.5
(278.8)
–
(244.7)
11,024.4
(160.7)
(17.9)
–
–
1.7
(15.4)
(192.3)
87.4
(5,661.5)
(592.2)
(584.5)
43.4
301.7
(124.5)
(6,617.6)
5,254.7
(5,360.0)
(448.5)
(184.3)
10.9
276.1
205.0
(5,500.8)
5,271.7
(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
The 2017 additions include capitalised interest of $nil (note 5) in respect of the TEN Development Project (2016: $88.6 million).
The carrying amount of the Group’s oil and gas assets includes an amount of $816.7 million (2016: $17.8 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 2017 income statement impairment charge is net of $2.0 million of insurance proceeds (2016: $6.2 million).
Limande and Turnix CGU (Gabon)
Echira, Niungo, and Igongo CGU (Gabon)
M’boundi (Congo)
Espoir (Côte d’Ivoire)
Ceiba and Okume (Equatorial Guinea)
TEN (Ghana)
Jubilee (Ghana)
Netherlands CGU
UK “CGU”f
Impairment
Trigger for 2017
impairment/(reversal)
2017
Impairment/(reversal)
$m
Pre-tax discount rate
assumption
a
b
c
a
b
a,c
d
e
b
23.5
(12.8)
(16.1)
18.3
(7.1)
535.5
(2.0)
7.2
(7.4)
539.1
13%
15%
n/a
10%
10%
10%
n/a
n/a
n/a
a. Decrease to long-term price assumptions (refer to accounting policy on significant estimates).
b. Increase to short-term price assumptions (Dated Brent forward curve)
c. Change to decommissioning estimate.
d. Impairment of a component of the asset covered by insurance proceeds. This cash item does not impact the carrying value of property, plant, and equipment.
e. Revision of value based on disposal/farm-down activities.
f. The fields in the UK are grouped into one CGU as all fields within those countries share critical gas infrastructure.
136
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FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 11. Property, plant, and equipment continued
During 2017 and 2016 the Group applied the following nominal oil price assumptions for impairment assessments:
Year 1
Year 2
2017
2016
Forward curve Forward curve
Forward curve
Forward curve
Year 3
$59/bbl
$70/bbl
Year 4
$66/bbl
$70/bbl
Year 5
$68/bbl
$90/bbl
Year 6 onwards
$75/bbl inflated at
2%
$90/bbl
The prices assumed in 2017 decreased due to downward revisions by expert forecasters. Oil prices stated above are benchmark
prices to which an individual field price differential is applied. All impairment assessments are prepared on a value-in-use
basis using discounted future cash flows based on 2P reserves profiles. A reduction or increase in the two year forward curve of
$20/bbl, based on the approximate volatility of the oil price over the previous two years, and a reduction or increase in the
medium and long term price assumptions of $15/bbl, based on the range seen in external oil price market forecasts, are
considered to be reasonably possible changes for the purposes of sensitivity analysis. Decreases to oil prices specified above
would increase the impairment charge by $1,189.7 million, whilst increases to oil prices specified above would result in a credit
to the impairment charge of $1,024.1 million. A 1% increase in the pre-tax discount rate would increase the impairment by
$152.5 million. A 1% decrease in the pre-tax discount rate would decrease the impairment by $139.7 million The Group believes
a 1% change 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 12. Investments
Unlisted investments
The fair value of these investments is not materially different from their carrying value.
Note 13. 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
2017
$m
1.0
2016
$m
1.0
2017
$m
2016
$m
731.7
34.9
23.2
789.8
567.8
37.1
38.2
5.4
119.8
768.3
127.3
35.9
12.5
175.7
560.4
34.9
26.3
5.7
211.6
838.9
The increase in amounts due from joint venture partners relates to the recognition of the TEN FPSO finance lease (refer to note
21 for details). Other current assets have decreased due to the increased timeliness of the receipt of funds from insurers.
Note 14. Inventories
Warehouse stocks and materials
Oil stocks
2017
$m
46.5
121.5
2016
$m
57.6
97.7
168.0
155.3
Inventories include a provision of $20.7 million (2016: $31.4 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 2017 is associated with
disposal of inventory provided for in previous periods, resulting in an income statement charge of $nil (2016: $nil).
Note 15. 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 (2016: $nil).
136 Tullow Oil plc 2017 Annual Report and Accounts
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Note 16. Cash and cash equivalents
Cash at bank
Notes
20
2017
$m
284.0
2016
$m
281.9
Cash and cash equivalents includes an amount of $146.0 million (2016: $140.9 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 had $16.1 million (2016: $20.3
million) held in restricted bank accounts.
Note 17. Assets classified as held for sale
In 2017, Tullow announced that it had agreed a substantial farm-down of its assets in Uganda. Under the Sale and Purchase
Agreement, Tullow has agreed to transfer 21.57% of its 33.33% Uganda interests 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 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 mid-2018.
The estimated fair value of the consideration was $829.7 million on recognition which, when compared to the carrying value
of the Group’s interest in Uganda, resulted in an exploration write-off of $330.4 million in 2016. 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 the relevant counterparty’s cost of borrowing. Additions to this value have been recognised
in relation to capitalised interest. The present value of the consideration will be determined on completion and assessed
against the carrying value of the net assets of the disposal group. This represents a level 3 financial asset.
The divestment of the Norway business was completed during 2017 with $7.4 million of assets held for sale at 31 December
2016 being disposed in full during 2017. Consequently, there were no Norwegian assets held for sale at 31 December 2017.
The divestment of the Netherlands business was completed during 2017 with $113.1 million of assets held for sale at
30 June 2017 being disposed in full. Consequently, there were no Netherlands assets held for sale at 31 December 2017.
The major classes of assets and liabilities comprising the assets classified as held for sale as at 31 December 2017 were
as follows:
Intangible exploration and evaluation assets
Total assets classified as held for sale
Net assets of disposal groups
Note 18. Trade and other payables
Current liabilities
Trade payables
Other payables
Overlifts
Accruals
VAT and other similar taxes
Current portion of finance lease
Uganda
2017
$m
873.1
873.1
873.1
Total
2017
$m
873.1
873.1
873.1
Uganda
2016
$m
829.7
829.7
829.7
Norway
2016
$m
7.4
7.4
7.4
Total
2016
$m
837.1
837.1
837.1
Notes
21
2017
$m
83.3
114.5
30.4
552.0
17.3
228.1
1,025.6
2016
$m
46.9
124.6
6.9
721.2
14.6
1.9
916.1
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 13). The change in trade
payables and in other payables predominantly represents timing differences and levels of work activity.
138
www.tullowoil.com 137
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 18. Trade and other payables continued
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 21).
Note 19. Borrowings
Current
Bank borrowings – Revolving Norwegian exploration finance facility
Bank borrowings – Reserves Based Lending credit facility
Non-current
Bank borrowings – after one year but within two years
Reserves Based lending credit facility
Revolving credit facility
Bank borrowings – after two years but within five years
Reserves Based lending credit facility
6.0% Senior Notes due 2020
6.25% Senior Notes due 2022
6.625% Convertible bonds due 2021
Bank borrowings – more than five years
Reserve-Based lending credit facility
Carrying value of total borrowings
Notes
21
2017
$m
105.1
1,317.5
1,422.6
2016
$m
87.7
24.6
112.3
2017
$m
2016
$m
–
–
–
–
–
811.0
642.5
643.5
256.9
83.4
508.1
591.5
906.2
364.6
1,561.7
647.6
651.0
257.3
1,252.5
3,606.4
3,606.4
-
4,388.4
4,979.9
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 certain assets of the Group.
In February 2017, the Company agreed a 12 month extension to the maturity of the Revolving credit facility (RCF) to April 2019.
The commitments were reduced from $1,000 million to $600 million in the year. The facility incurs interest on outstanding debt
at US dollar LIBOR plus an applicable margin.
In November 2017, the Company completed the refinancing of the Reserves Based lending credit facility (RBL). Commitments
were reduced from $3,255 million from the beginning of the year to $2,500 million. The $2,500 million of credit facilities are
split between a commercial bank facility of $2,400 million and an International Finance Corporation facility of $100 million. The
refinancing was concluded to not result in a substantial modification to the previous facility. Consequently, previously deferred
costs are to be amortised over the life of the refinanced facility.
The RBL facility incurs interest on outstanding debt at 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 21 November 2024,
with an initial three-year grace period, or such time as is determined by reference to the remaining reserves of the assets,
whichever is earlier.
In November 2017, the Revolving Norwegian exploration finance facility (EFF) of NOK 1,000 million was repaid in full and
cancelled. The facility was used to finance certain exploration activities on the Norwegian Continental Shelf which were eligible
for a tax refund.
At 31 December 2017, available headroom under the RBL and RCF facilities amounted to $945 million; $345 million under the
RBL and $600 million under the RCF. At 31 December 2016, the available headroom under the facilities amounted to $875
million; $255 million under the RBL, $620 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 2017. The Group monitors capital
on the basis of the gearing, being net debt divided by adjusted EBITDAX and maintains a policy target of below 2.5x. A summary
of the gearing calculation and a reconciliation of the metric to IFRS measures can be found in the finance review on page 35.
138 Tullow Oil plc 2017 Annual Report and Accounts
139
3www.tullowoil.com
Note 20. 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 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 2017, was $1,310.7 million (2016: $1,223.1 million) compared to carrying values of $1,286.0
million (2016: $1,298.7 million).
The fair value of the convertible bonds, as determined using market values, as at 31 December 2017, was $374.0 million (2016: $395.5
million) compared to the carrying value of $256.9 million (2016: $257.3 million).
The Group has no material financial assets that are past due. No material 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
2017
Less than
1 year
$m
(3.7)
–
0.8
(2.9)
2017
1-3
years
$m
4.4
–
–
4.4
2017
Total
$m
0.7
–
0.8
1.5
2016
Less than
1 year
$m
139.7
(1.4)
(1.0)
137.3
(49.4)
(49.4)
(28.4)
(28.4)
(77.8)
(77.8)
(51.5)
(51.5)
2016
1-3
years
$m
40.2
–
0.6
40.8
(35.9)
(35.9)
2016
Total
$m
179.9
(1.4)
(0.4)
178.1
(87.4)
(87.4)
1.8
0.8
2.6
91.7
15.8
107.5
(53.1)
(25.8)
(78.9)
(5.9)
(10.9)
(16.8)
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 (2016: 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.
140
www.tullowoil.com 139
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 20. 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 2017
Derivative assets
Derivative liabilities
Deferred premiums
31 December 2016
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
5.6
(4.1)
(77.8)
(3.0)
(74.8)
77.8
2.6
(78.9)
–
Gross
amounts
offset in
Group
balance sheet
$m
Net amounts
presented in
Group
balance sheet
$m
Gross
amounts
recognised
$m
165.7
12.4
(87.4)
(58.2)
(29.2)
87.4
107.5
(16.8)
–
Commodity price risk
The Group uses a number of derivatives to mitigate the commodity price risk associated with its underlying oil and gas
revenues. Such commodity derivatives will tend to be priced using benchmarks, such as Dated Brent, D-1 Heren and M-1
Heren, which correlate as far as possible to the underlying oil and gas revenues respectively. The Group hedges its estimated
oil and gas revenues on a portfolio basis, aggregating its oil revenues from substantially all of its African oil interests and its
gas revenues from substantially all of its UK gas interests.
As at 31 December 2017 and 31 December 2016, all of the Group’s oil and gas derivatives have been designated as cash flow
hedges. The Group’s oil and gas hedges have been assessed to be ‘highly effective’ within the range prescribed under IAS 39
using regression analysis. There is, however, the potential for a degree of ineffectiveness inherent in the Group’s oil hedges
arising from, among other factors, the discount on the Group’s underlying African crude relative to Brent and the timing of oil
liftings relative to the hedges. There is also the potential for a degree of ineffectiveness inherent in the Group’s gas hedges
which arises from, among other factors, daily field production performance.
The following table demonstrates the timing, volumes and the average floor price protected for the Group’s commodity hedges:
Hedging position as at 31 December 2017
Oil volume (bopd)
Average floor price protected ($/bbl)
Gas volume (mmscfd)
Average floor price protected (p/therm)
Hedging position as at 31 December 2016
Oil volume (bopd)
Average floor price protected ($/bbl)
Gas volume (mmscfd)
Average floor price protected (p/therm)
2018
2019
45,000
52.23
–
–
22,232
48.87
–
–
2017
2018
42,500
60.23
3.67
40.47
22,000
51.88
–
–
2020
997
50.00
–
–
2019
7,979
45.53
–
–
The following table demonstrates the sensitivity of the Group’s derivative financial instruments to reasonably 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
140 Tullow Oil plc 2017 Annual Report and Accounts
Effect on equity
Market
movement
25%
(25%)
25%
(25%)
2017
$m
(139.0)
115.5
–
–
2016
$m
(145.0)
183.6
(2.3)
2.3
141
3www.tullowoil.com
Note 20. 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:
(Loss)/profit on hedging instruments
Cash flow hedges
Oil derivatives
Time value
Total net (loss)/profit for the year in the income statement
2017
$m
2016
$m
(11.8)
(11.8)
(11.8)
18.2
18.2
18.2
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
2017
$m
–
(3.5)
0.9
(2.6)
2016
$m
(1.1)
129.7
(0.4)
128.2
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 gains/(losses) 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)
2017
$m
2016
$m
128.2
569.9
0.2
(161.1)
(0.9)
(161.8)
6.7
24.3
(130.8)
(2.6)
2017
$m
0.2
(159.8)
49.6
(110.0)
(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)
142
www.tullowoil.com 141
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 20. 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 2017 is an asset of $0.8 million (2016: $0.4 million liability). Interest rate hedges are included in fixed rate
debt in the table below.
The interest rate profile of the Group’s financial assets and liabilities, excluding trade and other receivables and trade and other
payables, at 31 December 2017 and 2016 was as follows:
US$
Euro
Sterling
Other
2017
Cash at bank
$m
2017
Fixed rate
debt
$m
2017
Floating rate
debt
$m
2017
Total
$m
2016
Cash at bank
$m
219.4
3.1
21.4
40.1
284.0
(1,900.0)
–
–
–
(1,900.0)
(1,855.0)
–
–
–
(1,855.0)
(3,535.6)
3.1
21.4
40.1
(3,471.0)
200.8
8.6
33.1
39.4
281.9
2016
Fixed rate
debt
$m
2016
Floating rate
debt
$m
(1,900.0)
–
–
–
(1,900.0)
(3,080.0)
–
–
(83.8)
(3,163.8)
2016
Total
$m
(4,779.2)
8.6
33.1
(44.4)
(4,781.9)
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
2017
$m
(21.6)
5.4
2016
$m
(31.6)
7.9
2017
$m
(18.3)
5.8
2016
$m
(26.5)
6.1
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 (including in relation to their share of the TEN FPSO finance lease).
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 2017 was $2,217.7 million
(2016: $1,661.7 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 as at 31 December 2017 (2016: $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 2017, the only material monetary assets or liabilities of the Group that were not denominated in the
functional currency of the respective subsidiaries involved were $45.1 million in non-US-dollar denominated cash and cash
equivalents (2016: $16.9 million).
The following table demonstrates the sensitivity of the Group’s financial instruments to reasonably possible movements in
US dollar exchange rates:
142 Tullow Oil plc 2017 Annual Report and Accounts
143
3www.tullowoil.com
Note 20. Financial instruments continued
Foreign currency risk continued
US$/foreign currency exchange rates
US$/foreign currency exchange rates
Effect on profit before tax
Effect on equity
Market movement
20%
(20%)
2017
$m
(7.5)
11.3
2016
$m
(2.7)
4.0
2017
$m
(7.5)
11.3
2016
$m
(2.7)
4.0
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 $1.1 billion
(2016: $1.0 billion) of total facility headroom and free cash as at 31 December 2017.
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.
Weighted
average
effective
interest rate
n/a
7.1%
7.5%
31 December 2017
Non-interest bearing
Finance lease liabilities
Fixed interest rate instruments
Principal repayments
Interest charge
Variable interest rate instruments
7.2%
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
50.9
18.3
–
9.9
–
10.4
89.5
194.6
39.3
–
–
–
–
20.9
245.8
–
172.1
–
866.1
105.1
930.2
350.6
2,026.0
–
89.6
1,600.0
279.8
–
–
1,600.0
379.3
–
85.9
347.6
811.0
420.4
3,977.3
1,344.0
95.9
2,475.2
2,155.0
633.5
7,144.4
Weighted
average
effective
interest rate
n/a
6.5%
7.5%
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
21.0
0.3
–
9.9
–
14.4
45.6
Less than
1 month
$m
1-3
months
$m
3 months
to 1 year
$m
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
–
–
–
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
The Group has interest rate swaps that fix $300.0 million (2016: $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.
144
www.tullowoil.com 143
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 21. 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
2017
$m
2016
$m
229.6
866.1
930.3
2,026.0
(480.4)
3.5
14.5
17.6
35.6
(9.1)
1,545.6
26.5
18
228.1
1.9
18
1,317.5
24.6
The Group’s finance leases are the TEN FPSO and the Espoir FPSO (2016: Espoir FPSO). The finance lease for the TEN FPSO
met the criteria for recognition on 1 August 2017. A finance lease liability has been recorded at a gross value of $1,521.0 million
as Tullow entered the lease on behalf of the TEN Joint Venture. The present value of the lease liability unwinds over the
expected life of the lease and is reported within finance costs as interest on obligations under finance leases. A receivable from
Joint Venture Partners of $719.0 million has been recognised in other assets to reflect the value of future payments that will be
met by cash calls from partners. The present value of the receivable from Joint Venture Partners unwinds over the expected life
of the lease and is reported within finance revenue. The net cash outflows of $62.6 million related to the lease agreement since
its recognition as a finance lease have been reported in the repayment of obligations under finance leases line in the cash flow
statements. A right of use property, plant, and equipment asset of $807.7 million was also recorded at 31 December 2017.
Prior to recognition as a finance lease, it was accounted for as an operating lease, and included as operating lease payments
within cost of sales (note 4).
The fair value of the Group’s lease obligations approximates the carrying amount. The average expected remaining lease term
as at 31 December 2017 was 7 years (2016: 10 years). For the year ended 31 December 2017, the effective borrowing rate was
7.1% (2016: 6.5%).
Note 22. Provisions
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
2017
$m
Notes
Other
provisions
2017
$m
Total
2017
$m
Decommissioning
2016
$m
Other
provisions
2016
$m
Total
2016
$m
1,014.4
144.2
1,158.6
1,008.8
243.3
1,252.1
5
(33.6)
(100.7)
(33.7)
–
19.7
31.3
897.4
103.2
794.2
(9.2)
–
–
–
–
–
135.0
127.6
7.4
(42.8)
(100.7)
(33.7)
–
19.7
31.3
1,032.4
230.8
801.6
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
Included within other provisions is provision for onerous service contracts and provision for restructuring costs. Due to the
historical reduction in original planned future work programmes the Group identified a number of onerous service contracts in
prior years. The expected unutilised capacity has been provided for in 2016 and 2017 resulting in an income statement credit of
$1.0 million (2016: charge of $114.9 million).
144 Tullow Oil plc 2017 Annual Report and Accounts
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3www.tullowoil.com
Note 22. Provisions continued
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
Note 23. Deferred taxation
At 1 January 2016
Credit/(debit) to income
statement
Credit to other
comprehensive income
Exchange differences
At 1 January 2017
Credit/(debit) to income
statement
Debit to other
comprehensive income
Exchange differences
Inflation
assumption
Discount rate
assumption
Cessation of
production
assumption
n/a
2%
2%
2%
2%
2%
n/a
2%
n/a
n/a
2026
3%
3% 2028-2029
3% 2021-2034
3% 2034-2036
2018
3%
n/a
n/a
3% 2018-2020
2017
$m
–
49.7
133.9
55.8
278.0
120.7
–
259.3
897.4
2016
$m
18.3
48.1
130.0
54.2
267.6
130.9
100.7
264.6
1,014.4
Accelerated
tax
depreciation
$m
Decommissioning
$m
Revaluation
of financial
assets
$m
Tax losses
$m
Other timing
differences
$m
Provision for
onerous
service
contracts
$m
Deferred
PRT
$m
Total
$m
(1,224.8)
198.2
(0.5)
235.4
(88.1)
–
10.6
(869.2)
10.2
(67.4)
–
300.0
72.9
44.7
(1.7)
358.7
–
(2.7)
(1,217.3)
–
(20.0)
110.8
1.0
–
0.5
–
(0.1)
535.3
–
0.4
(14.8)
–
–
44.7
–
(1.6)
7.3
1.0
(24.0)
(533.5)
79.8
–
(0.8)
59.8
–
10.0
–
(8.1)
(8.2)
(0.6)
–
–
2.8
–
(1.1)
–
–
–
21.5
144.8
–
1.7
(0.6)
12.6
At 31 December 2017
(1,138.3)
180.6
(0.1)
530.0
(24.1)
44.7
30.5
(376.7)
Deferred tax liabilities
Deferred tax assets
2017
$m
2016
$m
(1,101.2)
724.5
(1,292.4)
758.9
(376.7)
(533.5)
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.
146
www.tullowoil.com 145
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 24. 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 2016
Issued during the year
–
Exercise of share options
At 1 January 2017
Issued during the year
– Rights issue
–
Exercise of share options
At 31 December 2017
Equity share capital
allotted and fully paid
Share
premium
Number
$m
$m
911,576,706
147.2
609.8
2,905,254
914,481,960
0.3
147.5
466,925,724
5,159,652
60.0
0.7
9.5
619.3
693.8
13.7
1,386,567,336
208.2
1,326.8
The Company does not have a maximum authorised share capital.
Note 25. 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 $3.0 million (2016: $10.0 million).
Note 26. 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
2017
$m
11.1
0.4
1.7
20.4
–
0.6
34.2
0.3
1.1
32.8
2016
$m
9.3
0.9
–
38.3
1.5
0.9
50.9
7.0
2.7
41.2
34.2
50.9
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 ten 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 78 to 100.
The weighted average remaining contractual life for TIP awards outstanding at 31 December 2017 was 7.0 years.
2005 Performance Share Plan (PSP)
Under the PSP, Senior Management could be granted nil exercise price options, normally exercisable between three and ten
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. All PSP awards are fully
vested.
The weighted average remaining contractual life for PSP awards outstanding at 31 December 2017 was 1.5 years.
146 Tullow Oil plc 2017 Annual Report and Accounts
147
3www.tullowoil.com
Note 26. 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 ten 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 2017 was 3.6 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 ten 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 2017 was 7.3 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 ten 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 2017 had exercise prices of 468p to 1305p (2016: 365p to 1530p) and remaining contractual
lives between 72 days and 5.6 years. The weighted average remaining contractual life is 3.4 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).
148
www.tullowoil.com 147
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 26. Share-based payments continued
UK & Irish Share Incentive Plans (SIPs) continued
The following table illustrates the number and average weighted share price at grant or weighted average exercise price
(WAEP) of, and movements in, share options under the TIP, PSP, DSBP, ESAP and 2010 SOP / 2000 ESOS.
In March 2017 the Company carried out a Rights Issue with each holder of 49 shares receiving 25 rights to subscribe for new
shares at a price of 130p per share. In accordance with the Plan rules, the number of outstanding awards as at 17 March 2017
has been multiplied by 1.1732 and the option exercise prices and previously calculated fair values for these awards have been
divided by 1.1732 to allow for the rights issue.
Outstanding
as at
1 January
Adjustment
for the Rights
Issue during
the year
Granted
during the
year
Exercised
during the
year
Forfeited/
expired during
the year
Outstanding
at
31 December
Exercisable
at 31
December
10,926,267 1,831,317 4,830,968
206.6
275.6
(484,603)
782.0
(350,502) 16,753,447
249.2
242.8
925,639
782.0
287.1
910,004
882.0
205,704
1,215.5
3,801,426
547.3
4,208,862
1,125.7
2017 TIP – number of shares
2017 TIP – average weighted share price at
grant
2016 TIP – number of shares
2016 TIP – average weighted share price at
grant
2017 PSP – number of shares
2017 PSP – average weighted share price
at grant
2016 PSP – number of shares
2016 PSP – average weighted share price
at grant
2017 DSBP – number of shares
2017 DSBP – average weighted share price
at grant
2016 DSBP – number of shares
2016 DSBP – average weighted share price
at grant
2017 ESAP – number of shares
2017 ESAP – average weighted share price
at grant
2016 ESAP – number of shares
2016 ESAP – average weighted share price
at grant
2017 SOP/ESOS – number of shares
1,192.9
2017 SOP/ESOS – WAEP
14,466,011
2016 SOP/ESOS – number of shares
2016 SOP/ESOS – WAEP
1,160.9
2017 Phantoms – number of phantom shares 1,252,745
1,274.4
2017 Phantoms – WAEP
2016 Phantoms – number of phantom shares 1,518,439
1,274.5
2016 Phantoms – WAEP
17,067,908
380.7
466,097
1,226.7
280.8
– 7,134,968
–
147.7
–
–
(10,127) 10,926,267
287.1
782.0
43,610
782.0
120,362
870.9
–
–
35,627
1,215.5
–
–
–
–
–
–
–
–
–
–
(495,163)
888.2
36,708
797.6
571,911
868.9
571,911
868.9
(283,867) (3,014,991)
1,214.7
962.0
910,004
882.0
910,004
882.0
(140,508)
1,209.4
123,279
1,121.4
224,102
1,260.5
224,102
1,260.5
(137,114)
1,338.2
(123,279)
1,121.4
205,704
1,215.5
205,704
1,215.5
23,760,819 3,856,502 5,346,309
206.6
271.2
(4,459,032) (1,815,484) 26,689,114 7,623,417
346.8
252.2
382.1
213.3
– 11,315,031
147.7
–
(2,495,408) (2,126,712) 23,760,819 3,330,615
281.5
280.8
287.4
354.9
10,006,370 1,596,194
1,041.2
–
–
215,079
1,086.5
–
–
–
–
–
–
–
–
–
–
–
–
863.8
1,047.6
(1,726,197) 9,876,367 9,876,367
1,047.6
(3,362) (4,456,279) 10,006,370 10,006,370
1,088.9
1,192.9
1,192.9
(37,956) 1,429,868 1,429,868
1,086.5
1,086.5
1084.7
(265,694) 1,252,745 1,252,745
1,274.4
1,274.4
1,219.0
–
–
–
–
1,274.4
The options granted during the year were valued using a proprietary binomial valuation.
148 Tullow Oil plc 2017 Annual Report and Accounts
149
3www.tullowoil.com
Note 26. Share-based payments continued
UK & Irish Share Incentive Plans (SIPs) continued
The following table details the weighted average fair value of awards granted and the assumptions used in the fair value
expense calculations.
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
2017 TIP
2017 ESAP
2016 TIP
2016 ESAP
206.6p
210.0p
206.6p
195.5p
147.7p
–
147.7p
282.1p
206.6p
0.0p
0.1%
60%
3.0
n/a
5% / 0%
206.6p
147.7p
0.0p
0.0p
0.1% 0.4 – 0.7%
60%
45 – 50%
3.0
3.5
0.0%
n/a
5%
5% / 0%
147.7p
0.0p
0.4%
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.
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 27. 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
2017
PSP
2016
PSP
2017
DSBP
2016
DSBP
2017
SOP/ESOS
2016
SOP/ESOS1
198.9p
254.6p
204.1p
213.5p
n/a
255.7p
2017
$m
185.0
9.2
9.5
28.2
47.7
94.6
2016
$m
108.4
143.7
105.9
319.9
464.8
1,034.3
115.6
185.3
85.1
156.6
300.9
241.7
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. Leases on office properties
are negotiated for an average of six years and rentals are fixed for an average of six years. During 2017 the TEN FPSO lease
changed from an operating lease to a finance lease (refer to note 21 for further details).
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. The timing of any economic outflow if it were to occur would
likely range between one year and five years.
150
www.tullowoil.com 149
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO GROUP FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 28. 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
2017
$m
6.7
0.8
2.6
2.5
2016
$m
8.9
1.0
3.7
2.6
12.6
16.2
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 78 to 100.
Note 29. Events since 31 December 2017
There has not been any event since 31 December 2017 that has resulted in a material impact on the year end results.
Note 30. 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 $14.8 million
(2016: $16.6 million). As at 31 December 2017, there was a liability of $nil (2016: $nil) for contributions payable included in
other payables.
150 Tullow Oil plc 2017 Annual Report and Accounts
151
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NOTES TO GROUP FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 31. Cash flow statement reconciliations
Purchases of intangible exploration and evaluation assets
Additions to intangible exploration and evaluation assets
Associated cash flows
Purchases of intangible exploration and evaluation assets
Non cash movements/presented in other cash flow lines
Capitalised interest
Movement in working capital
Purchases of property, plant and equipment
Additions to property, plant and equipment
Associated cash flows
Purchases of property, plant and equipment
Non cash movements/presented in other cash flow lines
Decommissioning asset additions
Finance lease additions
Movement in working capital
Movement in borrowings
Current borrowings
Non-current borrowings
Total borrowings
Associated cash flows
Debt arrangement fees
Repayment of borrowings
Drawdown of borrowings
Non cash movements/presented in other cash flow lines
Amortisation of arrangement fees and accrued interest
2017
$m
319.0
(189.7)
(66.5)
(62.8)
2017
$m
887.7
(117.8)
23.6
(837.6)
44.1
2017
$m
2016
$m
—
(3,606.4)
(3,606.4)
(591.5)
4,388.4
4,979.9
Movement
591.5
782.0
1,373.5
(56.4)
(1,613.6)
305.0
(8.5)
152
www.tullowoil.com 151
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
COMPANY BALANCE SHEET
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2017
AS AT 31 DECEMBER 2017
Notes
2017
$m
2016
$m
1
6
3
6
4
5
6
5
6
7
7
5,415.3
–
5,415.3
7,398.0
–
7,398.0
2,136.3
–
6.3
2,142.6
1,431.4
–
6.7
1,438.1
7,557.9
8,836.1
(465.9)
–
(35.6)
(343.6)
(508.1)
(50.0)
(501.5)
(901.7)
(3,349.5)
(13.4)
(3,362.9)
(4,131.1)
(17.2)
(4,148.3)
(3,864.4)
(5,050.0)
3,693.5
3,786.1
208.2
1,326.8
851.9
1,306.6
147.5
619.3
850.8
2,168.5
3,693.5
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 $880.9 million (2016: $253.4 million loss).
Approved by the Board and authorised for issue on 6 February 2018.
Paul McDade
Chief Executive Officer
Les Wood
Chief Financial Officer
152 Tullow Oil plc 2017 Annual Report and Accounts
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COMPANY STATEMENT OF CHANGES IN EQUITY
COMPANY STATEMENT OF CHANGES IN EQUITY
AS AT 31 DECEMBER 2017
AS AT 31 DECEMBER 2017
At 1 January 2016
Loss for the year
Issue of employee share options
Vesting of PSP shares
Share-based payment charges
At 1 January 2017
Loss for the year
Issue of shares – Rights Issue
Issue of employee share options
Vesting of PSP shares
Capital contribution
Share-based payment charges
Share
capital
$m
147.2
–
0.3
–
–
147.5
–
60.0
0.7
–
–
–
Share
premium
$m
Other
reserves
$m
609.8
–
9.5
–
–
619.3
–
693.8
13.7
–
–
–
850.8
–
–
–
–
850.8
–
–
–
–
1.1
–
Retained
earnings
$m
2,380.4
(253.4)
–
(9.4)
50.9
2,168.5
(880.9)
–
–
(15.2)
–
34.2
Total
equity
$m
3,988.2
(253.4)
9.8
(9.4)
50.9
3,786.1
(880.9)
753.8
14.4
(15.2)
1.1
34.2
At 31 December 2017
208.2
1,326.8
851.9
1,306.6
3,693.5
154
www.tullowoil.com 153
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
COMPANY ACCOUNTING POLICIES
COMPANY ACCOUNTING POLICIES
AS AT 31 DECEMBER 2017
AS AT 31 DECEMBER 2017
(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.
The Company has applied the exemption from the
requirement to publish a separate profit and loss account for
the parent company set out in section 408 of the Companies
Act 2006.
During the year the Company made a loss of $880.9 million
(2016: $253.4 million loss).
(c) Going concern
Refer to page 34.
(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.
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
Costs of share issues are written off against the premium
arising on the issues of share capital.
154 Tullow Oil plc 2017 Annual Report and Accounts
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COMPANY ACCOUNTING POLICIES CONTINUED
NOTES TO GROUP FINANCIAL STATEMENTS
AS AT 31 DECEMBER 2017
YEAR ENDED 31 DECEMBER 2017
(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.
(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)
and property, plant and equipment 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.
For property, plant and equipment, the value of assets/fields
supporting the investment value is assessed by estimating the
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 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 a peer group’s WACC.
Where there is evidence of economic interdependency
between fields, such as common infrastructure, the fields
are grouped as a single CGU for impairment purposes.
156
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FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
NOTES TO THE COMPANY FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 2017
YEAR ENDED 31 DECEMBER 2017
Note 1. Investments
Shares at cost in subsidiary undertakings
Unlisted investments
2017
$m
5,414.3
1.0
2016
$m
7,397.0
1.0
5,415.3
7,398.0
During 2017, the Company decreased its investments in subsidiaries undertakings by $429.0 million (2016: $3,690.2 million);
an additional impairment of $1,553.8 million (2016: $1,177.6 million) was recognised against the Company’s investments in
subsidiaries to fund losses incurred by Group service companies and exploration and production companies.
The Company’s subsidiary undertakings as at 31 December 2017 are listed on pages 183 and 184. 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 $513.3 million (2016: $494.4 million) that are available indefinitely for offset against future
non-ring-fenced taxable profits in the Company. A deferred tax asset of $nil (2016: $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
2017
$m
2016
$m
12.3
2,124.0
29.1
1,402.3
2,136.3
1,431.4
The amounts due from subsidiary undertakings include $1,528.0 million (2016: $1,373.3 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 $124.0 million (2016: $172.5 million) was made in respect of the recoverability of amounts due
from subsidiary undertakings.
Note 4. Trade and other creditors
Amounts falling due within one year
VAT and other similar taxes
Accrued interest
Due to subsidiary undertakings
2017
$m
–
22.7
443.2
2016
$m
0.7
–
342.9
465.9
343.6
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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
Bank borrowings – more than five years
Reserve-Based lending credit facility
Carrying value of total borrowings
Accrued interest and unamortised fees
External borrowings
2017
$m
2016
$m
–
–
–
508.1
906.2
364.6
811.0
642.5
643.5
1,561.7
647.6
651.0
1,252.5
3,349.5
–
4,131.1
3,349.5
105.5
4,639.2
40.8
3,455.0
4,680.0
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 2017 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 29 June 2017, the Company terminated the intercompany oil derivative trade previously entered on 15 April 2016 with a
wholly owned subsidiary, in exchange for a termination payment of $40.1 million.
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 oil derivative trade with the same subsidiary, to purchase
downside oil price protection up to 31 December 2020, for a deferred consideration of $69.1 million.
The Company’s derivative carrying and fair values were as follows:
Assets/liabilities
Intercompany oil derivatives
Total assets
Total liabilities
2017
Less than 1
year
$m
(35.6)
–
(35.6)
2017
1-3 years
$m
(13.4)
–
(13.4)
2017
Total
$m
(49.0)
–
(49.0)
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)
158
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FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
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 (2016: 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
2017
$m
2016
$m
(58.3)
(27.6)
Cash flow and interest rate risk
The interest rate profile of the Company’s financial assets and liabilities, excluding trade and other receivables
and trade and other payables, at 31 December 2017 and 2016 was as follows:
US$
Euro
Sterling
Other
2017
Cash at bank
$m
2017
Fixed rate
debt
$m
2017
Floating rate
debt
$m
2017
Total
$m
2016
Cash at bank
$m
6.2
0.1
–
–
(1,300.0)
–
–
–
(1,855.0)
–
–
–
(3,148.8)
0.1
–
–
7.7
–
–
0.1
2016
Fixed rate
debt
$m
2016
Floating rate
debt
$m
(1,300.0)
–
–
–
(3,380.0)
–
–
–
2016
Total
$m
(4,672.3)
–
–
0.1
6.3
(1,300.0)
(1,855.0)
(3,148.7)
7.8
(1,300.0)
(3,380.0)
(4,672.2)
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.
158 Tullow Oil plc 2017 Annual Report and Accounts
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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
7.5%
31 December 2017
Non-interest bearing
Fixed interest rate instruments
Principal repayments
Interest charge
Variable interest rate instruments
7.2%
Principal repayments
Interest charge
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
465.9
1,300.0
299.8
–
–
–
465.9
–
–
–
10.4
–
–
–
–
20.9
–
–
1,300.0
220.2
–
79.6
–
85.9
811.0
420.4
1,344.0
95.9
2,155.0
633.5
476.3
20.9
165.5
2,751.6
1,439.9
4,854.2
Less than
1 month
$m
1-3
months
$m
3 months
to 1 year
$m
1-5
years
$m
5+
years
$m
Total
$m
343.6
–
14.5
–
14.2
–
–
–
–
–
–
343.6
–
94.1
941.7
395.5
650.0
20.3
1,591.7
524.4
55.0
28.2
453.1
118.4
2,871.9
151.9
–
–
3,380.0
312.7
372.3
83.2
665.6
4,361.0
670.3
6,152.4
Sensitivity analysis
The following analysis is intended to illustrate sensitivity to changes in market variables, being Dated Brent oil prices and
US dollar exchange rates. The analysis is used internally by management to monitor derivatives and assesses the financial
impact of reasonably possible movements in key variables.
Brent oil price
Brent oil price
US$/foreign currency exchange rates
US$/foreign currency exchange rates
Market movement
25%
(25%)
20%
(20%)
Impact on profit before tax
2017
$m
–
0.4
–
–
2016
$m
–
28.6
–
–
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.
160
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FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and AccountsNOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDYEAR ENDED 31 DECEMBER 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 DECEMBER 2017
Note 7. Called up equity share capital and share premium account
Allotted equity share capital and share premium
At 1 January 2016
Issued during the year
– Exercise of share options
At 1 January 2017
Issued during the year
– Rights issue
– Exercise of share options
At 31 December 2017
Equity share
capital allotted
and fully paid
Number
911,576,706
Share
capital
$m
147.2
Share
premium
$m
609.8
2,905,254
914,481,960
0.3
147.5
466,925,724
5,159,652
60.0
0.7
9.5
619.3
693.8
13.7
1,386,567,336
208.2
1,326.8
The Company does not have an authorised share capital. The par value of the Company’s shares is 10 pence.
160 Tullow Oil plc 2017 Annual Report and Accounts
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FIVE-YEAR FINANCIAL SUMMARY
FIVE-YEAR FINANCIAL SUMMARY
Group income statement
Sales revenue
Other operating income – lost production insurance proceeds
Cost of sales
1,722.5
162.1
(1,069.3)
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)
2017
$m
2016
$m
2015
$m
2014
$m
2013*
$m
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 profit/(loss)
Profit/(loss) on hedging instruments
Finance revenue
Finance costs
815.3
(95.3)
(14.5)
(1.6)
–
(143.4)
(539.1)
1.0
22.4
(11.8)
42.0
(351.7)
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)
(Loss)/profit from continuing activities before taxation
Taxation
(299.1)
110.6
(908.3)
311.0
(1,297.3)
260.4
(2,047.4)
407.5
1,493.1
(218.5)
–
29.5
–
(870.6)
(52.7)
–
380.8
(19.7)
43.7
(91.6)
313.2
(97.1)
(Loss)/profit for the year from continuing activities
(188.5)
(597.3)
(1,036.9)
(1,639.9)
216.1
(Loss)/earnings per share
Basic – ¢
Diluted – ¢
Dividends paid
Group balance sheet
Non-current assets
Net current assets
(14.7)
(14.7)
(55.8)
(55.8)
(97.0)
(97.0)
(153.6)
(153.6)
20.3
20.2
–
–
–
182.3
167.4
8,704.2
969.8
8,340.1
813.1
9,506.8
259.2
9,335.1
747.4
9,439.3
637.0
Total assets less current liabilities
Long-term liabilities
9,674.0
(6,957.6)
9,153.2
(6,910.7)
9,766.0
(6,591.3)
10,082.5
(6,062.2)
10,076.3
(4,629.9)
Net assets
2,716.4
2,242.5
3,174.7
4,020.3
5,446.4
Called up equity share capital
Share premium
Equity component of convertible bonds
Foreign currency translation reserve
Hedge reserve
Other reserves
Retained earnings
208.2
1,326.8
48.4
(223.2)
(2.6)
740.9
607.5
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
Equity attributable to equity holders of the Parent
Non-controlling interest
2,706.0
10.4
2,230.1
12.4
3,154.9
19.8
3,996.0
24.3
5,322.9
123.5
Total equity
2,716.4
2,242.5
3,174.7
4,020.3
5,446.4
* 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.
162
161 Tullow Oil plc 2017 Annual Report and Accounts
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
Financial calendar
2017 Full-year results announced
Annual General Meeting
AGM Trading Update
Trading Statement & Operational
Update
2018 Half Year Results announced
November Trading Update
7 February 2018
25 April 2018
25 April 2018
28 June 2018
25 July 2018
7 November 2018
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
J. P. Morgan Cazenove
25 Bank Street
Canary Wharf
London
E14 5JP
Davy
Davy House
49 Dawson Street
Dublin 2
Ireland
162 Tullow Oil plc 2017 Annual Report and Accounts
163
3www.tullowoil.com
LICENCE INTERESTS
LICENCE INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
WEST AFRICA
Licence/Unit area
Fields
Côte d'Ivoire
CI-26 Special Area "E" Espoir
CI-301
CI-302
CI-518
CI-519
CI-5201
CI-521
CI-522
CI-5241
Equatorial Guinea
Ceiba
Okume Complex
Ceiba
Okume, Oveng, Ebano, Elon,
Akom North
Area
sq km
Tullow
interest Operator
Other partners
235
1,495
1,412
1,250
887
1,059
1,280
1,229
551
21.33% CNR
90.00% Tullow
90.00% Tullow
90.00% Tullow
90.00% Tullow
90.00% Tullow
90.00% Tullow
90.00% Tullow
90.00% Tullow
Petroci
Petroci
Petroci
Petroci
Petroci
Petroci
Petroci
Petroci
Petroci
70
192
14.25% Trident Energy Kosmos, GEPetrol
14.25% Trident Energy Kosmos, GEPetrol
Gabon
Avouma
Ebouri
Echira
Etame
Ezanga
Gwedidi
Igongo
Limande
Mabounda
Maroc
Maroc Nord
Mbigou
M'Oba
Niembi
Niungo
Oba
Omko
Onal
Simba
Tchatamba Marin
Tchatamba South
Tchatamba West
Turnix
Ghana
Deepwater Tano
Ten Development Area 2
Avouma, South Tchibala
Ebouri
Echira
Etame, North Tchibala
Gwedidi
Igongo
Limande
Mabounda
Maroc
Maroc Nord
Mbigou
M'Oba
Niembi
Niungo
Oba
Omko
Onal
Tchatamba Marin
Tchatamba South
Tchatamba West
Turnix
Jubilee
Tweneboa, Enyenra,
Ntomme
West Cape Three Points Jubilee
Jubilee
Jubilee Field
Unit Area 3,4
Notes:
Addax (Sinopec), Sasol, PetroEnergy
Addax (Sinopec), Sasol, PetroEnergy
Addax (Sinopec), Sasol, PetroEnergy
Total, Gov of Gabon
52
15
76
49
5,626
5
117
54
6
17
17
5
57
4
96
44
16
46
315
30
40
25
18
7.50% Vaalco
7.50% Vaalco
40.00% Perenco
7.50% Vaalco
7.50% Maurel & Prom
7.50% Maurel & Prom Gov of Gabon
36.00% Perenco
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
7.50% Maurel & Prom Gov of Gabon
AIC Petrofi
40.00% Perenco
5.00% Perenco
7.50% Maurel & Prom Gov of Gabon
7.50% Maurel & Prom Gov of Gabon
50.00% Perenco
25.00% Perenco
25.00% Perenco
25.00% Perenco
27.50% Perenco
Oranje Nassau
Oranje Nassau
Oranje Nassau
619
49.95%
47.18%
2
Tullow
Kosmos, Anadarko, GNPC, Petro SA
150
25.66% Kosmos
35.48% Tullow
Anadarko, GNPC, Petro SA
Kosmos, Anadarko, GNPC, Petro SA
1. Tullow’s interest in this licence is subject to Government approval.
2. GNPC has exercised its right to acquire an additional 5% in the TEN field. Tullow’s interest is 47.175%.
3. A unitisation agreement covering the Jubilee field was agreed by the partners of the West Cape Three Points and the Deepwater Tano licences.
4. The Jubilee Unit Area was expanded in 2017 to include the Mahogany & Teak fields. It now includes all of the remaining part of the West Cape Three Points
licence and a small part of the Deepwater Tano licence.
164
163 Tullow Oil plc 2017 Annual Report and Accounts
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
LICENCE INTERESTS CONTINUED
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
EUROPE 5
Licence/Unit area
Blocks
Fields
Area
sq km
Tullow
interest
Operator
Other partners
United Kingdom
CMS Area
P450
P451
P452
P453
P516
P1006
P1058
P1139
44/21a
44/22a
44/22b
44/23a (part)
44/28b
44/26a
44/17b
44/18b
44/23b
44/19b
CMS III Unit11
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 Unit11 44/26a
43/30a
Munro Unit11
Thames Area
P007
Boulton B & F
Murdoch
Boulton H6
Murdoch K6
Ketch
Schooner7
Munro8
Kelvin9
Katy (formerly
Harrison) 10
Boulton H, Hawksley10
McAdam10, Murdoch K
77
89
48
49
49
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
Gawain12, 13
49/24aF1
(Gawain)
49/28a
49/28b
49/28a (part)
53/04d
53/03c
53/04b
49/24F1 (Gawain) Gawain12
49/29a (part)
Thames13, Yare13
Bure13, Wensum13
Thurne13, Deben13
Wissey13
Horne13
Horne & Wren13
P037
P039
P786
P852
Gawain Unit11
Notes:
69
50.00% Perenco
90
66.67%
Perenco
Centrica
29
8
17
86.96% Tullow
76.90% Tullow
50.00% Tullow
50.00% Tullow
50.00%
Perenco
Centrica
Faroe Petr.
Centrica
Centrica
5. Production in the UK is dealt with by the West Africa BDT despite falling outside this geographic region.
6. Refer to CMS III Unit for field interest.
7. Refer to Schooner Unit for field interest.
8. Refer to Munro Unit for field interest.
9. The Kelvin field recommenced production in Q4 2016.
10. This field is no longer producing.
11. 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.
12. Refer to Gawain Unit for field interest.
13. These fields are no longer producing. Abandonment works are ongoing.
164 Tullow Oil plc 2017 Annual Report and Accounts
165
3www.tullowoil.com
LICENCE INTERESTS CONTINUED
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
EAST AFRICA
Licence
Fields
Area
sq km
Tullow
interest
Operator
Other partners
Kenya
Block 10BA
Block 10BB
Block 12A
Block 12B
Block 13T
Uganda
Exploration Area 1
Exploration Area 1A
Exploration Area 2
Production Licence 01/12
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:
50.00% Tullow
15,811
50.00% Tullow
6,172
15,390
50.00% Tullow
6,200 100.00% Tullow
50.00% Tullow
4,719
Africa Oil, Maersk14
Africa Oil, Maersk14
Delonex
Africa Oil, Maersk14
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% 15 Total
33.33% 15 Total
33.33% 15 Tullow15
33.33% 15 CNOOC
33.33% 15 Tullow15
33.33% 15 Tullow15
33.33% 15 Tullow15
33.33% 15 Tullow15
33.33% 15 Tullow15
50
121
55
33.33% 15 Total
33.33% 15 Total
33.33% 15 Total
CNOOC
CNOOC
CNOOC, Total
Total
CNOOC, Total
CNOOC, Total
CNOOC, Total
CNOOC, Total
CNOOC, Total
CNOOC
CNOOC
CNOOC
14. Total is in the process of acquiring Maersk's interest in this block.
15. Tullow has agreed a farm-down to Total whereby it will reduce its holding to 11.76% and transfer operatorship to Total. CNOOC has exercised its pre-emption
rights under the JOA to acquire 50% of the interest being transferred to Total. The deal is subject to Government approval.
166
165 Tullow Oil plc 2017 Annual Report and Accounts
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
LICENCE INTERESTS CONTINUED
CURRENT EXPLORATION, DEVELOPMENT AND PRODUCTION INTERESTS
NEW VENTURES
Licence
Guyana
Kanuku
Orinduik
Jamaica
Walton Morant
Mauritania
Block C-3
Block C-18
PSC B
(Chinguetti EEA)19
Namibia
PEL 0030
PEL 0037
Pakistan
Bannu West22
Block 2822
Kalchas22
Kohat23
Kohlu
Peru
Block Z-38 24
Block Z-64 25
Block Z-65 25
Block Z-66 25
Block Z-67 25
Block Z-68 25
Suriname
Block 47
Block 54
Uruguay
Block 15
Zambia
PEL 28
Notes:
Blocks
Fields
Area
sq km
Tullow
interest
Operator
Other partners
5,165
1,776
37.50% 16 Repsol
Tullow
60.00%
Total16
Total17, Eco O&G
32,065
80.00% 18 Tullow
United Oil & Gas18
7,350
13,225
31
90.00%
15.00%
22.26%
Tullow
Total
Petronas
SMHPM
Kosmos, BP, SMHPM
SMHPM, Premier, Kufpec
Chinguetti20
2012A
2012B, 2112A,
2113B
5,800
10.00% 21 Eco O&G
17,295
35.00%
Tullow
AziNam, ONGC Videsh21,
NAMCOR
Pancontinental, ONGC Videsh,
Paragon
OGDCL, SEL
MPCL
MPCL, SEL
MPCL
Pitkin
1,230
6,200
2,068
1,107
2,459
20.00% MPCL
95.00% OGDCL
30.00% OGDCL
40.00% OGDCL
30.00% OGDCL
4,875
35.00% Karoon
542 100.00% Tullow
5,162 100.00% Tullow
5,616 100.00% Tullow
5,884 100.00% Tullow
6,002 100.00% Tullow
2,369
8,480
80.00% Tullow
30.00% Tullow
Ratio Exploration
Statoil, Noble Energy
8,030
35.00% Tullow
Statoil, Inpex
Block 31
52,937
97.50% Tullow
Geo-Petroleum
16. Total has farmed-in to this licence and Tullow has increased its interest to 37.5%. Both deals are subject to Government approval.
17. Total has entered a farm-in agreement with Eco O&G; the agreement is subject to certain terms and conditions being fulfilled.
18. Tullow’s interest on completion of farm-down to United Oil & Gas, which is subject to approval.
19. PSC B (Chinguetti EEA) is dealt with by the West Africa BDT.
20. This field is no longer in production.
21. Tullow's interest on completion of farm-down to ONGC Videsh, which is subject to approval.
22. Tullow has agreed to sell its interest in this block to Mari Petroleum; the deal is subject to Government approval.
23. Tullow is in the process of relinquishing this block, subject to Government approval.
24. Tullow's farm-in to this block is subject to Government approval.
25. Tullow's acquisition of this block is subject to Government approval.
166 Tullow Oil plc 2017 Annual Report and Accounts
167
3www.tullowoil.com
COMMERCIAL RESERVES AND CONTINGENT RESOURCES SUMMARY
COMMERCIAL RESERVES AND CONTINGENT RESOURCES SUMMARY
(UNAUDITED) WORKING INTEREST BASIS
(UNAUDITED) WORKING INTEREST BASIS
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 2017
Revisions
Transfer from contingent resources
Disposals
Production
272.1
3.2
-
-
(29.6)
189.7
14.3
79.0
-
(14.1)
31 December 2017
245.7
268.9
–
–
–
–
–
–
–
–
–
–
–
–
Contingent resources
1 January 2017
Revisions
Additions
Disposals
Transfers to commercial reserves
128.1
(0.2)
1.7
(8.2)
–
730.5
(186.4)
–
–
(79.0)
632.5
–
5.3
–
–
42.7
–
–
–
–
31 December 2017
121.4
465.1
637.8
42.7
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
272.1
3.2
–
–
(29.6)
189.7
14.3
79.0
–
(14.1)
303.7
5.5
13.2
–
(31.9)
245.7
268.9
290.5
4.2
–
–
–
–
760.6
(0.2)
7.0
(8.2)
–
773.2
(186.4)
–
–
(79.0)
890.1
(31.3)
7.0
(8.2)
(13.2)
4.2
759.1
507.8
844.4
31 December 2017
367.1
734.0
637.8
42.7
–
4.2
1,004.8
776.7
1,134.9
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 (+5 mmboe) relate mainly to audits of Jubilee, TEN, Okume and Echira.
4. The Kenya addition to oil contingent resources relates to the booking of the Erut discovery announced 17 January 2017. The West Africa addition to oil contingent
resources relates to Simba.
5. The West Africa revision to gas contingent resources relates to a reduction in the estimate of the size of the Gas cap in Ntomme and reduction of injected gas
blow-down volume for Jubilee.
6. The West Africa transfer of gas from contingent resources to reserves relates to Jubilee sales gas.
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 284.1 mmboe at 31 December 2017
(31 December 2016: 283.2 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.
168
168 Tullow Oil plc 2017 Annual Report and Accounts
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
TRANSPARENCY DISCLOSURE
TRANSPARENCY DISCLOSURE
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 2017 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 and our 2017 tax payments can be found on
page 52.
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 2017 average realised oil price
$58.3/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.
169 Tullow Oil plc 2017 Annual Report and Accounts
169
3www.tullowoil.com
TRANSPARENCY DISCLOSURE CONTINUED
2017
Licence/Company level
South Omo
Tullow Ethioopia B.V.
Total Ethiopia
M'Boundi
Total Congo
CI-26 Espoir
CI-301
CI-302
CI-518
CI-519
Tullow Cote d'Ivoire Exploration Ltd.
Total Cote d'Ivoire
Ceiba
Okume Complex
Tullow Equatorial Guinea Ltd.
Total Equatorial Guinea
Echira
Ezanga
Ingongo
Limande
M'Oba
Niungo
Tchatamba
Turnix
Tullow Oil Gabon SA
Oba
Tulipe Oil SA
Total Gabon
Jubilee
TEN
Tullow Ghana Ltd.
Total Ghana
Block C-3
Block C-10
Block C-18
PSC B (Chinguetti EEA)
Tullow Petroleum Mauritania Pty Ltd
Tullow Mauritania Ltd.
Total Mauritania
European transparency directive disclosure
Production
entitlements
Production
entitlements
Income
taxes
Royalties
(cash
only) Dividends
Bonus
payments
Licence
fees
Infrastructure
improvement
payments
BBL000
$000
$000
$000
$000
$000
$000
-
-
-
63
63
-
-
-
-
-
-
-
123
336
-
459
-
-
-
-
-
-
-
-
-
-
-
-
581
482
-
1,063
-
-
-
28
-
-
28
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,354
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,354
-
-
-
-
-
-
-
- 21,647
-
- 21,647
2,434
-
-
2,465
-
-
64
-
-
4,177
-
-
94
-
-
4,024
-
-
8,449
-
-
1,772
-
-
-
-
-
1,561
-
-
-
-
-
- 25,040
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
375
-
375
-
375
-
375
-
-
-
- 1,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,000
-
-
-
-
-
5,000
-
-
-
-
59
-
59
-
29
-
24
-
26
-
258
-
-
-
-
-
337
-
$000
25
-
25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
246
30
1,087
1,363
-
-
-
-
-
-
-
170
170 Tullow Oil plc 2017 Annual Report and Accounts
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
Voluntary disclosure
Withholding
tax
PAYE and
national
insurance
VAT
Stamp duty
Carried
interests
Customs
duties
Training
allowances
Total
Total
$000
-
(17)
(17)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,753
2,753
-
-
-
-
-
-
-
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
-
1
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30
-
-
30
-
-
43,388
43,388
-
-
108
-
7
3
118
$000
-
63
63
-
-
-
-
-
-
-
18
18
-
-
-
-
-
-
-
-
-
-
-
-
54
-
2
56
-
-
14,321
14,321
-
-
-
-
67
60
127
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,087
14,087
-
-
-
-
-
-
-
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,553
-
481
24,034
-
-
-
-
-
-
-
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
250
250
525
200
150
-
-
-
875
$000
25
47
72
-
-
2,354
375
375
375
375
18
3,872
-
-
21,647
21,647
2,434
2,465
64
4,177
94
4,024
8,449
1,772
5,084
1,561
2
30,126
23,799
30
76,426
100,255
554
224
284
258
74
63
1,457
BBL000
-
-
-
63
63
-
-
-
-
-
-
-
123
336
-
459
-
-
-
-
-
-
-
-
-
-
-
-
581
482
-
1,063
-
-
-
28
-
-
28
171
www.tullowoil.com 171
3www.tullowoil.com
TRANSPARENCY DISCLOSURE CONTINUED
TRANSPARENCY DISCLOSURE CONTINUED
European transparency directive disclosure
Income
taxes
$000
-
-
-
-
-
1
1
-
-
1
1
-
-
-
-
-
-
271
271
2,375
33,684
36,059
(485)
(485)
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,921)
(3,921)
Royalties
(cash
only) Dividends
Bonus
payments
Licence
fees
Infrastructure
improvement
payments
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
231
93
46
62
19
-
451
-
-
-
-
124
124
78
78
-
-
158
-
158
-
-
40
-
40
128
-
128
60
66
69
3
34
1
-
-
233
$000
-
-
-
-
-
195
195
-
-
-
-
-
-
-
100
-
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2017
Licence/Company level
Block 10BA
Block 10BB
Block 12A
Block 12B
Block 13T
Tullow Kenya B.V.
Total Kenya
Tullow Madagascar Ltd.
Total Madagascar
Tullow Mozambique Ltd.
Total Mozambique
PEL 37
Tullow Namibia Ltd.
Total Namibia
PEL 28
Tullow Zambia B.V.
Total Zambia
Tullow South Africa Pty Ltd.
Total South Africa
Tullow Uganda Operations Pty
Tullow Uganda Ltd.
Total Uganda
Tullow Oil Ltd.
Total Ireland
Orinduik
Tullow Guyana B.V.
Total Guyana
Walton Morant
Tullow Jamaica Ltd.
Total Jamaica
E10
E11
E14
E15b
E15c
F16E
Tullow Overseas Holdings B.V.
Tullow Exp. & Prod. Netherlands B.V.
Total Netherlands
Production
entitlements
Production
entitlements
BBL 000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
172
172 Tullow Oil plc 2017 Annual Report and Accounts
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
Voluntary disclosure
Withholding
tax
PAYE and
national
insurance
VAT
Stamp duty
Carried
interests
Customs
duties
Training
allowances
$000
-
-
-
-
-
156
156
-
-
-
-
-
-
-
-
39
39
(276)
(276)
-
-
-
(785)
(785)
-
-
-
-
-
-
-
-
-
-
-
-
(123)
43
(80)
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
3
560
10
14
536
788
1,911
-
-
-
-
-
-
-
-
131
131
-
-
998
10
1,008
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
-
-
-
-
-
14,392
14,392
2
2
-
-
-
4
4
-
-
-
2,137
2,137
4,519
-
4,519
4,753
4,753
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
-
-
-
-
-
407
407
-
-
-
-
-
-
-
-
-
-
-
-
2
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
-
-
-
-
-
765
765
-
-
-
-
-
60
60
-
-
-
-
-
50
-
50
-
-
-
25
25
-
104
104
-
-
-
-
-
-
-
-
-
Total
Total
$000 BBL'000
-
234
-
653
-
56
-
76
-
555
-
16,704
-
18,278
-
2
-
2
-
1
-
1
-
124
-
64
-
188
-
178
-
170
-
348
-
2,132
-
2,132
-
8,102
-
33,693
-
41,795
-
3,483
-
3,483
-
40
-
25
-
65
-
128
-
104
-
232
-
60
-
66
-
69
-
3
-
34
-
1
-
(123)
-
(3,878)
-
(3,768)
173
www.tullowoil.com 173
3www.tullowoil.com
TRANSPARENCY DISCLOSURE CONTINUED
TRANSPARENCY DISCLOSURE CONTINUED
2017
Licence/Company level
Tullow Oil Norge AS
Total Norway
Bannu West
Kalchas
Kohat
Kohlu
Tullow Pakistan Developments Ltd.
Total Pakistan
Tullow Suriname B.V.
Total Suriname
Tullow Group Services Ltd.- Singapore
Total Singapore
Boulton B&F
Murdoch
Schooner
Munro (44/17B)
Kelvin
Katy
CMS
P039
P852
Tullow Group Services Ltd.
Tullow Oil SK Ltd
Total UK
Tullow Uruguay Ltd.
Total Uruguay
TOTAL
European transparency directive disclosure
Production
entitlements
Production
entitlements
Income
taxes
Royalties
(cash
only) Dividends
Bonus
payments
Licence
fees
Infrastructure
improvement
payments
BBL 000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,613
$000
$000
$000
-
(122,729)
-
-
(122,729)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29
-
-
29
-
-
-
-
-
-
-
-
113
-
-
113
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- (8,244)
-
- (8,244)
-
-
-
-
-
-
(77,260) 25,040
2,354
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
$000
-
-
-
-
-
-
-
10
-
6
-
6
-
-
-
22
-
-
-
-
-
-
-
-
-
58
-
241
-
218
-
84
-
118
-
106
-
4
-
123
-
233
-
-
-
-
- 1,185
-
-
-
-
5,000 4,315
$000
-
-
6
9
12
9
-
36
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,719
174
174 Tullow Oil plc 2017 Annual Report and Accounts
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
Voluntary disclosure
VAT
Stamp
duty
Withholding
tax
PAYE and
national
insurance
Carried
interests
Customs
duties
Training
allowances
Total
Total
$000
(592)
(592)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(14,930)
-
(14,930)
-
-
(13,732)
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
$000
6,011
-
6,011
-
-
-
-
-
-
-
-
-
1
120
1
120
198
-
198
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 48,061
-
-
- 48,061
267
-
267
-
46,707 94,930
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,087 24,443
$000
-
-
3
4
5
4
-
16
53
53
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
100
2,298
$000
(117,309)
(117,309)
9
23
23
19
150
224
251
251
113
113
58
241
218
84
118
106
4
123
233
33,132
(8,244)
26,072
367
367
129,902
Payments in kind in $000
BBL'000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,613
94,038
Total 223,940
175
www.tullowoil.com 175
3www.tullowoil.com
SUSTAINABILITY DATA
SUSTAINABILITY DATA
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)
2013
2014
2015
2016
2017
693,170
686,996
6,174
803,724
799,551
4,173
99.78
123.84
2,578
43.75
85
2,191
41.84
106
758,790
752,539
4,631
1,620
122.07
2,073
29.85
106
772,110
754,338
4,763
13,010
142.11
2,741
21.98
122
1,123,815
1,108,144
2,928
12,743
127.17
5,314
27.77
108
80,695
11.62
117,516
18.11
110,638
17.84
149,217
27.93
290,797
33.29
13,013
7,295,571
180,337
35,900
31,740
7,556,562
21,567
21,567
34,157
83.38
87.00
59,220
9,885,133
129,956
11,695
3,643
10,089,647
11,250
11,250
75,799
63.82
97.85
70,466
8,004,940
113,847
–
10
8,189,263
5,451
5,451
72,380
70.93
99.49
56,728
9,080,888
46,322
–
–
9,183,938
4,722
4,722
58,554
27.95
74.36
89,366
12,567,127
60,998
–
1,537
12,719,028
2,308
2,308
39,407
5.00
31.00
51.75
3.68
3.44
15.01
2.00
10
23.29
15
715.85
7
24.71
2
4.85
3
6.44
5,757,479
5,345,475
5,104,423
7,272,710
8,007,696
5,798,539
829
5,375,436
828
5,158,200
832
7,318,373
1,370
8,036,831
920
Fines and sanctions
–
80,000
–
–
–
176
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
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
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
–
–
–
–
–
0.27
9
0.98
1.03
8
0.87
–
5.4
0.55
2016
336.6
2016
–
297.0
28.0
–
11.6
336.6
2017
10.9
–
–
1
4
0.37
n/a
8
0.73
n/a
7
0.64
–
5.2
0.77
2017
234.6
2017
–
194.2
37.0
–
3.4
234.6
177
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SUSTAINABILITY DATA CONTINUED
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
Number of females in the workforce
Total workforce
Number of female managers
Total number of managers
Number of female senior managers
Total number of senior managers
Number of female board members
Total number of board members
2014
14
10
35
9
68
2014
1,595
447
448
1,594
583
2,042
90
442
4
53
2
12
2015
17
22
47
17
103
2015
1,156
247
268
1,135
396
1,403
76
338
14
115
2
12
2016
2017
5
19
46
21
91
2016
1,023
129
979
336
1,152
66
297
9
68
2
11
2
8
38
12
60
2017
922
108
144
886
313
1,030
59
274
10
65
1
9
2013
1,553
481
446
1,588
582
2,034
85
433
6
49
2
12
178
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
TULLOW OIL PLC SUBSIDIARIES
AS AT 6 FEBRUARY 2017
Company name
Country of incorporation
% of nominal value of shares held
(all ordinary shares)
Type of ownership
Hardman Oil and Gas Pty Ltd
Hardman Resources Pty Ltd
Tullow Chinguetti Production Pty Ltd
Tullow Petroleum (Mauritania) Pty Ltd
Tullow Uganda Holdings Pty Ltd
Tullow Uganda Operations Pty Ltd
Tullow Do Brasil Petroleo E Gas Ltda
Australia
Australia
Australia
Australia
Australia
Australia
Brazil
Eagle Drill Limited
Tullow (EA) Holdings Limited
British Virgin Islands
British Virgin Islands
Tullow Oil Canada Ltd
Canada
Planet Oil International Limited
England and Wales
Tullow Africa New Ventures Limited
England and Wales
Tullow Côte D’Ivoire Onshore Limited
England and Wales
Tullow EG Exploration Limited
Tullow Gambia Limited
England and Wales
England and Wales
Tullow Greenland Exploration Limited
England and Wales
Tullow Group Services Limited
Tullow Guinea Limited
Tullow Jamaica Limited
Tullow Mozambique 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 Peru Limited
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Tullow Senegal Exploration Limited
England and Wales
Tullow Technologies Limited
England and Wales
Tullow Uganda Midstream Limited
England and Wales
Tullow Uruguay Limited
England and Wales
Hardman Petroleum France SAS
Tulipe Oil SA
Tullow Oil Gabon SA
Invest in Africa
Tullow Oil (Mauritania) Ltd
Tullow Oil Holdings (Guernsey) Ltd
Tullow Oil Limited
Tullow Congo Limited
Tullow Equatorial Guinea Limited
Tullow Gabon Holdings Limited
Tullow Gabon Limited
France
Gabon
Gabon
Guernsey
Guernsey
Guernsey
Ireland
Isle of Man
Isle of Man
Isle of Man
Isle of Man
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%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Direct
Direct
Direct
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
179
3www.tullowoil.com TULLOW OIL PLC SUBSIDIARIES CONTINUED
AS AT 6 FEBRUARY 2017
Country of incorporation
% of nominal value of shares held
(all ordinary shares)
Type of ownership
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%
100%
100%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Company name
Tullow Mauritania Limited
Tullow Namibia Limited
Tullow Senegal Limited
Tullow Uganda Limited
Tullow Cote D’Ivoire Exploration Limited
Tullow Cote D’Ivoire Limited
Tullow Ghana Limited
Tullow India Operations Limited
Tullow Madagascar Limited
Tullow Oil (Jersey) Limited
Tullow Oil International Limited
Tullow Pakistan (Developments) Limited
Tullow DRC BV
Tullow Ethiopia BV
Tullow Global Compliance BV
Tullow Guyana BV
Tullow Hardman Holdings BV
Tullow Kenya BV
Tullow Mexico BV
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Tullow Netherlands Holding Cooperatief BA
Netherlands
Tullow Overseas Holdings BV
Tullow Suriname BV
Tullow Tanzania BV
Tullow Uganda Holdings BV
Tullow Zambia BV
Tullow Oil (Bream) Norge AS
Tullow Oil Norge AS
Energy Africa Bredasdorp Pty Ltd
Tullow South Africa (Pty) Limited
T.U. S.A.
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Norway
Norway
South Africa
South Africa
Uruguay
180
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts GLOSSARY
GLOSSARY
Pound Sterling million
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
£m
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
181 Tullow Oil plc 2017 Annual Report and Accounts
181
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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
182
182 Tullow Oil plc 2017 Annual Report and Accounts
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts
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
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
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
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
183 Tullow Oil plc 2017 Annual Report and Accounts
183
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RESULTS, REPORTS
& PRESENTATIONS
Financial results, corporate annual
reports, webcasts and fact books
are all stored in the Investor Relations
section of our website:
www.tullowoil.com/reports
E-COMMUNICATIONS
All documents on the website are
available to view without any particular
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COMPANY SECRETARY
& REGISTERED OFFICE
Kevin Massie
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
To contact any of Tullow’s
principal subsidiary undertakings,
please find address details on
www.tullowoil.com/contacts
or send ‘in care of’ to Tullow’s
registered address.
184
FINANCIAL STATEMENTSTullow Oil plc 2017 Annual Report and Accounts This report is printed on mixed source paper
which is FSC® certified (the standards
for well-managed forests, considering
environmental, social and economic issues).
Printed by Pureprint Group
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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