2019 Annual Report and Accounts
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Tullow is a well-established,
recognised oil and gas explorer
and producer operating across
Africa and South America
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 low-cost production. We have a prudent
financial strategy with diverse sources of funding.
Our portfolio of 74 licences spans 14 countries. We are headquartered
in London and our shares are listed on the London, Irish and
Ghana Stock Exchanges.
Jamaica
Peru
Guyana
Suriname
Côte d’Ivoire
Equatorial
Guinea
Ghana
Gabon
Uganda
Kenya
The Comoros
Namibia
Argentina
Key statistics
Group net oil and gas production
86,800 boepd
2018: 90,000 boepd
Reserves
243 mmboe
Proven and Probable Commercial Reserves
2018: 280 mmboe
Licences
74
Across 14 countries
2018: 87 licences across 17 countries
Lost Time Injury Rate (LTIR)
0.09 – Top Quartile
When benchmarked against
International Association of Oil and Gas Producers (IOGP)
2018: 0.28 LTIR
Strategic report
Key statistics
Our Group highlights
Our strategic roadmap
Executive Chair’s statement
Our investment case
s172(1) disclosure
Our business model
Markets
A balanced scorecard
Operations review
Chief Financial Officer’s statement
Finance review
Sustainability
Governance and risk management
Viability statement
Corporate governance
Directors’ report
Board of Directors
Stakeholder engagement
Audit Committee report
Nominations Committee report
Safety and Sustainability Committee report
Remuneration report
Other statutory information
Financial statements
Statement of Directors’ responsibilities
Independent auditor’s report
to the members of Tullow Oil plc
Group Financial Statements
Company Financial Statements
Supplementary information
Five-year financial summary
Transparency disclosure (unaudited)
Sustainability data (unaudited)
Shareholder information
Licence interests
Commercial reserves and contingent resources
summary (unaudited) working interest basis
Tullow Oil plc subsidiaries
Glossary
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Tullow Oil plc 2019 Annual Report and Accounts
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STRATEGIC REPORT Our Group highlights
A challenging year
We are working hard to deliver an efficient and effective
organisation, which will ensure we continue to generate
sustainable cash flow from our producing assets and
realise value from our exploration portfolio
Revenue
$1.7bn1
2018: $1.9bn
Underlying cash operating costs
$11.1/boe2
2018: $10.0/boe
Adjusted EBITDAX
$1.4bn2
2018: $1.6bn
Capital investment
$490m2
2018: $423m
Free cash flow
$355m2
2018: $411m
Net debt
$2.8bn2
2018: $3.1bn
(Loss)/profit after tax
$(1,694)m
2018: $85m
Gearing3
2.0 times2
2018: 1.9 times
1. Total revenue does not include other income from Tullow’s Corporate Business Interruption insurance of $43 million ($188 million in 2018).
2. Non-IFRS measures are reconciled on pages 19 to 22.
3. Gearing ratio calculated as net debt/adjusted EBITDAX.
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Tullow Oil plc 2019 Annual Report and Accounts
Our strategic roadmap
Our purpose is to create shared prosperity through the exploration
and development of oil and gas in emerging markets
Our stakeholders
Our investors:
Delivering sustainable
returns on capital
Our host countries:
Creating shared prosperity
Our people:
Providing a great place to
work and develop careers
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Our focused strategy
Delivering low-cost
oil and gas production
in Africa
Disciplined
exploration and
development
- Providing robust
and sustainable
cash flows
- Near-field short
cycle, new fields in
proven basins and
selected frontier
opportunities
- Progressing and
delivering value
from Uganda and
Kenya projects
Financial strategy
- Implementing a
more conservative
capital structure
- Clear options for
rebalancing through
asset portfolio
management
Efficient and effective
organisation
Committed to
sustainability
- Streamlined and
agile business
- Controlled and
integrated approach
to oil and gas
operations
- Continued high
priority on safety
- Shared prosperity in
our host countries
and communities
- Responsible
approach to
environmental
stewardship
- Committed to
equality and
transparency
- Responding to the
energy transition
Managing our risks
Strategy
Stakeholder
Climate change
EHS or security
See more on page 34
Financial
See more on page 34
Organisation
See more on page 35
Conduct
See more on page 35
Cyber
See more on page 35
See more on page 36
See more on page 36
See more on page 36
Tullow Oil plc 2019 Annual Report and Accounts
3
STRATEGIC REPORT
Executive Chair’s statement
Creating focus in
a challenging year
The Board is focused on addressing the poor performance of the
Company in 2019, restoring the confidence of our stakeholders and
delivering on the long-term potential of our portfolio
The Board was disappointed by the operational and
financial performance, and the overall executive
leadership of Tullow’s business in 2019. On behalf
of the Board, I would like to apologise for this poor
performance. Production in Ghana fell short of
expectations and in November a fundamental
review of the performance issues led to a reset
of production guidance for 2020 and beyond.
In addition, we were unable to proceed with our
planned farm-down in Uganda, and the lower
quality of oil found in the Jethro and Joe
discoveries in Guyana was a further setback.
Management changes
Following the executive, operational and financial
challenges, Paul McDade and Angus McCoss
resigned by mutual agreement in December.
I have become Executive Chair on an interim
basis while the Board seeks a new Chief Executive
Officer. A Management Team has been established
and is comprised of Les Wood, who continues as
Chief Financial Officer; Mark MacFarlane, who
previously ran Tullow’s East Africa business, and
is now our Chief Operating Officer; Ian Cloke, who
previously led Tullow’s New Ventures business and
is now leading a change programme to make us a
leaner, stronger business; and Julia Ross, previously
Corporate Head of Strategy and Performance,
who has taken on a Chief of Staff role supporting
me as Executive Chair.
Addressing the challenges
The failure to meet our production forecasts in
Ghana was extremely disappointing. The underlying
operational performance issues have been identified
and a work programme to permanently address
these issues is underway, which you can read more
about in Mark MacFarlane’s Operations review.
In light of the developments in 2019, Tullow has
carried out a Business Review, involving a thorough
reassessment of the Group’s operational structure,
cost base, future investment and asset portfolio
plans. The analysis of the cost base included
external benchmarking which demonstrated that
significant savings could be achieved whilst
making Tullow a more efficient and effective
organisation. This review is targeting net G&A
Read more about
management changes
on page 39
Read more about our
Operations review
on pages 13–15
“ The Board and I are
particularly conscious that
we have to rebuild trust
that has been eroded over
the past few months with
all our stakeholders. I am
determined that you will
see over the course of 2020
how committed we are to
that goal.”
Dorothy Thompson
Executive Chair
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Tullow Oil plc 2019 Annual Report and Accounts
Read more about the
Board of Directors
on pages 44 and 45
savings of c.$200 million over three years, delivered
through efficiency measures, including possible
office closures, which will most likely result in
a headcount reduction of 35 per cent.
Included in the organisation review is a redesign
of business processes including, importantly,
business planning and operational forecasting.
A fully integrated approach to planning is being
implemented, including a robust and detailed
review process.
Debt repayment remains a priority, and a key aspect
of the Business Review has been focused on achieving
this in the near to medium term through portfolio
action to deliver a more conservative capital structure.
The outcome of this review will also ensure that
Tullow’s costs are more appropriate for the size and
shape of our business; the reduced 2020 capital
expenditure level is being allocated appropriately
to the Group’s producing assets, development
projects and future exploration; and our operating
costs are competitive relative to industry standards.
The Board expects these actions to enable the Group
to generate underlying free cash flow in 2020 of
at $50-$75 million at $50/bbl from 75,000 bopd.
The lower levels of free cash flow and the need to
continue to prioritise debt repayment has meant
that the Board has taken the difficult decision to
suspend the dividend.
Areas of progress
It is important to note that we made good
progress in some other parts of Tullow’s portfolio.
In West Africa, our non-operated assets continued
to deliver strong production performance. The
portfolio of assets comprises of mature and recently
developed fields, for which implementation of
cost efficient incremental development investment
and robust field management has yielded a
year-on-year reserve replacement exceeding
the annually produced volume.
In Kenya, Tullow reached a number of important
milestones on Project Oil Kenya, which is moving
towards a Final Investment Decision (FID) once the
government has delivered on critical items including
water and land access rights. The shipping of the
first ever cargo of East African oil from Mombasa
in August was a clear signal of how this project
is moving forward. Developing new projects in
nascent oil industries requires both technical
expertise and strong relationships to align a full
range of stakeholder interests and the progress
we have made in Kenya shows how Tullow can
meet those challenges successfully.
With over 1.7 billion barrels of discovered recoverable
resources, the Lake Albert project in Uganda
continues to remain a significant asset. However,
the delays and lapse of the Sale and Purchase
Agreement (SPA) of the farm-down of part of Tullow’s
equity stake to Total and CNOOC has stalled the
project. The Joint Venture Partners continue to hold
discussions with the government to agree the stable
commercial and fiscal framework to enable the
project to move to a Final Investment Decision (FID).
In line with our exploration strategy, we drilled
three wildcat exploration wells, acquired promising
acreage, and ensured all prospects were subject to
rigorous scrutiny. The Joe and Jethro discoveries
in Guyana were ultimately disappointing with lower
oil quality discovered than originally prognosed,
and investors were frustrated. The Carapa-1 well
confirmed the presence of hydrocarbons and
importantly, supports the potential of the Cretaceous
play from the Exxon-operated Stabroek licence on
both the adjacent Kanuku and Orinduik licences.
So far in 2020, Tullow has drilled one exploration well
in Peru, which did not make a commercial discovery;
we will also be drilling in Suriname as well as
thinking carefully about how to proceed in Guyana.
Board changes
The Board is the guardian of corporate governance
and good governance becomes even more important
in challenging times and must underpin the health
of the whole business. During 2019, I was very pleased
to welcome Sheila Khama and Genevieve Sangudi
to the Board, who bring a wealth of experience
both in Africa and in resource industries. Sheila
and Genevieve’s appointments also meant that in
2019, we achieved greater than 30 per cent female
representation and greater than 20 per cent African
representation on our Board of Directors ahead
of our 2020 target. Tullow’s Board also welcomed
Martin Greenslade, who will chair the Audit
Committee after the 2020 AGM. Martin brings a
new perspective from his role as the serving CFO
of Land Securities.
Tutu Agyare stepped down at the 2019 AGM
and Steve Lucas will step down at the 2020 AGM.
I am very grateful to them both for the insights
and expertise they brought to Tullow in the nine
and eight years they served respectively as
non-executive Directors.
Safety
The health and safety of our employees and host
communities is always a key priority. Notwithstanding
an increase of High Potential Incidents (HiPos)
throughout the year, the safety performance
achieved overall in 2019 was positive. Our key
safety performance indicators for 2019 remain
in the top industry quartile when benchmarked
against the International Association of Oil and
Gas Producers (IOGP). Nevertheless, we continue
our efforts to prevent HiPos and prioritise safety
at every opportunity. In September, Tullow held
a global safety stand down event in 16 locations
across 10 countries to raise safety awareness,
a positive reflection of Tullow’s safety culture
across the organisation. While Tullow’s cost base
has been significantly reduced, our focus on
maintaining the safety of our people and our
operations will not be compromised in any way.
Tullow Oil plc 2019 Annual Report and Accounts
5
STRATEGIC REPORT Read more about
Tullow’s response to
the recommendations
of the TCFD
on pages 25 and 26
Read more in our
Sustainability Report
www.tullowoil.com/
sustainability
Read more about TAP
on pages 30 and 47
Read more about our
strategic roadmap
on page 3
Read more about our
response to COVID-19
and OPEC+
on page 20
Executive Chair’s statement continued
Culture
Tullow has always prided itself on its positive work
environment and its strong values and culture.
However, it is clear that the issues of the past few
months would not have affected the business as
significantly, had better flows of information and
communication between the business and senior
management been in place, which the Board
also acknowledges. This has led us to question
both what we need to do to improve and how can
our oversight of Tullow’s culture ensure this does
not happen again. We are focused, through the
Business Review, on supporting changes in our
ways of working to create a flatter, leaner structure,
with a more transparent flow of information,
greater empowerment and accountability and
an environment of speaking up.
In response to the new requirements of the corporate
governance code, we have also set up a Tullow
Advisory Panel (TAP) made up of 12 people from
across the business, which I currently meet with
on a monthly basis. You can read more about why
we chose this format to ensure the employee voice
is heard at the Board; about TAP’s governance and
how it operates; and the key issues discussed so far
on page 30. The input from this group has already
been vital to the Board in providing insight and focus
as we make progress with the Business Review.
Climate change
While we are focused on the immediate challenges
facing Tullow, we know that we must consider
the wider context in which we operate and, in
particular, the impact of climate change. As an
Africa-focused company, we appreciate that
emerging oil and gas producing nations are
confronted with complex trade-offs between
the need to maximise the value of their natural,
human and financial resources, whilst building
the foundation for a lower-carbon future.
We continue to support our host governments as they
seek to use oil revenues to promote sustainable
and inclusive economic development, and we will
align with the actions that they take to manage climate
change. We are also very conscious of the extent to
which it has risen up the agendas of investors, our
employees and the general public. Which is why,
during 2019, we have assessed climate change as
a principal risk for Tullow and have formalised our
support for the goals of the Paris Agreement by
including in our 2020 Scorecard a KPI to define an
Energy Transition strategy for Tullow to achieve net
zero emissions (Scope 1 and 2).
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Tullow Oil plc 2019 Annual Report and Accounts
While fossil fuels are expected to continue to make
a significant contribution to meeting the world’s
growing energy needs during this time, the overall
decarbonisation of the global economy presents
oil exploration and production companies with some
fundamental new challenges. Our disclosures
in alignment with the recommendations of the
Taskforce on Climate-related Financial Disclosures
(TCFD), which you can read on pages 25 and 26,
reflects Tullow’s response to these challenges.
Shared prosperity
Our host countries are a key stakeholder for Tullow
and we believe that the development of natural
resources can be a route to helping them strengthen
their economies and improve the welfare of their
people. In the past year, we have spent more than
$336 million with local suppliers in Kenya and Ghana,
bringing our total spend with local suppliers in
Africa to more than $2 billion over the past eight
years. We have published a Sustainability Report,
where you can read more about the work we are
doing in our countries of operation to support our
local communities and their local economies.
Outlook
As I write this report, the search for Tullow’s
new CEO is progressing well. This key leadership
position will, together with the Board, determine
Tullow’s future purpose, strategy, business model
and Company values. Nevertheless, the Board and
Management Team are very clear that our focused
strategy, as articulated on page 3 of this report,
will help get Tullow back to a position of strength.
I recognise, however, that should market conditions
related to COVID-19 and OPEC+ prevail and Tullow
is unable to execute its planned asset sales in a
timely way, we face significant challenges as a
business. Nevertheless, despite the recent
unprecedented change in market conditions, and
the difficulties Tullow has encountered, the Board
continues to believe that this business has good
assets and excellent people capable of creating
long-term value.
The key task ahead is to rebuild trust in our capability
to deliver our commitments, namely, restoring reliable
performance without compromising safety, from a
reduced cost base; to deliver portfolio management
and sustainable free cash flow. I am determined you
will see over the course of 2020 how committed we
are to those goals and that the decisive actions we
have already taken are only our first steps towards
restoring confidence by creating sound foundations
for an attractive and profitable future.
Dorothy Thompson
Executive Chair
11 March 2020
Our investment case
Despite the setbacks of 2019, the Board believes Tullow continues to be a robust business
- Free cash flow generation: Tullow has a disciplined approach to capital allocation and generated free cash flow of
$355 million in 2019. Free cash flow is expected to be at $50-$75 million at $50/bbl from 75,000 bopd in 2020, and by
managing our cost base and equities across the portfolio, we expect to continue reducing our debt and create more
options for Tullow’s future growth.
- Low-cost production: Tullow has a portfolio of low-cost, high-margin production from West Africa. Over 95 per cent of
Tullow’s reserves and resources were independently audited in 2019, with results underpinning the quality of the asset
base, and with reserve increases identified at Jubilee and the non-operated portfolio.
- New resources: Tullow has c.700 mmboe of net 2C resources in East Africa on a path to development.
- Exploration: Tullow has a substantial exploration position in emerging basins, as well as near-field exploration alongside
existing assets. We are renowned for getting into attractive acreage early, drilling efficiently and safely and ensuring our
technical and financial risks are carefully managed.
Statement by the Directors in performance of their statutory duties in accordance
with s172(1) of the Companies Act 2006
2019 was a year in which the Board of directors of Tullow Oil plc acted decisively to intervene in the management of the
Company. The Board of directors of Tullow Oil plc consider, both individually and together, that they have acted in the way
they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as
a whole (having regard to the stakeholders and matters set out in s172(1)(a-f) of the Companies Act 2006) in the decisions
taken throughout the year ended 31 December 2019.
Tullow’s purpose is to create shared prosperity through the exploration and development of oil and gas in emerging markets
and is focused on creating sustainable long-term value for each of our stakeholders. To achieve this, the Board has established
the Company’s strategic focus (see page 3), it has engaged with its key stakeholders (see pages 46 and 47) and has
considered and monitored the Company’s principal risks (see pages 31 to 36). The Board takes each of these matters into
account and the likely long-term consequences of its decisions when pursuing the purpose.
The safety of our workforce and the communities in which we operate is a key component of our culture and is critical to
our success. In addition to this, the Company’s ability to respond to the impact of the transition to a low-carbon energy
supply will determine our future. In recognition of these matters, in 2019 the directors introduced a new principal risk
relating to climate change (see page 32) and the Board established the Safety and Sustainability Committee (see pages 56
to 57). The Remuneration Committee also included safety and Tullow’s response to climate change in a more focused set of
key performance indicators for the 2020 scorecard. By doing this, the Board intends to use the remuneration arrangements
available to the executive directors and all our employees to encourage the appropriate safety culture and create long-term
sustainable value.
The interests of our employees and wider workforce are important to the directors because they are key stakeholders of
the Company. In 2019, the Board established the Tullow Advisory Panel (TAP) (see page 30) which has been instrumental
in providing feedback to the non-executive directors and helped inform a number of subsequent decisions of the Board,
including organisational structure, internal controls, and the career development of our talent.
The benefit and impact of our operations to our host countries and their local communities is considered by the Board when
making strategic decisions and informed by engagement. In 2019, the Board visited our operations in Kenya (see page 47)
and met with local communities, government ministers, key contractors and suppliers and received presentations on issues
relating to Tullow’s operations and the environment such as water management and infrastructure completion. These
engagements with our stakeholders have informed subsequent decisions by the Board when reviewing the Kenya Project.
The disappointing operational and financial performance of the Company in 2019 required the Board to make some challenging
decisions and initiate a Business Review which focused on the fundamentals of our business (see page 4). The reputation
of Tullow and the trust of our shareholders and investors was a key consideration by the Board in reaching these decisions.
The lower levels of free cash flow and the need to continue to prioritise debt repayment in the short term meant that,
in consideration of the Company’s capital allocation (see page 17) the Board took the decision to suspend the dividend.
The Board is conscious that it needs to rebuild the trust and Tullow’s reputation with our shareholders and intends to do
this through the communication and responsible delivery of a long-term strategy to promote the success of the Company
that delivers value for the benefit of its members as a whole.
Tullow Oil plc 2019 Annual Report and Accounts
7
STRATEGIC REPORT Our business model
Across each part of the oil life cycle we work to create value
for our investors, host countries and people
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Our inputs
Our investors
1.4bn
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issued share capital, with over
70% held by institutional investors
OUR PEO P L E
Our host countries
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Countries of operation
including the UK
OUR PEO P L E
74
Exploration and production licences
Our business
Tullow’s business model is to
find and monetise oil from our
portfolio of assets across Africa
and South America. Our activities
are focused on generating cash
flow from production, selectively
developing discoveries and
investing in exploration to find
new oil for future growth or early
monetisation. We have a prudent
financial strategy with diverse
sources of funding. We are
focused on debt reduction and
right sizing our asset base
through portfolio management.
Our value life cycle
Explore
Through targeted exploration in
Africa and South America we aim
to find oil, to build reserves and
resources, to monetise, or to
selectively develop for future
production. We aim to build the
best inventory of prospects for
drilling, managing risk exposure
through our equity level and
remain agile to take advantage
of exploration opportunities.
Oil life cycle investment and revenue
Exploration and appraisal 2–10 yrs
Development 3–10 yrs
Production 20–50 yrs
Decommissioning
Our people
Technically skilled and
experienced professionals
in discovering, producing
and monetising oil
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Appraisal proves
commerciality
of field
Exploration success
Seismic
survey
First exploration well
First Oil
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Tullow Oil plc 2019 Annual Report and Accounts
Develop
Produce
We focus on selective development of
material oil discoveries we have found.
We invest in low-cost, near-field wells
drilled adjacent to our producing
assets, as well as opportunities
identified through exploration.
Production is the cash engine of
our business and we are investing
in in-field drilling programmes to
extend production plateaus across
our producing assets in West Africa.
Our investors
$355m
Free cash flow
Oil life cycle investment and revenue
Exploration and appraisal 2–10 yrs
Development 3–10 yrs
Production 20–50 yrs
Decommissioning
Read more in our
Operations Review
on pages 13–15
Government take
Oil company take
Government net cash flow
Oil company cost
Oil company opex
Government investment
How we create value
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Our host countries
$413m
Payments to governments
OUR PEO P L E
86,800 boepd
Group net oil and gas production includes
insurance barrels from lost production
$336m
Spend with local suppliers
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Our people
99%
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Employees awarded shares
OUR PEO P L E
$2.9m
Spend on staff training
Tullow Oil plc 2019 Annual Report and Accounts
9
STRATEGIC REPORT
Markets
A changing environment
Political risks
The African oil industry has enjoyed mixed fortunes
over the past ten years. Between 1999 and 2009,
Sub-Saharan Africa significantly increased its
share of global oil production and reserves, but
since then – despite the opening of new oil
provinces in West and East Africa – African
production has declined and reserves growth has
tailed off. Several factors explain this, including
the oil price shock of 2009 and the much longer
and deeper price collapse in 2014. Big African gas
discoveries and the growth of the US shale industry
have also played a part in the reallocation of
investment capital.
However, Africa’s oil fortunes have also been
affected by trends closer to home. Firstly, during
the oil super-cycle, many countries in the region
adopted tighter fiscal terms, deterring exploration
investment and rendering otherwise investable
projects unviable, especially at today’s lower oil
price. Secondly, the decision-making process has
become slower and more complex as countries
have established new institutions to govern the
sector and as governments have become more
accountable to civil society and democratic
practices have deepened. Consequently, many
governments have been slow to adjust to changing
market signals and many African oil jurisdictions
have become uncompetitive. Several recent
licensing rounds have attracted limited industry
interest and countries like Tanzania and Uganda
that have sought to capture greater host country
value in the midst of major developments have
seen project momentum stall.
African countries are right to seek to maximise the
socio-economic development opportunity that oil
presents and to establish the right institutional
framework to ensure this. However, these pressing
needs must be balanced with the right economic
incentives for International Oil Companies, coupled
with the timely and judicious decision making that
is necessary for Africa’s undoubted oil potential to
be realised at a time of increasing competition for
capital. This is especially true in the context of the
energy transition, which will require prospective oil
producers to minimise the time to First Oil and to
develop local content strategies that prepare their
economies and societies for disruptive change in
the global energy matrix.
“ Since 2009 – despite the
opening of new oil provinces
in West and East Africa –
African production has
declined, and reserves
growth has tailed off.”
Finding this balance will not happen overnight,
but Tullow is working hard with our host countries
to achieve it: engaging early and systematically
with all project-affected stakeholders to ensure
that our hosts and prospective hosts understand
the commercial needs of our business and see
the merits of our investments; working with host
governments and communities to develop a
shared prosperity strategy that will deliver real
socio-economic benefits; and ensuring that
our business and operations are as transparent
as possible.
Oil price
Brent crude made gains of 18 per cent over the
course of 2019 driven by numerous geopolitical
events and tensions. The year started with
OPEC-led production cuts and US sanctions on
Venezuela’s state-run oil company, followed by
further production cuts from Saudi Arabia and
Russia, countered by the US President’s request to
OPEC for a production increase to bring down fuel
costs. Tensions were heightened at various points
in the year in the Middle East with attacks on oil
tankers off the coast of the UAE, and several drone
strikes by Yemeni rebels against Saudi Arabian oil
facilities, leading to concerns over Middle Eastern
oil supply disruptions. Retaliatory trade tensions
between the USA and China threatened global
growth prospects and the seizure of an Iranian oil
tanker suspected of breaking European sanctions
further raised geopolitical tensions. Towards the
end of the year, weaker than expected global
macroeconomic data then weighed on the market,
but the eventual US–China trade deal and planned
OPEC production cuts in 2020 led to a steady rally
in Brent crude prices. However, in March 2020,
OPEC+ met to discuss the need to cut oil supply
10
Tullow Oil plc 2019 Annual Report and Accounts
Read more about TCFD
on pages 25 and 26
to balance oil markets in the wake of the COVID-19
outbreak which has had a material impact on oil
demand. The group failed to reach agreement and
on 7 March 2020, Saudi Aramco unilaterally and
aggressively cut its Official Selling Prices in an
attempt to prioritise market share rather than price
stability and effectively started a price war. As a
result, on 9 March 2020, oil prices fell by around
20 per cent and the forward curve for 2020 and 2021
fell to approximately $38/bbl and $42/bbl respectively.
These recent events will continue to have an impact
on oil price volatility. Tullow prudently manages its
commodity risk and is well hedged with 60 per cent
of 2020 production hedged at a floor price of
$57/bbl and 40 per cent hedged at a floor price
of $52/bbl for 2021. Realised oil prices for January
and February 2020 are expected to average
over $60/bbl.
The oil and gas industry
Demand for oil and gas could remain resilient
despite further global warming, as primary energy
demand continues to rise, including from energy
and carbon-intensive sectors, such as steel, cement
and heavy industry, as well as petrochemicals.
The industry base case oil demand scenarios
typically see oil demand continuing to grow into
the 2030s. For example, the International Energy
Agency (IEA) Current Policies Scenario sees oil
demand continuing to increase, approaching
120 million bopd to 2040; the Stated Policies
Scenario sees oil demand growing to 2040 at a
lesser rate; and the Sustainable Development
Scenario sees a potential flattening in oil demand
in the 2020s.
Mounting societal pressure, driven in part by
global movements like Extinction Rebellion are
in turn increasing pressure on governments to act.
The acceleration of renewables and low carbon
technologies and the redirection of finance towards
sustainable investment mean that the move towards
a low-carbon economy could both be accelerated
and disorderly.
Climate change is weighing on investment sentiment.
The oil and gas sector, up until the recent oil price
crash, has delivered the highest levels of free cash
flow and dividend yields in two decades. However,
increased scepticism, particularly from generalists
regarding the long-term value of oil and gas assets,
has led to a structural de-rating of the sector.
There is also an increasing trend towards
environmental, social, and governance (ESG)
investment. Today over one-third of global capital
has some type of ESG mandate, and ‘Sustainable
Investment’ now tops $30 trillion – up 68 per cent
since 2014 and tenfold since 2004.
“ Mounting societal pressure
is increasing pressure on
governments to act, the
acceleration of renewables
and the redirection of
finance towards sustainable
investment mean that the
move towards a low-carbon
economy could both be
accelerated and disorderly.”
Some governments are increasing their ambitions
with the UK, the EU and most recently Canada
committing to achieve net zero emissions by 2050,
which have followed more ambitious pledges from
Finland and Norway. Across the Atlantic, despite
the USA pulling out of the Paris Agreement, 4,000
businesses, city and state leaders signed the ‘We
Are Still In’ declaration. On the other hand major
emitters India and China have not yet formally
committed to increasing their targets to reduce
carbon emissions, with China’s targets in
particular considered highly insufficient.
In Ghana, the government released its Renewable
Energy Master Plan in 2019, calling for investment
of $5.6 billion over 12 years ($460 million per year
from 2019–2030) and aiming to boost renewable
energy in the national energy generation mix from
c.40MW in 2015 to over 1,000MW by 2030. It also
aims to reduce the dependence on biomass as the
main fuel for cooking and other thermal energy
applications; provide renewable energy-based
decentralised electrification options in 1,000 off-grid
communities; and promote local content and local
participation in the renewable energy industry.
In Kenya, approximately 70 per cent of electricity
comes from renewable sources such as hydropower
and geothermal, more than three times the global
average. The Kenyan government aims to generate
100 per cent of energy from renewable sources by
the end of 2020. However, most governments still
recognise that oil and gas will play an important
role in the development and funding of future
energy ambitions.
Despite these challenges for the sector and the
reality that demand for oil is likely to flatten in
the medium term, the natural decline of oil fields
will require billions of dollars to continue being
invested to maintain existing production and to
find and develop new oil fields.
Tullow Oil plc 2019 Annual Report and Accounts
11
STRATEGIC REPORT A balanced scorecard
Measuring our performance
Our scorecard aligns both executive pay and employees’ performance related pay to
key performance indicators (KPIs) measuring our performance across a range of
operational, financial and non-financial measures
2019 Scorecard
1. Business delivery
- Disappointing production performance in Ghana
- Net debt reduction of $0.3 billion
2. Growing our business
- FID not achieved in Kenya
- Sale and Purchase Agreement terminated in Uganda
- Three non-commercial discoveries in Guyana
- Eight prospects progressed to drill worthy status
3. Pursuing our vision*
- Progress on people development and working environment
4. Total Shareholder Return
- Poor performance and suspension of the dividend
* Given the change in management at the end of the year, our purpose, vision
and strategy will be reviewed by the new CEO on their appointment in 2020.
2020 Scorecard
1. Safety
- Top-quartile performance in Total Recordable Incident Rate (TRIR)
- Reducing the number of Process Safety Events
2. Production
- 70,000–80,000 barrels of oil produced per day
3. Financial
- Competitive operating costs
- Reduced gross G&A
4. Energy transition
- Define energy transition strategy in 2020 for Tullow to
achieve net zero emissions (scope 1 and 2)
5. Strategic
- Create a sustainable platform for the future: portfolio actions,
debt reduction, and restoring trust with all stakeholders
6. Total Shareholder Return
- Creating shareholder value
2.
Growing our business
5.8/20%
1.
Business
delivery
6.2/15%
3.
Pursuing
our vision
6.5/15%
4.
Total Shareholder
Return
0/50%
Remuneration Report
pages 58–79
2.
Production
15%
3.
Financial
5%
4.
Energy
transition
5%
1.
Safety
10%
5.
Strategic
15%
6.
Total Shareholder Return
50%
The new scorecard responds to shareholders’ requests to make it more simple and measurable via quantitative KPIs. It ensures
safety is prioritised alongside operational targets, and balances short term production targets with longer-term strategic options
to grow our business, whilst delivering a robust response to the energy transition.
12
Tullow Oil plc 2019 Annual Report and Accounts
Operations review
A review of our operations
Discover more about
our strategy
on page 3
Production
Group working interest production averaged
86,800 boepd in 2019. This includes production-
equivalent insurance payments of 2,000 bopd from
Tullow’s Corporate Business Interruption insurance
and 100 boepd of gas sales from TEN. The insured
period associated with Tullow’s Corporate Business
Interruption insurance claim related to the Jubilee
FPSO turret ended in May 2019, three years after
cover commenced. Tullow continues to insure
against Business Interruption.
Guidance for production in 2020 remains unchanged.
Working interest oil production is expected to average
between 70,000 and 80,000 bopd and year-to-date,
Group production is in line with expectations.
Net oil production (kboepd)
2019
actuals
2020
mid-point
guidance
31.1
2.0
28.8
0.1
29.0
n/a
23.0
–
24.8
23.0
Ghana
Jubilee
Business Interruption
insurance
TEN
TEN gas
Non-operated portfolio
Gabon, Côte d’Ivoire and
Equatorial Guinea
Total
86.8
75.0
“ We reached a number of
key milestones with Project
Oil Kenya but the continued
lack of progress in the farm
down of the Lake Albert
development in Uganda
was a disappointment.”
Mark MacFarlane
Chief Operating Officer
Tullow Oil plc 2019 Annual Report and Accounts
13
STRATEGIC REPORT Discover more about
our strategy
on page 3
Operations review continued
West Africa
Ghana
Production from TEN and Jubilee was below
expectations in 2019, impacted by a number of
factors which were discussed in Tullow’s ‘Board
Changes and 2020 Guidance’ announcement on
9 December 2019. Forecasts for 2020 have taken
these issues and planned remediations into account
and performance in the year to date is encouraging.
A series of actions are being taken to improve
overall operating efficiency and reliability at the
Jubilee FPSO. Since the start of the year, the
planned maintenance work has been successfully
carried out to increase gas processing capacity.
Repairs have also been carried out to the water
injection system which is currently operating at its
full design capacity. To sustain full water injection
capacity, a taskforce has been formed to implement
a series of system reliability improvements that will
be carried out throughout the course of the year.
Discussions with Government to increase levels of
gas offtake from both Jubilee and TEN have also
progressed well and the Ministry of Energy (MoE)
is implementing a nominations policy for increased
offtake of gas. When followed consistently, this will
reduce the amount of gas being reinjected into the
field and will help to improve the Gas-to-Oil ratio
over time. Tullow has also obtained approval from
the MoE to increase flaring from the Jubilee and
TEN fields. This permit gives Tullow more scope to
effectively manage the amount of gas being injected
into the field to help improve the Gas-to-Oil ratio.
The increased gas processing capacity delivered in
February, flaring, and the renewed focus on well
and facility optimisation has delivered improved
production levels, with Jubilee currently producing
over 90,000 bopd gross.
At TEN, Tullow and its Joint Venture Partners
continue to re-evaluate the Enyenra development
plan following faster than expected decline at the
field and a reduction in reserves. Near-term
investment is being concentrated on the Ntomme
field, where reserves remain robust with the
potential for future growth. Both Enyenra and
Ntomme are currently producing in line with
expectations, with a combined production of
around 50,000 bopd gross.
The Stena Forth and Maersk Venturer drillships
worked in tandem on Ghana drilling and completion
operations throughout the first half of 2019. The
Stena Forth rig was then released for other activities
and the Maersk Venturer remains in Ghana. In 2019,
five wells were drilled and completed. Tullow expects
to continue to use the Maersk Venturer rig across
both the TEN and Jubilee fields in 2020. A production
well at the Ntomme field is currently being drilled,
once completed, the rig will then return to Jubilee
to drill and complete a water injector before carrying
out workovers on a producer and a water injector.
14
Tullow Oil plc 2019 Annual Report and Accounts
The final phase of the Turret Remediation Project
is the installation of a Catenary Anchor Leg Mooring
(CALM) buoy to assist with offloading. The CALM
buoy arrived in Ghana in January 2020 and once
the installation work is complete and the system
is mechanically operational, commissioning is
expected to be completed on schedule in the
second quarter of 2020.
Non-operated Portfolio
Production from Tullow’s non-operated portfolio
was stable in 2019, with strong performance from
the Ruche and Simba fields in Gabon, in particular.
In December 2019, Tullow’s Joint Venture Partners
in the Ruche PSC in Gabon announced that the
Group’s back-in arrangements had completed.
The deal added c.1,000 bopd in 2019 with further
growth forecast in 2020 as additional wells are
brought onstream.
Decommissioning
Decommissioning of Tullow-operated licences in
the UK North Sea continues to progress as planned.
The Group is planning to undertake the final
removal and seabed clearance activities during the
summer of 2020. In Mauritania, the abandonment
programme for the wells in the Chinguetti field
commenced at the end of 2019. The abandonment
of the wells at the Banda and Tiof fields is due to
commence after Chinguetti and continue in 2021.
East Africa
Kenya
Good progress on Project Oil Kenya was made in
2019. Front End Engineering Design (FEED) studies
for the upstream and midstream parts of the
project were finalised, the tendering process for
wells is now complete and upstream tendering for
Engineering, Procurement and Construction (EPC)
has commenced. The midstream Environmental
and Social Impact Assessment (ESIA) was
submitted to the National Environmental
Management Agency (NEMA) in November 2019.
The upstream ESIA is now technically complete
and publicly available and will be submitted to
NEMA in the second quarter of 2020 after final
consultation work in Turkana. The land acquisition
work led by the Government of Kenya for the
upstream development has commenced in the field.
Progress has been slower on some workstreams
such as access rights to land and water and the
long-form commercial agreements to be entered
with the Government of Kenya. This slow progress
means that the target of reaching FID by year-end
2020 becomes more challenging.
In May 2019, the Early Oil Pilot Scheme (EOPS)
production reached 2,000 bopd. Production
performance tested during EOPS demonstrates
that the reservoir remains consistent with
expectations, and no further reservoir data is
expected to be required to de-risk the project.
South America
Guyana
Tullow completed a three-well exploration campaign
in Guyana in 2019, drilling the Jethro-1 and Joe-1
wells in the Tullow-operated Orinduik licence and
the Carapa-1 well in the non-operated Kanuku
licence. In the Orinduik Block, the Jethro-1 and
Joe-1 wells discovered 55 metres and 14 metres of
net oil pay, respectively in Tertiary-age reservoirs.
Full analysis of the oil found indicated both deepwater
discoveries contained heavy oil with high sulphur
content. In the Kanuku block, operated by Repsol,
the Carapa-1 well drilled in a water depth of
80 metres discovered four metres of net oil pay
containing good quality low sulphur oil, but in
poorly developed reservoirs of Cretaceous age.
The Carapa-1 well confirmed the extension of the
prolific lighter oil hydrocarbon play in the Stabroek
Block which is adjacent to Tullow’s acreage. The
next steps in Guyana will be to integrate the three
well results into updated geological and geophysical
models, with a focus on the high-grading of the
Cretaceous portfolio where better quality oil is
expected across both the Kanuku and Orinduik blocks.
Peru
In February 2020, Tullow announced that the Marina-1
exploration well, drilled in the non-operated Block
Z-38 offshore Peru, did not encounter significant
hydrocarbons. Marina-1 was the first well in the
deep-water section of the under-explored Tumbes
basin and data gathered will now be integrated into
geological models to update the prospect inventory
for Blocks Z-38 and the neighbouring Tullow
operated Z-64 licence. Despite the disappointing
result, Tullow remains positive about Peru’s wider
offshore exploration potential.
Suriname
The Goliathberg-Voltzberg North well in Block 47 is
planned to be drilled in the fourth quarter of 2020
testing dual targets in the Cretaceous turbidite play
in approximately 1,900 metres of water.
Argentina
In Argentina, Tullow successfully bid on Blocks
114, 119 and 122, which were formally awarded in
October 2019. Located in the Malvinas West Basin,
the operated offshore blocks include shallow water
Tertiary and Cretaceous turbidite plays. Geological
studies and 2D seismic reprocessing were completed
in 2019 and a 10,500 sq km 3D multi-client seismic
survey covering Blocks 114 and 119 commenced in
December 2019. A further 3D seismic survey is
planned to commence in late 2020 over Block 122.
Jamaica
The Walton-Morant licence exploration period
expires on 31 July 2020.
The first export of oil from East Africa, a cargo
of 240,000 barrels, was flagged off from the port
of Mombasa by H.E. Uhuru Kenyatta, the President
of Kenya in August 2019. EOPS was suspended in
the fourth quarter of 2019 following adverse weather
which caused severe damage to the roads used by
the trucks transporting the crude. Trucking operations
remain suspended until all roads are repaired to a
safe standard.
Uganda
In August 2019, Tullow announced that its farm-down
to Total and CNOOC lapsed following the expiry of
the Sale and Purchase Agreements (SPAs). The
expiry of the transaction was a result of being
unable to agree all aspects of the tax treatment of
the transaction with the Government of Uganda
which was a condition precedent to completing the
SPAs. Joint Venture conversations with the
Government are ongoing. Tullow remains
committed to reducing its equity in the project
ahead of FID and is working constructively with the
Joint Venture Partners and the Government of
Uganda to agree a way forward.
The planned development of Uganda’s material
oil resources remains at an advanced stage, with
the project’s major technical aspects completed.
For the upstream components of the project, the
ESIA Certificate has been awarded for the Tilenga
Project, and the final ESIA report has been submitted
for the Kingfisher Project. Good progress has been
made on land access secured for both upstream
projects and construction costs and schedules
have been confirmed from the main EPC bid
submissions. For the East Africa Crude Oil Pipeline
(EACOP) project, the ESIA certificate has been
awarded in Tanzania, and the final ESIA report has
been submitted to the Government of Uganda. The
key project legal and commercial prerequisites
have been outlined to Government by the Joint
Venture Partners, with the schedule to FID now
dependent on the progress of these negotiations.
Exploration
Africa
2019 exploration activity in Africa was focused on
seismic acquisition, access and portfolio management.
In Côte d’Ivoire, the farm-in by Cairn Energy to
Tullow’s seven onshore licences was completed,
and acquisition of a 500 km 2D seismic programme
has commenced. In the Comoros, Tullow completed
its farm-in to a 35 per cent operated interest and
a 3,000 sq km 3D seismic survey of the deepwater
play of the Rovuma delta was acquired in the second
half of 2019 with the interpretation under way.
In Namibia, Tullow acquired a 56 per cent operated
interest in PEL-90 offshore Namibia from Calima
Energy in June 2019. This was a strategic, low-cost
acquisition with no drilling commitments adjacent
to the acreage where the Venus-1 wildcat is planned
to be drilled by Total in 2020. Licence withdrawals
included Blocks C-18 and C-3 in Mauritania and
Block 31 in Zambia.
Tullow Oil plc 2019 Annual Report and Accounts
15
STRATEGIC REPORT
Chief Financial Officer’s statement
Our financial
performance
In spite of a challenging year, the Group continues to
prioritise debt reduction and is reinforcing its prudent
financial approach to take the business forward
Tullow has this year underperformed both operationally and financially;
however, we have made prudent financial management decisions and,
with the reset of the organisation, will continue to do so to set a platform
to take the business forward.
In 2019 Tullow generated $1.7 billion in revenue and, after $490 million of
capital investment in the business, delivered $355 million of free cash flow.
We have reported substantial pre-tax impairments and exploration write-offs
totalling $2.0 billion. These were primarily driven by a $10/bbl reduction
in the Group’s long-term accounting oil price assumption, a reduction
in TEN 2P reserves, a reduction in the overall valuation of the Uganda
project following the removal of higher risk elements of development
and lastly, the impact of drilling results throughout 2019 and licence
exits. The impact of these impairments and write-offs lead to a post-tax
loss of $1.7 billion.
In 2019 our cost base remained fairly stable with unit operating costs of
$11.1/bbl (2018: $10.0/bbl), net G&A costs of $112 million (2018: $90 million)
and finance costs of $322 million (2018: $329 million). During the year, we
continued to reduce debt, ending the year at $2.8 billion (2018: $3.1 billion),
with headroom on free cash and undrawn facilities of over $1 billion.
The combination of all these results was a full-year EBITDAX of $1.4 billion
(2018: $1.6 billion) and a Net debt to EBITDAX gearing level of 2.0 times
(2018:1.9 times).
Challenges and actions to be taken in 2020
While our producing assets continued to generate good cash flow it is
clear that, following the revision to guidance of our future production
forecasts, we need to take actions that will strengthen our financial
performance and deliver sustainable free cash flow.
We are now taking these actions, which are reflected in the outcomes of
the Business Review and include reducing capital expenditure, operating
costs, G&A and portfolio management to raise proceeds in excess of
$1 billion. This will ensure that we have an efficient and effective right
sized business for our activity set.
By taking these actions, the Group expects to generate underlying
free cash flow in 2020 of $50–75 million at 75,000 bopd (at $50/bbl).
Considering this lower level of forecast free cash flow, the Board has
taken the decision to suspend the dividend.
A focus on costs
The changes we are making are underpinned by a continued focus on
maintaining cost discipline. We have set out plans to reduce net G&A
costs by $30 million in 2020, and gross G&A costs by over $100 million.
“ Our major review of all
areas of our operations has
provided a clear plan to
address the problems we
have encountered and
create a more efficient and
effective business.”
Les Wood
Chief Financial Officer
16
Tullow Oil plc 2019 Annual Report and Accounts
During the year net debt decreased from $3.1 billion to
$2.8 billion. While this is still progress against our ambition
to significantly reduce debt, the pace of debt reduction was
impacted by lower production, and no proceeds from the Uganda
farm-down and therefore below our forecasts. Debt repayment
remains firmly at the top of our priorities, and a key aspect of
the Business Review has been focused on achieving this in the
near to medium term through portfolio management across
the group and free cash flow. As planned, we did not carry out
any refinancing activity this year but, as always, we prepare to
act on any upcoming maturities well ahead of time and this
will be a key focus for the team in 2020.
We will continue to ensure our balance sheet has resilience
to future oil price volatility, supported by our hedging activity.
Our year-end reserves audits have underpinned the value of
our assets, and support the debt capacity available to us under
the Reserves Based Lending facility. RBL debt capacity is expected
to be c.$1.9 billion at the end of March 2020, resulting in
headroom of c.$700 million. This is above the group policy
target of no less than $500 million and is appropriate in light
of reduced capital commitments.
The Directors have concluded that the Group is a going concern.
However, should the unprecedented change in market conditions
relating to COVID-19 and OPEC+ continue and Tullow is
unable to deliver proceeds from portfolio management, the
Directors recognise that there is a material uncertainty with
regards to this assessment. See page 20 of this report.
A clear approach to capital allocation
In light of the revised production forecasts, we have reassessed
the Group’s future investment plans in order to ensure we
allocate capital appropriately to the Group’s production assets,
development projects and exploration. During 2020 we expect
capital expenditure to be c.$350 million with c.$140 million in
Ghana, c.$80 million on West Africa non-operated, c.$40 million
Insights from TCFD scenario analysis
in Kenya, c.$15 million in Uganda and c.$75 million on exploration
and appraisal activities. This level of capital investment should
enable us to achieve our mid-point guidance range production
of 75,000 bopd, deliver continued progress in East Africa, and
drill two exploration wells in Peru and Suriname, as well as
continue maturation of our exploration portfolio.
A simpler and more focused organisational structure
As part of the broader organisational simplification, we have
reverted to a more traditional reporting structure into the CFO.
Following the removal of the Corporate Business and the
centralisation of the bulk of finance activities in London, the new
structure will bring increased clarity and accountability to drive
the necessary improvements in performance across the business.
Future outlook
Our major review of all areas of our operations has provided
a clear plan to address the problems we have encountered
and create a more efficient and effective business. That
includes a reinforced focus on the costs we can control,
portfolio management to raise in excess of $1 billion proceeds
and ensuring that our size and investment plans are right for
the position we are in.
All of this work supports the long-term potential of the
portfolio and the opportunities we have to deliver sustainable
free cash flow and reduce our debt, both of which will help to
generate value for our stakeholders.
Les Wood
Chief Financial Officer
11 March 2020
As CFO, I oversee the assessment of the financial impact of TCFD scenario analysis on our portfolio. Tullow’s current
long-term oil price assumption of $65/bbl from 2024 is materially in line with the IEA’s Sustainable Development Scenario
(SDS) which projects a modest decline in prices to $62/bbl by 2030 and to $59/bbl by 2040. In addition to testing the resilience
of Tullow’s portfolio against the SDS, Tullow has also considered the impact of long-term oil prices falling to $50/bbl on its
producing assets, development projects and exploration portfolio. The majority of prospects in Tullow’s portfolio remain
commercially robust at $50/bbl, however, the further the presumed First Oil dates are into the future, the more the
Net Present Value (NPV) is impacted.
Net Present Value of portfolio*
Ghana
Non-op
Kenya
Uganda
Exploration
* Relative to Tullow’s long-term corporate planning oil price of $65/bbl.
1. Stated Policies projected 2040 oil price $103/bbl.
2. SDS projected 2040 oil price $59/bbl.
Stated Policies
Scenario 1
Sustainable
Development
Scenario 2
Impact on NPV
+20 to 50%
+10 to 20%
0 to -9%
-10 to -20%
-20 to -30%
Tullow Oil plc 2019 Annual Report and Accounts
17
STRATEGIC REPORT Finance review
2019 financial results
Financial results summary
2019
2018
Working interest production
volume (boepd)1
Sales volume (boepd)
Realised oil price ($/bbl)
Total revenue ($m)2
Gross profit ($m)
Underlying cash operating costs
per boe ($/boe)3
Exploration costs written off ($m)
Impairment of property, plant and
equipment, net ($m)
Operating (loss)/profit ($m)
(Loss)/profit before tax ($m)
(Loss)/profit after tax ($m)
Basic (loss)/earnings per share
(cents)
Capital investment ($m)3,
Adjusted EBITDAX ($m)3
Net debt ($m)3
Gearing (times)3
Free cash flow ($m)3
84,800
74,000
62.4
1,683
759
11.1
1,253
781
(1,385)
(1,653)
(1,694)
(120.8)
490
1,398
2,806
2.0
355
81,400
74,200
68.5
1,859
1,082
10.0
295
18
528
261
85
6.1
423
1,600
3,060
1.9
411
1. Including the impact of production-equivalent insurance payments from
the Jubilee field, Group working interest production was 86,800 boepd
(2018: 90,000 boepd) including working interest gas production of
100 boepd (2018: 1,800 boepd).
2. Total revenue does not include receipts for Tullow’s corporate Business
Interruption insurance of $43 million (2018: $188 million). This is included
in other operating income which is a component of gross profit.
3. Underlying cash operating costs per boe, capital investment,
adjusted EBITDAX, net debt, gearing and free cash flow are
non-IFRS measures and are explained later in this section.
“ Tullow generated solid levels of
underlying free cash flow however made
a significant loss following changes
to its long-term oil price assumption
and TEN reserves reduction.”
Les Wood, Chief Financial Officer
Production and commodity prices
Working interest production averaged 84,800 boepd, an
increase of 4 per cent for the year (2018: 81,400 boepd).
Including the impact of production-equivalent insurance
payments from the Jubilee field, working interest production
averaged 86,800 boepd (2018: 90,000 boepd), a decrease of
3.5 per cent. The decrease resulted from facility and
subsurface challenges in Ghana, as well as no gas production
from UK assets in 2019 partially offset by production from new
fields in Gabon.
The Group’s realised oil price after hedging was $62.4/bbl
and $64.3/bbl before hedging (2018: $68.5/bbl and $71.8/bbl
respectively).
Underlying cash operating costs, depreciation, impairments,
write-offs and administrative expenses
Underlying cash operating costs amounted to $351 million;
$11.1/boe (2018: $327 million; $10.0/boe). Underlying cash
operating costs were net of $4 million of insurance proceeds
(2018: $46 million). The 11 per cent increase in unit cash
operating costs was principally due to the ending of the
Business Interruption coverage in May 2019, resulting in
higher cost of operation, such as shuttle tanker operations,
and lower production.
Depreciation, depletion and amortisation (DD&A) charges on
production and development assets amounted to $696 million;
$22.0/boe (2018: $568 million; $17.2/boe). This increase is mainly
associated with the downward revision of TEN 2P reserves.
The Group recognised a net impairment charge on producing
assets of $781 million in respect of 2019 (2018: $18 million).
Impairments were primarily due to a $10/bbl reduction in the
Group’s long-term accounting oil price assumption to $65/bbl
and a reduction in TEN 2P reserves.
The total exploration cost write-offs for the year ended
31 December 2019 were $1,253 million (2018: $295 million),
predominantly driven by a write-down of the value of the
Kenya and Uganda assets due to a reduction in the Group’s
long-term accounting oil price assumption from $75/bbl to
$65/bbl. The remaining write-offs include Jethro, Joe and
Carapa well costs in Guyana as a result of drilling results
and Kenya Block 12A, 12B and 10BA, Mauritania C3, PEL37
Namibia and Jamaica licence due to the levels of planned
future activity or licence exits.
At the 15 January 2020 Trading Update, the Group had guided
a total exploration write-off of $0.8 billion. However, as part of
the subsequent Business Review, Tullow has now re-assessed
the entire Uganda development project which has resulted in
18
Tullow Oil plc 2019 Annual Report and Accounts
a lower value-in-use assessment. The review resulted in the
removal of four higher risk elements of the development from
the overall valuation of the project and a consequent increase
in the exploration write-off of c.$0.5 billion.
profits such that no related tax benefit results. Consequently,
the Group’s tax charge will continue to vary according to the
jurisdictions in which pre-tax profits and exploration costs
write-offs occur.
Administrative expenses of $112 million (2018: $90 million)
included an amount of $22 million (2018: $23 million)
associated with share-based payment charges. The increase
in administrative expenses primarily relates to the closure of
historic JV audit matters.
(Loss)/profit for the year from continuing activities
and loss per share
The loss for the year from continuing activities amounted to
$1,694 million (2018: $85 million profit). Basic loss per share
was 120.8 cents (2018: 6.1 cents earnings).
Provisions
Changes to provisions in 2019 resulted in an income statement
charge of $4.2 million (2018: charge of $170.8 million).
The 2019 charge mainly relates to restructuring costs.
Reconciliation of net debt
Year-end 2018 net debt
Sales revenue
Derivative financial instruments
Tullow undertakes hedging activities as part of the ongoing
management of its business risk to protect against commodity
price volatility and to ensure the availability of cash flow for
re-investment in capital programmes that are driving
business delivery.
At 31 December 2019, the Group’s derivative instruments
had a net negative fair value of $12 million (2018: net positive
$128 million).
Net financing costs
Net financing costs for the year were $267 million (2018:
$270 million). The decrease in financing costs is associated
with the reduction in interest on borrowings due to a reduction
in the average level of net debt in 2019 compared to 2018 offset
by finance costs associated with the implementation of IFRS
16 and cessation of capitalising interest on the Ugandan
assets. 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 leased assets,
offset by interest earned on cash deposits and capitalised
borrowing costs.
Taxation
The net tax expense of $41 million (2018: expense of
$175 million) primarily relates to tax charges in respect
of the Group’s production activities in West Africa, as well
as UK decommissioning assets, reduced by deferred tax
credits associated with exploration write-offs, impairments
and provisions for onerous service contracts.
Based on a loss before tax for the period of $1,653 million
(2019: profit of $260.5 million), the effective tax rate is
negative 2.4 per cent (2018: positive 67.2 per cent). After
adjusting for non-recurring amounts related to exploration
write-offs, disposals, impairments, provisions and their
associated deferred tax benefit, the Group’s adjusted tax rate
is 71.6 per cent (2018: 40.7 per cent). The adjusted tax rate
has increased due to losses in the UK, impact of withholding
tax and prior year adjustments.
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. Unsuccessful exploration is often
incurred in jurisdictions where the Group has no taxable
Other operating income – lost production
insurance proceeds
Operating costs
Operating and administrative expenses
Cash flow from operations
Movement in working capital
Tax paid
Purchases of intangible exploration and evaluation
assets and property, plant and equipment
Other investing activities
Other financing activities
Foreign exchange gain on cash
Year-end 2019 net debt
$m
3,060.2
(1,682.6)
(42.7)
351.3
77.6
(1,296.4)
(53.3)
91.0
520.9
(8.9)
488.4
3.6
2,805.5
Capital investment
2019 capital investment amounted to $490 million (2018:
$423 million) with $351 million invested in development
activities and $139 million invested in exploration and
appraisal activities. More than 54 per cent of the total was
invested in Ghana and Kenya and over 81 per cent was
invested in Africa.
Capital investment will continue to be carefully controlled
during 2020. The Group’s 2020 capital expenditure is expected
to total c.$350 million. The capital investment total comprises
Ghana capex of c.$140 million, West Africa non-operated
capex of c.$80 million, Kenya and Uganda pre-development
capex of c.$40 million and c.$15 million respectively, and
exploration and appraisal investment of c.$75 million.
Borrowings
During the year, commitments under Tullow’s Reserves Based
Lending facility reduced from $2,464 million to $2,400 million
in line with the schedule. Tullow’s debt facilities further include
$300 million convertible notes due in 2021, $650 million senior
notes due in 2022 and $800 million senior notes due in 2025.
Liquidity headroom of unutilised debt capacity and free cash
was $1.2 billion at the end of 2019. Tullow’s RBL debt facility is
subject to a bi-annual redetermination.
Tullow Oil plc 2019 Annual Report and Accounts
19
STRATEGIC REPORT Finance review continued
Credit ratings
Tullow maintains corporate credit ratings with Standard & Poor’s
and Moody’s Investors Service. In December 2019, Standard &
Poor’s downgraded Tullow’s corporate credit rating to B from
B+, and assigned a negative outlook; consequently, Standard
& Poor’s also downgraded the rating of Tullow’s corporate
bonds to B from B+, in line with the corporate credit rating.
Moody’s Investors Service downgraded Tullow’s corporate
credit rating to B2 from B1, and assigned a negative outlook;
consequently, the rating of Tullow’s corporate bonds was
lowered to Caa1 from B3.
Liquidity risk management and going concern
The Group closely monitors and carefully manages its liquidity
risk. Cash forecasts are regularly produced, and sensitivities
run for different scenarios including, but not limited to, changes
in commodity prices and different production rates from the
Group’s producing assets. Cash forecasts have been updated
in light of the oil price volatility seen in early 2020, with the
base case run using a forward curve of $38/bbl for 2020 and
$43/bbl for 2021, and a downside sensitivity run at $30/bbl for
both 2020 and 2021. Furthermore, the Group benefits from its
hedging policy, meaning that the impact of reduced oil prices
in the going concern period is mitigated, in particular through
2020. Furthermore, the Board has plans to raise in excess of
$1 billion from portfolio management activities in 2020.
The semi-annual redetermination of the RBL facility is currently
under way, and the Group expects debt capacity to be confirmed
at c.$1.9 billion. The Group has evaluated the RBL facility using
a number of different oil price assumptions and has determined
that near-term oil price volatility has no material impact on
debt capacity due to the significant downside protection provided
by its hedge portfolio and the reduction in tax liabilities at
lower oil prices. As part of the RBL redetermination process
the Group is required to demonstrate to the satisfaction of its
lenders that it has sufficient liquidity for the next 18 months;
based on the projections submitted to lenders, using the
assumptions defined in the agreements, the Group expects
that lenders will be satisfied that the Group has sufficient
liquidity for the next 18 months. This assessment is required
at each semi-annual redetermination, including the one
currently under way.
The Group’s base assumptions show that it will be able to
operate within its contractual debt facilities and have sufficient
financial headroom for the 12 months from the date of approval
of the 2019 Annual Report and Accounts. Under a severe
downside scenario where the Group both fails to meet its
production forecast and assuming a flat $30/bbl oil price, the
Group has sufficient liquidity for the 12 months from the date
of approval of the 2019 Annual Report and Accounts. However,
using both the base and downside oil price assumptions the
Group’s leverage is forecast to be marginally above the RBL
gearing covenant when calculated at 31 December 2020,
if planned portfolio management proceeds are not realised.
The Group continues to closely monitor cash flow forecasts
and would take mitigating actions in advance to maintain
compliance with its external debt facilities, including securing
amendments to covenants if necessary. The Directors believe
the RBL gearing covenant could be amended in advance if
required which is both consistent with past practice and the
reasonable expectation of the commercial interests of the
counterparties involved. In this scenario, the Group would also
20
Tullow Oil plc 2019 Annual Report and Accounts
target a further rationalisation of its cost base, including cuts
to discretionary capital expenditure.
However, at the time of issuing the Annual Report and Accounts
there are unprecedented market conditions with significant
oil price volatility following the demand implications driven by
COVID-19 and the failure of OPEC and Russia to reach agreement
to cut oil supply to balance markets. Therefore, this increases
the risk that the Group may not be able to sufficiently progress
any planned portfolio management activities, as a result
of which its lenders may not approve the semi-annual RBL
redetermination liquidity assessments or covenant amendment
if subsequently required. Therefore, we have concluded that
there is a material uncertainty, that may cast significant doubt,
that the Group will be able to operate as a going concern.
Notwithstanding this material uncertainty, the Board’s
confidence in the Group’s forecasts and ability to deliver
portfolio management proceeds supports our preparation
of the financial statements on a going concern basis.
Brexit
It is the view of the Board that, given the Group’s focus on
Africa and South America, Tullow’s business, assets and
operations will not be materially affected by Brexit. Tullow
also derives its income from crude oil, a globally traded
commodity which is priced in US dollars.
Nevertheless, Tullow employs a number of EU nationals in the
UK and the Board is concerned about the uncertainty that a
no trade deal would cause these much-valued members of
staff. To help address this concern, Tullow has established a
Brexit Focus Group to share information with affected employees
and ensure they are up to date with the latest developments.
The Board also recognises that a no trade deal scenario could
cause significant regulatory, legal and financial uncertainty
with regard to our decommissioning programme in the UK
North Sea. Operators would have to be carefully guided by
the Department for Business, Energy and Industrial Strategy
as to exactly how decommissioning programmes should be
executed and what tariffs or fees, if any, should be applied to
non-UK service providers.
COVID-19 (Coronavirus)
Tullow continues to monitor the ongoing COVID-19 outbreak.
Tullow has experience of managing infectious diseases of this
nature following the significant contingency planning put in
place during the West African Ebola outbreak in 2015.
Tullow actively monitors advice from the World Health
Organisation and Public Health England, as well as participates
in weekly calls with the International Oil and Gas Producers’
Health Committee relating to the COVID-19 outbreak to
ensure best practice precautions are being applied. At present
the threat level in Tullow’s countries of operation remains low,
as per our Infectious Disease Health Management Guideline,
however we continue to closely monitor this as the situation
develops. Clear information and health precautions on how
employees should protect themselves and reduce exposure to,
and transmission of, a range of illnesses along with general
advice has been communicated across the organisation.
In both Ghana and Kenya Tullow’s in-country teams have
set up their EID (Emerging Infectious Disease) Management
committees in response to the current COVID-19 outbreak.
These EID committees steer the local management response
to the outbreak, including ensuring that our contractors have
implemented appropriate measures. We have also implemented
‘self-declaration’ forms for all personnel travelling to our
offshore assets in Ghana, that require people to sign-off that
they have not been to the ‘specified locations’ as defined by
the UK Foreign & Commonwealth Office in the last 30 days,
as well as implementing business travel restrictions to and
from these ‘specified locations’.
In the event that the COVID-19 outbreak escalates, the country
specific Business Continuity Plans set out how Tullow will
continue to operate, recover quickly from, and effectively
manage the response.
Dividends
As part of the announcement on 9 December, the Board has
decided to suspend the dividend as a result of medium term
production guidance levels and estimated near-term free
cash flow forecast.
Events since 31 December 2019
In February 2020, Tullow concluded its Business Review –
which included a review of organisation structure and resources.
Subject to the outcome of the consultation, this will most likely
result in a 35 per cent reduction in headcount, with an
associated restructuring cost of c.$50 million. It is anticipated
that the reorganisation will generate cash net G&A savings of
c.$200 million over the next three years.
The six-monthly redetermination of Tullow’s Reserves Based
Lending (RBL) facility is expected to conclude at the end of
March, and debt capacity is expected to be c.$1.9 billion.
Subject to confirmation of this debt capacity amount, the
Group will have headroom of c.$0.7 billion which is above
the Group’s policy target of no less than $500 million and
is appropriate in light of Tullow’s reduced future capital
commitments. On completion of the redetermination process,
the Group plans to voluntarily reduce facility commitments
by $210 million, effectively accelerating the October 2020
scheduled amortisation. The reduction in debt capacity and
commitments will result in a reduction of finance costs.
On 6 March 2020, OPEC and non-OPEC allies (OPEC+) met to
discuss the need to cut oil supply to balance oil markets in the
wake of the COVID-19 outbreak which has had a material impact
on oil demand. The group failed to reach agreement and on
7 March 2020, Saudi Aramco unilaterally and aggressively cut
its Official Selling Prices (OSP) in an attempt to prioritise market
share rather than price stability and effectively started a price
war. As a result, on 9 March 2020, oil prices fell by around
20 per cent and the forward curve for 2020 and 2021 fell to
approximately $38/bbl and $43/bbl respectively. These recent
events will continue to have an impact on oil price volatility.
Tullow prudently manages its commodity risk and is well
hedged with 60 per cent of 2020 production hedged at a floor
price of $57/bbl and 40 per cent hedged at a floor price of
$52/bbl for 2021. Realised oil prices for January and February
2020 are expected to average over $60/bbl. If oil prices remain
at or below their current levels for an extended period of time,
this would adversely impact our future financial 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 defined as additions to property, plant and
equipment and intangible exploration and evaluation assets
less decommissioning asset additions, right-of-use asset
additions, capitalised share-based payment charge, capitalised
finance costs, additions to administrative assets, Norwegian tax
refund and certain other adjustments. The Directors believe
that 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 because it eliminates
certain accounting adjustments such as capitalised finance
costs and decommissioning asset additions.
Additions to property,
plant and equipment
Additions to intangible exploration
and evaluation assets
Less:
Decommissioning asset additions
Right-of-use asset additions
Lease payments related to
capital activities
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
2019
$m
2018
$m
528.4
268.1
279.3
230.4
109.0
150.3
(42.7)
(3.8)
(2.7)
–
1.9
16.3
21.0
0.9
–
21.0
490.0
9.0
21.0
0.9
–
1.3
65.3
6.6
0.4
50.5
(2.3)
423.2
(40.2)
6.6
0.4
50.5
520.9
440.5
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
non-cash adjustments, less cash and cash equivalents.
Non-cash adjustments include unamortised arrangement
fees, adjustment to convertible bonds, and other adjustments.
The Group’s definition of net debt does not include the Group’s
leases as the Group’s focus is the management of cash
borrowings and a lease is viewed as deferred capital investment.
Tullow Oil plc 2019 Annual Report and Accounts
21
STRATEGIC REPORT Finance review continued
Net debt continued
The value of the Group’s lease liabilities as at 31 December 2019
was $284 million current and $1,141 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.
2019
$m
2018
$m
Non-current borrowings
3,071.7
3,219.1
Non-cash adjustments
22.6
20.9
Less cash and cash equivalents
(288.8)
(179.8)
Net debt
2,805.5
3,060.2
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 profit/(loss) from
continuing activities adjusted for income tax (expense)/credit,
finance costs, finance revenue, gain on hedging instruments,
depreciation, depletion and amortisation, share-based
payment charge, restructuring costs, gain/(loss) on disposal,
exploration costs written off, impairment of property, plant
and equipment net, and provision for onerous service
contracts. Adjusted EBITDAX therefore excludes interest
on obligations under leases of $103.5 million, and interest
income on amounts due from Joint Venture Partners for
finance leases of $50.0 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 1.9 times.
(Loss)/profit from continuing activities
(1,694.1)
2019
$m
Adjusted for:
Income tax expense
Finance costs
Finance revenue
Loss/(gain) on hedging instruments
Depreciation, depletion
and amortisation
Share-based payment charge
Provisions
Gain on disposal
40.7
322.3
(55.5)
1.5
724.6
25.8
4.2
(6.6)
Exploration costs written off
1,253.4
2018
$m
85.4
175.1
328.7
(58.4)
(2.4)
584.1
24.9
170.8
(21.3)
295.2
Impairment of property,
plant and equipment, net
Adjusted EBITDAX
Net debt
Gearing (times)
781.2
18.2
1,397.5
1,600.3
2,805.5
3,060.2
2.0
1.9
22
Tullow Oil plc 2019 Annual Report and Accounts
Underlying cash operating costs
Underlying cash operating costs is a useful indicator of the
Group’s costs incurred to produce oil and gas. Underlying
cash operating costs eliminates certain non-cash accounting
adjustments to the Group’s cost of sales to produce oil and
gas. Underlying cash operating costs is defined as cost of
sales less operating lease expense, depletion and amortisation
of oil and gas assets, underlift, overlift and oil stock movements,
share-based payment charge included in cost of sales, and
certain other cost of sales. Underlying cash operating costs
are divided by production to determine underlying cash
operating costs per boe.
Cost of sales
Less:
Depletion and amortisation
of oil and gas and leased assets
Underlift, overlift and oil
stock movements
Share-based payment charge
included in cost of sales
Other cost of sales
Underlying cash operating costs
Production (mmboe)
Underlying cash operating
costs per boe ($/boe)
2019
$m
2018
$m
966.7
966.0
696.1
567.7
(137.3)
40.7
2.6
54.0
351.3
31.7
1.0
29.6
327.0
32.9
11.1
10.0
Free cash flow
Free cash flow is a useful indicator of the Group’s ability
to generate cash flow to fund the business and strategic
acquisitions, reduce borrowings and provide returns to
shareholders through dividends. Free cash flow is defined
as net cash from operating activities, and net cash used in
investing activities, less debt arrangement fees, repayment
of obligations under leases, finance costs paid, foreign
exchange gain, and distribution to non-controlling interests.
2019
$m
2018
$m
Net cash from operating activities
1,258.7
1,204.0
Net cash used in investing activities
(512.0)
(427.7)
Debt arrangement fees
Repayment of obligations
under leases
Finance costs paid
Foreign exchange (loss)/ gain
Free cash flow
–
(15.0)
(172.1)
(215.4)
(4.3)
354.9
(117.4)
(234.5)
1.5
410.9
Sustainability
Our approach
to sustainability
The disclosure in this section of Tullow’s 2019 Annual Report and Accounts
is complemented by its additional disclosure in its 2019 Sustainability
Report, which can be found at tullowoil.com/sustainability
Tullow is continually reviewing and refining its approach to
sustainability, taking on board the primary interests of our
investors, host countries and communities, as well as colleagues
throughout our business. In 2019, we considered the topics
and issues most important to them, alongside the goals of our
business strategy. We also considered the expectations of oil
and gas companies reflected in the work of IPIECA, our
industry association, and the United Nations global agenda
for 2030 set out in its Sustainable Development Goals (SDG).
Our sustainability framework, set out below, has four pillars
which combine all these inputs and expectations, and focuses
on 10 of the 17 SDGs.
Strategic
pillar
Responsible
operations
Shared prosperity
Environmental
stewardship
Equality and
transparency
Key themes
Safety and wellness
Responsible production
Local content and
capacity
Developing local skills
Social investment
Climate resilience
Good governance
Protecting ecosystems
Promoting equality
Material
topics
Employee health
and safety
Process safety
Local content and
capacity
Community
development
Shared infrastructure
Social investment
Biodiversity
Compliance
Climate change
Anti-corruption
Water
Spills
Human rights
Tax transparency
Energy efficiency
Public advocacy
SDG
alignment
Tullow Oil plc 2019 Annual Report and Accounts
23
STRATEGIC REPORT Sustainability continued
Responsible operations
Shared prosperity
67%
Reduction in Lost Time
Injury Rate
24%
Reduction in Process
Safety Events
The responsible operations pillar of our sustainability
framework covers safe working, safe processes and
emergency response.
Occupational health, safety and wellness
Tullow is committed to ensuring our colleagues and host
communities are kept safe and well, in all international locations
where we operate. In 2019, Tullow adopted the new IOGP
Life-Saving Rules, which replaced the existing Company safety
rules, to support an industry-wide, common approach to safety.
During 2019, Tullow experienced an increasing trend of High
Potential Incidents. In September, senior management held
a global safety event, which took place in 16 locations across
10 countries, to raise awareness and reinforce a positive
safety culture. The safety event comprised of a review of the
new IOGP Life-Saving Rules and an examination of how their
effective application would have avoided many of the near-miss
high-potential events recorded in 2019. The response and output
resulted in the development of safety improvement plans
targeted at safety-critical activities and risks the business
faces and shall be implemented throughout the remainder
of this year and 2020.
Tragically, Tullow’s operations in Kenya also resulted in a fatality
in late 2019. A truck carrying crude oil from Lokichar to Mombasa,
as part of the Early Oil Pilot Scheme, was involved in a road
accident in which a child was killed. Notwithstanding the safe
driving of the vehicle at that time, a full investigation has been
conducted to see what can be done to prevent any further
such terrible accidents.
Tullow’s key safety performance indicators in 2019 for Lost
Time Injury Rate (LTIR) – 0.09 and Total Recordable Injury Rate
(TRIR) – 0.56 remained within the top industry quartile of the
IOGP benchmark, in line with our safety goal but it remains a
priority for us to further improve our performance.
For an update on our Process Safety record, go to the Safety
and Sustainability Committee report on pages 56 and 57.
Total recordable injury rate (TRIR)
per million hours worked
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
Tullow TRIR
IOGP average TRIR
24
Tullow Oil plc 2019 Annual Report and Accounts
$2bn
Spent with local
suppliers over the
last eight years
88k
New jobs
supported
through Invest
in Africa
>$4.5m
in financing for
local businesses
through invest
in Africa
Shared prosperity is central to our approach to sustainability.
It reflects our aspiration to ensure that our operations in
our host countries not only bring business benefits to Tullow,
but also lasting improvements in the quality of life and
opportunities for the communities which live nearby.
Our approach has three broad elements outlined in the
diagram below.
Optimise local
content and build
supplier capacity
Align with host
country’s development
goals and shareholder
expectations
Focus
socio-economic
investment
and enhance local
economies
Build local skills
and develop
people
In 2019, Tullow Ghana’s overall supplier spend was 24 per cent
more than in 2018. This was due to an increase in activities,
including the use of two drilling rigs and the ongoing Jubilee
Turret Remediation Project. There were also continued efforts
to award contracts to indigenous or incorporated Joint Venture
companies. Consequently, while absolute spend with local
suppliers increased by 19 per cent, spend with local suppliers
as a proportion of total spend was 1 per cent down compared
to 2018. Meanwhile, spend with international suppliers continued
to fall from 14 per cent in 2018 to 10 per cent in 2019.
In Kenya, in 2019, 41 per cent of the proportionate supplier
spend was with Kenyan businesses, up from 37 per cent in
2018. Absolute spend with local suppliers also increased by
16 per cent in 2019 due to increased Early Oil Pilot Scheme
trucking activities. As the Kenya project is in the development
phase, focus has continued on capacity building activities.
Over 300 micro, small and medium enterprises (MSMEs)
undertook general business and sector-specific skills
development and over 250 trainees attended competency-based
education training in areas such as electrical technology,
welding and fabrication, motor vehicle mechanical engineering
and plumbing. Tullow Kenya’s contractors also provided training
for their teams in health, safety, security and environment
(HSSE), leadership, strategy and technical areas.
Investing in shared infrastructure
in Ghana
An important element in Tullow’s support for the communities
where we work comes through investment in local
infrastructure. This year we funded a number of important
upgrades to the Takoradi Airport Airforce base in Ghana.
Tullow and our Joint Venture Partners share the airport
with other oil and gas operators, and commercial fixed
wing operators, and it was becoming increasingly
congested and in need of repair.
Our work included reconstructing a 23,000 sqm area of
tarmac where the aircrafts park and the upgrading of a
number of link roads. To deal with overcrowding in the
airport terminal Tullow converted several old buildings on
the site into a purpose-built terminal for helicopters and
fixed wing operations.
This work took a year to complete and, in line with
Tullow Ghana’s local content commitment, was carried
out by a number of local contractors. These developments
have improved safety and accessibility at the airport and
will provide new opportunities for commercial aviation
services as well as support the growth of Ghana’s offshore
petroleum industry.
Environmental stewardship
Net zero commitment
Tullow ensures robust systems are in place for assessing
and managing environmental risk to enable us to operate
responsibly. Our corporate headquarters are certified to
ISO 14001 Environmental Management System and we aim
to comply with all environmental laws and regulations in the
countries where we operate.
Alignment with the recommendations of
the Taskforce on Climate-related Financial
Disclosures (TCFD)
Our decision to begin to make TCFD-aligned disclosures in
this year’s report reflects our recognition of the threat posed
by climate change and the need to reduce global greenhouse
gas (GHG) emissions.
Tullow supports the goals of Article 2 of the Paris Agreement,
“holding the increase in the global average temperature to
well below 2°C and pursuing efforts to limit the temperature
increase to 1.5°C above pre-industrial levels”. We also recognise
that meeting the goals of Article 2 of the Paris Agreement
requires global carbon emissions to peak as soon as possible
and then to decline to reach net zero in the next 30–50 years.
While fossil fuels are expected to continue to make a significant
contribution to meeting the world’s growing energy needs
during this time, the overall decarbonisation of the global
economy presents oil exploration and production companies
with some fundamental new challenges. Our TCFD disclosures
on the following pages reflect our response to these challenges.
Actions that we are taking to manage and mitigate the risks
to our business from climate change are:
- classifying climate change as a category-level risk in our
corporate governance and risk management processes;
- minimising GHG emissions from our operations and
implementing appropriate reduction initiatives while
maintaining safety and reliability standards;
- ensuring our business strategy is responsive to evolving
climate-related legal and regulatory developments; and
- increasing transparency in our performance reporting and
openness in our engagement about climate change risks.
Implementing the TCFD recommendations fully is expected to
require a number of reporting cycles and Tullow’s approach to
this will evolve as our corporate understanding of and response
to climate-related impacts grows and new climate-related
risks and opportunities emerge.
Tullow Oil plc 2019 Annual Report and Accounts
25
STRATEGIC REPORT
Sustainability continued
Alignment with the TCFD recommendations
Strategy
Climate change impacts are generally considered under two main headings: physical impacts from changes in weather patterns
and increased frequency and intensity of extreme weather events; and transition impacts from decarbonisation of the global economy.
Tullow, supported by external TCFD consultants, have carried out a holistic review of the potential climate-related physical and
transition risks and opportunities to the Company. The review was informed by the disclosure standards and accounting metrics
suggested by the Sustainability and Accounting Standards Board (SASB) and set out in its Oil & Gas – Exploration and Production
Sustainability Accounting Standard; the work of the Oil & Gas Preparer Forum of the World Business Council for Sustainable
Development (WBCSD); and the work of Carbon Tracker Initiative on climate-related risks to the upstream oil and gas sector.
The results of the review were considered in detail by the Management Team and the Board, the main findings are described herein.
The table below sets out where you can find Tullow’s TCFD disclosures throughout Tullow’s 2019 Annual Report and Accounts:
Index to disclosures aligned to recommendations of the Taskforce on Climate-related Financial Disclosures
Governance: Disclose the organisation’s governance around climate-related risks and opportunities
(a) Describe the Board’s oversight of climate-related risks and
opportunities
(b) Describe management’s role in assessing and managing
climate-related risks and opportunities
Board Committees
Governance and risk
Governance and risk
Sustainability
Board activities during 2019
Page
42–43
35
32
25
57
Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s business,
strategy and financial planning where such information is material
(a) Describe the climate-related risks and opportunities the organisation
has identified over the short, medium and long term
Principal risk
Market outlook
(b) Describe the impact of climate-related risks and opportunities on the
Principal risk
organisation’s businesses, strategy and financial planning
35
11
35
(c) Describe the resilience of the organisation’s strategy, taking into
consideration different climate-related scenarios
2019 climate change considerations
for our business
17 & 28
Risk management: Disclose how the organisation identifies, assesses and manages climate-related risks
(a) Describe the organisation’s processes for identifying and assessing
Governance and risk
climate-related risks
(b) Describe the organisation’s processes for managing climate-related risks
Principal risk
32
35
(c) Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation’s overall
risk management
Governance and risk
31–33
Metrics and targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks
and opportunities where such information is material
(a) Disclose the metrics used by the organisation to assess climate-related risks
and opportunities in line with its strategy and risk management process
Reporting on our emissions
(b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks
Reporting on our emissions
Key performance indicators
(c) Describe the targets used by the organisation to manage climate-related
risks and opportunities and performance against targets
Sustainability: environmental
stewardship
28
28
28
28
26
Tullow Oil plc 2019 Annual Report and Accounts
Physical risks
Tullow commissioned analysis from research firm Verisk
Maplecroft on the long-term physical risks to the main host
countries, Ghana, Kenya and Guyana, where Tullow operates.
The analysis considered future climate scenarios to 2050 based
on the Representative Concentration Pathways developed by
the Intergovernmental Panel on Climate Change (IPCC).
Climate change is expected to lead to rising temperatures and
changes to rainfall patterns in all three countries. Tullow is
reviewing its response to the increased risk that changing
weather events presents to both our assets and our people.
Transition risks
Tullow has identified several categories of risk to its business
from the decarbonisation of the global economy: market;
reputational; technology; regulatory, policy and legal; and
financial risks from access to and cost of capital.
Market risks
Include changes in supply and demand for Tullow products,
increased competitive pressures, the repricing of carbon-intensive
assets and more rapid asset impairment. Tullow recognises the
long-term risk to the oil and gas industry of assets becoming
‘stranded’ as and when the global economy decarbonises but
does not see this as a risk to Tullow’s current production plans.
Reputational risks
May arise from failure to mitigate the carbon intensity of
Tullow’s business, targeted shareholder activism and divestment
campaigns, or as a consequence of declining brand value,
loss of revenue or declining access to and cost of finance.
The Company’s reputation may also suffer internally if
employees become frustrated that Tullow is not proactively
addressing energy transition or climate change issues.
Technology risks
Include competitors’ adoption of technology to improve energy
efficiency and lower the carbon intensity of their assets and
competitors’ diversification of their business models using
new technologies including carbon capture, utilisation and
storage, as well as investment into renewables.
Regulatory, policy and legal risks
Include new limitations on Tullow’s ability to carry on
its business or implement its strategy from new climate
change legislation and regulation, locally in the host countries
in which we operate. These risks may also come from
international measures to limit use of fossil fuels or curtail
GHG emissions, increased costs from complying with new
regulations, such as carbon taxes; restrictions on the use of
carbon-intensive assets; enforced stranding of assets, and
legal action against Tullow from communities or stakeholders
that hold Tullow accountable for contributing to climate change
or climate-related impacts.
Financial risks
Including access to and cost of capital, may arise from a
reduced willingness by financial institutions and investors
to continue to provide financing due to a perception that
risks to the oil and gas sector, or to Tullow’s exploration
and production strategy in particular, are increasing.
The following diagram highlights some of the key risks:
Ability to raise
carbon-intensive
capital for ongoing
business needs is
starting to become
an issue
Flows of finance are
altered by changing
risks and investor
preferences
Policy and regulation
are ratcheting up to
support ambitious
climate change
targets set by many
governments
Tightening regulation
around carbon and
other environmental
indicators in several
regions is pricing
carbon either implicitly
or explicitly
Rapid innovation in
alternative energy
sources is driving
down costs
Rapid technological
progress is
accelerating
low-carbon energy
innovation and
take-up
Social and consumer
preferences are
driven by increasingly
visible environmental
impacts
Shifting stakeholder
perception and demand
for clean energy
alternatives is affecting
share prices
Tullow Oil plc 2019 Annual Report and Accounts
27
STRATEGIC REPORT Sustainability continued
Scenario analysis
As recommended by the TCFD, Tullow has employed scenario
analysis to stress test the resilience of its business strategy.
The possible future scenario most commonly used by oil and
gas companies is the Sustainable Development Scenario (SDS)
modelled by the International Energy Agency (IEA) set out in
its World Energy Outlook. This scenario is the most stringent
of the three main scenarios and is consistent with achieving
the goals of the Paris Agreement. Tullow has stress tested the
resilience of its existing and planned oil exploration, development
and production portfolio against the IEA’s SDS as well as the
Stated Policies Scenario, which incorporates today’s specific
policy initiatives that have already been announced.
Tullow has also reviewed the more demanding scenarios
described by the IPCC in its October 2018 special report on
limiting global warming to 1.5°C2. These would require more
rapid decarbonisation of the global economy than under the
existing IEA scenarios but do not include specific projections
for future oil demand and prices. Tullow is aware that the
IEA is under pressure to produce a 1.5°C-aligned scenario
and will consider using this scenario in future stress testing
once it is published.
In response to the findings of the TCFD analysis the Board
and Management Teams have included a KPI in the 2020
Scorecard, which links both executive pay and employees’
performance related pay to developing an Energy Transition
strategy in 2020 for Tullow to achieve net zero Scope 1 and 2
emissions from its operations.
Discover more about Insights
from TCFD scenario analysis
on page 17
Greenhouse gas emissions
Tullow’s total Scope 1 emissions in 2019 were 1.26 million
tonnes of CO²e (2018: 1.22 million tonnes) a 3.7 per cent
increase on 2018, mainly due to drilling campaigns with the
Stena Forth and Maersk Venturer rig and also due to seismic
and exploration activity in Guyana and The Comoros, and the
Early Oil Pilot Scheme in Kenya. Despite this increase we
realised a 3.6 per cent reduction in emissions intensity
relative to production, from 139 tonnes (2018) to 134 tonnes
(2019) of CO2e per 1,000 tonnes of hydrocarbon produced.
Tonnes of CO₂e emissions
per 1,000 tonnes of hydrocarbon produced
300
250
200
150
100
50
0
261
98
99
123
121
185
141
139
134
2011
2012
2013
2014
2015
2016
2017
2018
2019
Tonnes of CO₂e emissions
Scope 1 total air emissions
1,000 tonnes of CO₂e
13
3
1,377
6
4
800
2
5
13
5
1,603
537
687
753
754
14
3
16
1
1,263
1,218
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
Scope 1 CO₂e
Scope 2 CO₂e
Scope 3 CO₂e
1. https://www.iea.org/reports/world-energy-outlook-2019.
2. https://www.ipcc.ch/sr15/.
28
Tullow Oil plc 2019 Annual Report and Accounts
2019 total socio-economic contribution
Our payments to governments, including payments in kind,
amounted to $413 million in 2019 (2018: $432 million).
Total payments to all major stakeholder groups including
employees, suppliers and communities, as well as
governments, brought our total socio-economic contribution
to $953.2 million (2018: $909.2 million). In addition to payments
to governments, this included $336.2 million spent with local
suppliers, $199.6 million in payroll globally and $4.4 million in
discretionary spend on social projects. Our total payments made
to the Ghanaian Government in 2019 amounted to $270 million
(2018: $270 million).
Total socio-economic contribution 2015–2019 by beneficiary
Socio-economic contribution ($million)
$million
1,067
1,005
909
953
667
1,200
1,000
800
600
400
200
0
2015
2016
2017
2018
2019
Taxes to goverments
Social investment
Local suppliers
Total contribution
Employees
Equality and transparency
$953m
Total socio-economic
contribution
38%
Female Board
representation
Ethical behaviour
We have zero tolerance for bribery, corruption and other forms
of financial crime and this position is strongly reinforced
by Tullow’s Management and Board. Our current Code of
Ethical Conduct (the Code) demonstrates the Company’s
clear position on lobbying and advocacy, prevention of the
facilitation of tax evasion, anti-slavery and GDPR.
We require those who deliver services to us, or who act on
our behalf, to abide by the Code and meet the requirements
of specific business ethics and compliance clauses in their
contracts. This ensures that third parties do not cause us to
breach our own Code. Prior to awarding contracts, we conduct
risk-based third-party due diligence to assess risks related
to ownership structure, anti-bribery and corruption, sanctions,
trade restrictions, human rights and labour conditions.
In 2019, we further improved these due diligence processes.
Our Code guides the way we work and builds a culture of
ethics and compliance. During 2019, we relaunched the
annual eLearning on the Code to all staff. This focused on
raising awareness of key issues such as due diligence and
human rights, diversity and inclusion, and the importance
of employee wellbeing.
All staff completed our annual Code certification process.
In 2019, we saw an increase in speaking up cases from 66
in 2018 to 87 in 2019. We had 10 of these submitted via our
confidential speaking up line, Safecall. We investigated all
reported possible or actual breaches of the Code and, in 2019,
nine people left the Group or had their contracts terminated.
Speaking up
Corruption 10
Fraud 18
87 speaking up
cases
34+
Supply chain 30
Workplace compliance 29
Supporting our people through the organisational change
At the end of 2019, Tullow’s Management Team initiated a Business Review which involved the restructuring of the organisation
to drive cost efficiency and effectiveness. This resulted in c.35 per cent headcount reduction and the proposed closure of
both the Cape Town and Dublin offices.
Tullow ensured that through the process people were treated fairly and with respect. Where appropriate, suitable notice
periods were provided and representative bodies were consulted. The process used objective and appropriate selection
criteria for redundancies and ensured no discrimination via the selection process on the basis of gender, race, age or the
raising of past concerns. In all markets, Tullow’s severance payments exceeded statutory minimums and employees were
provided with access to support and counselling via employee assistance and career transition programmes.
Tullow Oil plc 2019 Annual Report and Accounts
29
STRATEGIC REPORT33
+
21
+
12
+
O
Sustainability continued
Our people
People and performance
Tullow is committed to developing our people to ensure they
have the right skills and experience to deliver our strategy
and have fulfilling roles and rewarding careers.
Inclusion and diversity
We believe that an inclusive culture and diverse workforce are
critical to maintaining a successful and sustainable business.
We value the rich diversity, skills, abilities and creativity that
people from different backgrounds and experiences bring to
the Company.
Our diversity and inclusion plans focus on achieving a gender
and nationality mix that is representative of the countries in
which we operate, with a focus on increasing the number of
Africans and women in leadership roles. In 2019, we focused
on raising awareness of diversity and inclusion and manager
training and on attracting diverse candidates through changes
to our recruitment processes. This included using inclusive,
gender neutral language and using diverse panels for
interviewing to help to avoid potential unconscious bias.
Gender diversity
Board diversity
Leadership diversity
Senior Management
diversity
Workforce diversity
2017
11%
(1/9)
25%
(2/8)
2018
13%
(1/8)
25%
(2/8)
2019
37.5%
(3/8)
25%
(1/4)
15%
(10/65)
21%
(14/68)
20%
(12/61)
30%
(313/1,030)
31%
(303/990)
32%
(305/951)
Gender pay
We continue to report on the gender pay gap in the UK as
required by law, showing a gap of 43 per cent at median rates
in 2019, which is an improvement of 3 per cent on our result
in 2018. We face an ongoing challenge to recruit and promote
qualified and experienced women in technical roles in the oil
and gas sector, and this has resulted in a higher proportion of
men in senior roles. For our full 2019 Gender Pay Gap Report,
go to our website.
2019 pay and bonus gaps
Women’s hourly rate
Women’s bonus pay
2018
39%
46%
2019
35%
43%
2018
48%
48%
2019
44%
46%
Lower (mean)
Lower (median)
2019 pay quartiles
Top quartile
Upper middle quartile
Lower middle quartile
Lower quartile
Men
Women
2018
90%
88%
62%
51%
2019
89%
83%
62%
52%
2018
10%
12%
38%
49%
2019
11%
17%
38%
48%
30
Tullow Oil plc 2019 Annual Report and Accounts
Percentage received bonus pay
Men
Women
2018
94%
2019
95%
2018
97%
2019
96%
Employee engagement: the Tullow Advisory Panel (TAP)
The TAP is a global workforce advisory group created to enable
meaningful and regular dialogue between the workforce and
the Board. Tullow’s people are key stakeholders of the Company
and the purpose of the TAP is to provide an opportunity for the
Board to understand and take into consideration the interests
of the workforce as it makes decisions for the long-term
success and sustainability of the Company.
The UK Corporate Governance Code invites the boards of listed
companies to become more engaged with their workforce
either by the appointment of a director to the Board from the
workforce, by designating one of the existing non-executive
directors to represent the workforce at the Board or by the
formation of a formal workforce advisory panel. Tullow has
chosen the latter of these options to complement its existing
engagements as it believes this will have the widest reach
across the Group’s office locations, enabling and promoting
a higher degree of engagement from staff.
The TAP provides an opportunity for the workforce to raise
issues directly with the non-executive directors and helps the
Board in monitoring and assessing our corporate culture and
behaviours. The TAP is intended to benefit the Group by
promoting trust between staff, management and the Board,
communicate more clearly and ensure staff and the Board
are aligned with the Group’s purpose, strategy and values.
The TAP is comprised of twelve representatives from across
London, Accra, Cape Town, Kampala and Nairobi and these
individuals are supported by up to 30 members of the workforce
sitting on local panels in each of these locations. The local
panels gather and provide feedback to their TAP representatives.
The TAP will meet with different non-executive directors at
least twice a year However, since the management changes
announced in December 2019, the Executive Chair is meeting
with the TAP regularly until a new CEO is appointed, to ensure
the Board is informed of employee concerns as the Business
Review is worked through and implemented.
Standing discussion items may include the Group’s purpose
and strategy, values, culture and behaviour, the policies and
practices concerning remuneration as well as any other
emerging trends or concerns. The inaugural TAP meeting
with the Board took place in November 2019 and was attended
by the then non-executive Chair and CFO. The TAP and the
Board engaged on such matters as the Group’s safety record,
the accountability and visibility of Executive Management,
external market communications, the growth strategy and
the status of major projects and organisational structure
in both Kenya and Ghana.
Governance and risk management
We proactively manage risks
We recognise that effectively managing risks and opportunities is essential to our
long-term success and is fundamental in helping us achieve our strategic objectives
and protecting long-term shareholder value. Together, our organisational structures,
processes, standards, values and behaviours form a robust integrated internal
control system that helps proactively manage our key risks.
Risk oversight and governance
The Board is responsible for ensuring Tullow maintains an
effective risk management and internal control system.
Tullow’s Management Team are responsible and accountable
for overseeing and monitoring risks that fall under their remit.
The Board is responsible for overseeing the principal and
enterprise-level risk identification, assessment and mitigation
process and undertakes a semi-annual assessment of the
risks facing the Company, including those risks that could
threaten our business strategy, operating model, future
performance, solvency and liquidity.
The tone for risk management is driven by the Board, which
works closely with the Management Team to review Tullow’s
risk portfolio, monitor any emerging risks, carry out deep-dive
reviews on selected principal risks and better understand how
risks are being managed across the Company. Tullow’s risk
governance framework is illustrated below:
Tullow risk governance framework:
Board
- Oversees identification, assessment
and response to principal risks
(annual planning)
- Determines risk appetite
- Monitors effectiveness of risk
management process (delegated
to Audit Committee)
Business leadership
- Ensures compliance with standards set by
Heads of functions
- Identifies and assesses their respective
business delivery risks (at least annually)
- Ensures effective risk mitigation actions
are planned
- Monitors effectiveness of risk mitigation
and response plans (quarterly)
Principal
risks
Enterprise risks
Business
delivery risks
Corporate
risks
Management team
- Identifies and assesses enterprise risks
and principal risks
- Monitors effectiveness of risk reduction
actions for those risks
- Monitors risk portfolio with a deep-dive
into selected key risks (quarterly)
- Decides which enterprise risks, in
addition to principal risks, require the
Board to periodically review in detail
Heads of functions
- Set standards for managing risks in
their respective functional areas
- Identify and assess their respective
corporate risks (at least annually)
- Ensure effective risk mitigation
actions are planned
- Monitor effectiveness of functional
risk mitigation and response
plans (quarterly)
Tullow Oil plc 2019 Annual Report and Accounts
31
STRATEGIC REPORT Governance and risk management continued
Categories of principal risks
Strategy
Cyber
Stakeholder
Conduct
Principal risk
categories
Climate
change
Organisation
EHS or
security
Financial
Integrated Management System (IMS)
A robust Integrated Management System (IMS) is core to
how we run our business and how we approach corporate
governance and risk management. The IMS sets out all
mandatory policies, standards and controls necessary to
manage our activities and associated risks. Robust risk,
assurance and performance management processes
enable us to manage the opportunities and risks in all our
activities and respond to our stakeholders’ concerns.
In focus: key risk – Climate change
During the 2018 risk identification and assessment process,
Tullow recognised climate change as a potential emerging
risk and assessed it as low risk. However, during the 2019
annual top-down risk reassessment process, the Management
Team identified it posed an increased risk and the Board then
examined the issue in detail at its annual strategic off-site
meeting. The potential impacts from evolving policy, regulation
and taxes related to climate change, as well as the shift in oil
demand resulting from the acceleration towards renewable
sources of energy on Tullow’s business, led to climate change
and energy transition being assessed as a key risk. Responsibility
and accountability for this enterprise-level risk has been
assigned to the Executive Chair to reflect the strategic and
fundamental challenges and opportunities that managing
climate change and energy transition-related risks present to
our business. We recognise that risks associated with climate
change are multi-faceted and interconnect with most of Tullow’s
other defined categories of principal risk, including strategy,
stakeholder, EHS or security, financial and organisation, and
as a result, the Management Team will be supported by other
leadership members in mitigating this risk.
32
Tullow Oil plc 2019 Annual Report and Accounts
Risk management process
Our risk management framework provides a systematic
process for the identification, assessment and management
of the key risks and opportunities which may impact the
delivery of Tullow’s strategic objectives. This framework
promotes a bottom-up approach to risk management with
top-down support and challenge.
Risk registers are maintained at each layer of the organisation
and capture key risks facing Tullow. These are assessed
at both an inherent and residual level, against two scales:
a) according to their likelihood over a five-year period; and
b) their potential consequence to Tullow in terms of safety,
reputation, financial, legal and regulatory impact.
Each risk in the risk register has a dedicated assigned
risk owner who is responsible for reviewing and reassessing
them at least on a quarterly basis to evaluate the strength
of existing controls and mitigating actions and determine
whether additional risk reduction actions are needed to
reduce the risk level further to within the risk appetite set
by the Board. Tullow recognises that risk cannot be fully
eliminated and that there are certain risks the Board and/or
the Management Team will decide that they are happy to
accept when pursuing strategic business opportunities.
However, these decisions are made at an appropriate
authority level and reflect Tullow’s defined risk appetite.
Risk registers at the project and business functional level
are consolidated upwards to formulate the key risks that the
Management Teams are responsible and accountable for
managing through their quarterly performance reviews.
Tullow’s leadership undertakes a bottom-up review of the key
risks faced by the business, including any emerging risks.
The risks are further consolidated upwards resulting in the
identification of key risks which are termed enterprise-level
risks. These can be a single risk, or a set of aggregated risks
which, taken together, are significant for Tullow. This regular
bottom-up process is supported by an annual top-down
assessment with the participation of the Management Team
that enables adequate risk information flow from the
Business units to the Board, and from the Board down
to the Business units.
A member of the Management Team has ownership and
accountability for stewardship of each of the enterprise-level
risks. Additionally, the Management Team reviews and discusses
enterprise-level risks on a quarterly basis and assures that
mitigations are being effectively executed within the agreed
timeframe by the accountable person.
The enterprise-level risks that the Board considered to have
a significant enough impact during our planning horizon
have been identified and categorised under one of the eight
principal risk categories outlined on pages 34 to 36.
We are aware that other risks could emerge in the future (such
as the financial impact from Brexit or the operational and safety
impact from the Coronavirus, COVID-19) and if these risks are
not successfully managed our cash flow, operating results,
financial position, business strategy and reputation could be
materially adversely affected. However, we are confident that
we have a good risk management process in place to ensure
these are identified in a timely manner and dealt with effectively.
Risk management framework
Lines of defence
Risk registers
Corporate
risks
Ghana
business
risks
Kenya
business
risks
Uganda and
Non-
operated
business
risks
Exploration
business
risks
Business leadership (FIRST)
Heads of functions (SECOND)
Internal Audit (THIRD)
Nature of assurance
Functional review and oversight
(Internal Audit led workshop with functions)
Enterprise risk review
(Management led workshop with functions and businesses)
Principal risks 2020
Risk appetite
The Board sets Tullow’s risk appetite and acceptable risk
tolerance levels for each of the eight principal risk categories
and has reviewed the strategies devised by the Management
Team to mitigate them. In considering Tullow’s risk appetite,
the Board has reviewed the risk process, the assessment of
enterprise-level risks and the existing controls and mitigating
actions that drive towards residual risk. During this process,
the Board articulated which risks Tullow should not tolerate,
which should be managed to an acceptable level and which
should be accepted in order to deliver our business strategy.
The risk appetites are embedded into the Tullow IMS to
ensure they are available to the whole organisation and can
be used in development of all IMS policies and standards and
in business decision making. Risks continue to be managed
or monitored by senior management, with oversight by the
Management Team. The risk appetite is reviewed at least
annually by the Board to ensure that it reflects the current
external and market conditions.
Integrated assurance planning
Coordinated assurance activities are planned on an annual basis
between Internal Audit, Heads of functions and Business
leadership to align with key risks and to ensure the right level
of assurance across Tullow. Heads of functions coordinate the
assurance requirements for their respective functions, based
on their key risks, internal/external changes, control failures
and historical issues.
Responsibility for assurance activities are clearly articulated
for each of the three lines of defence illustrated opposite.
Business leadership
(ownership and management of risk)
- Own and manage business risks. Implement and execute
controls in business. Monitor risks and control at
business level.
- Assurance provided through self-reviews and focused
assurance reviews.
- Projects – implement and execute controls at site/project
level. Monitor risks and controls at site/project level.
Heads of functions (risk management and oversight)
- Set functional standards (minimum controls) and monitor
compliance with them.
- Provide challenge at key decision points (life cycle value
chain, business plans, budgets, contracts, transactions).
- Own and manage functional risks. Implement and
execute controls. Monitor risks and controls across
the business.
- Assurance provided through periodic reporting and
focused reviews.
Internal Audit (independent assurance)
- Provide independent assurance of respective governance,
internal control systems and controls across all levels of
the business.
- Assurance provided through risk-based internal audits.
Business leadership act as the first line of defence and are
responsible for ensuring their key risks are being managed
effectively and that adequate controls are in place to manage
those risks. This is done primarily through self-assessment
reviews and focused assurance.
Heads of functions act as a second line of defence and as well
as setting functional standards are responsible for ensuring
compliance with them. They obtain assurance through
periodic reporting and focused assurance reviews. They are
also responsible for identifying and managing risks that
fall under their remit.
Internal Audit acts as the third line of defence and is responsible
for providing independent assurance through its risk-based
internal audit programme.
Tullow’s risk management and assurance processes provide
the Board and the Management Team with reasonable, but not
absolute, assurance that our assets and reputation are protected.
Tullow Oil plc 2019 Annual Report and Accounts
33
STRATEGIC REPORT Governance and risk management continued
Strategy risk
Link to KPI/scorecard – Pursuing our vision, growing our business and business delivery
Risk of inability to make new significant oil discoveries and replenish exploration and subsurface portfolio
Risk owner: Mark MacFarlane
Risk details
Risk mitigation and 2019 outcomes
- Tullow owns exploration prospects and seeks to replenish its
- High grading of our exploration portfolio.
exploration portfolio in Africa and South America.
- Disciplined capital allocation model and financial risk sharing
- Factors that influence access to new acreage and successful
with our Joint Venture Partners.
exploration include obtaining accurate drilling and seismic data,
maturity of the oil industry in the countries in which it wishes to
invest, and developing good relationships with key stakeholders.
- Failure to make new significant oil discoveries and replenish our
exploration and subsurface portfolio will reduce our ability to grow
the business and could ultimately result in significant exploration
and capital write-offs.
- Focus on exploration prospects with clear and short-term routes
to commercialisation.
- The Jethro-1 and Joe-1 Guyana wells were executed within
budget, however are not commercial discoveries.
- Geophysical operations were conducted on time and to budget
in Africa and South America.
- Risk sharing was actioned in Suriname and Côte d’Ivoire.
- New acreage was added in Peru, Argentina and Namibia.
- Exits were actioned in Zambia, Mauritania, Jamaica and Uruguay.
Risk of failure to deliver commercially attractive and timely development projects
Risk owner: Mark MacFarlane
Risk details
Risk mitigation and 2019 outcomes
- Tullow has progressed the Kenya project into the Define stage,
which precedes the Final Investment Decision (FID). The work
done so far through the Early Oil Pilot Scheme (EOPS) and the
earlier appraisal programme has significantly reduced the risk
to the project.
- Factors that influence the successful delivery of the Kenya project
and reaching FID by end of 2020 are dependent on government
support to deliver access to land, water and the offloading berth
currently being built at Lamu Port and successful EPC tenders
for the upstream facilities and pipeline. Failure to achieve this
may result in higher than anticipated costs leading to the project
not being economically viable at current oil prices.
- Failure of the Ugandan Sale and Purchase Agreement to Total and
CNOOC to close due to unacceptable tax interpretation from the
Government has delayed a farm-down of the Uganda asset.
Kenya
- EOPS has de-risked reservoir performance and has demonstrated
the ability of Kenya to export oil with the first oil cargo sold in 2019.
- Focused community, national and county government engagement.
- Midstream ESIA submitted in Q4 2019, Upstream ESIA to be
submitted in Q1 2020.
- Heads of Terms that define the Commercial Framework signed by
the Government in Q3 2019.
- Long Form Agreements submitted to the Government in Q4 2019.
- Land acquisition process started by the Government in Q4 2019.
- Equity sell down process started in Q4 2019.
- Ongoing discussions with key stakeholders to align on key FID
milestones and prerequisites.
Uganda
- The farm-down in Uganda to Total and CNOOC lapsed in August
2019 following the expiry of the SPA due to unacceptable tax
interpretation from the Government.
- Alternative sales process to commence in 2020.
- Renewed engagements with Joint Venture Partners to
commercially and legally de-risk the project before further
significant capex is spent.
Stakeholder risk
Link to KPI/scorecard – Growing our business, business delivery and shared prosperity
Risk of disruption to business due to political/regulatory influence in Ghana
Risk owner: Mark MacFarlane
Risk details
Risk mitigation and 2019 outcomes
- Tullow has invested material amounts of capital in Jubilee and
TEN assets in Ghana and continues to invest in the ongoing
operations and new growth.
- Stabilisation clauses in all our Petroleum Agreements.
- Non-technical risk standard sets minimum stakeholder
management requirements.
- However, the value of our investments may be eroded
by factors such as the regular fiscal demands from
governments which contradict the existing tax legislation
and/or Petroleum Agreements.
- Tax advice taken and regular engagement with key senior
Government personnel (e.g. HE The President, Minister of Energy,
Minister of Finance) and institutions (Petroleum Commission,
GNPC) to align on business and shared prosperity outcomes.
- Ongoing engagement with newly formed Upstream Petroleum
Chamber and Government to understand changes to oil
industry regulations.
34
Tullow Oil plc 2019 Annual Report and Accounts
Climate change risk
Link to KPI/scorecard – Pursuing our vision and sustainability
Risk of failure to manage impact of climate change arising from evolving policy,
regulation and carbon taxes
Risk owner: Dorothy Thompson
Risk details
Risk mitigation and 2019 outcomes
- Failure to manage the impact of climate change arising from
evolving policies and increased volatility and downside risk in oil
prices could affect the commerciality of our portfolio, lead to loss
of licence to operate and result in limited access to/increased cost
of capital.
- Factors that will help to address climate change risks may include
changes to strategy to align with the energy transition and changes
to policies to accommodate global shift in demand for renewable
sources of energy.
- Risk mitigation could include a more aggressive and dynamic
approach to hedging oil price risk.
- Cross-functional team established to address recommendations
of TCFD and identify opportunities to reduce carbon emissions
across our operations and/or investment in nature-based carbon
sinks to offset emissions impact.
- Enhanced climate disclosure in our Annual Report.
- Alignment with and support for host government’s
Nationally Determined Contributions.
- Regular stress testing on portfolio to ensure resilience to
IEA’s Sustainable Development Scenario (see Chief Financial
Officer’s statement page 17).
- Target top-quartile ESG performance vs peer group.
EHS or security risk
Link to KPI/scorecard – Business delivery
Risk of major process safety, EHS incident or production failure on KNK (Jubilee and TEN FPSOs)
Risk owner: Mark MacFarlane
Risk details
Risk mitigation and 2019 outcomes
- Due to the nature of our operations, there is always the risk of a
major incident resulting in fatalities, and/or extensive damage to
facilities, the environment or communities.
- Independently verified safety cases to demonstrate risks
reduced to As Low As Reasonably Practicable and to ensure
Tullow maintains an excellent EHS track record.
- Factors that contribute to such risks arise from poor maintenance
of safety-critical equipment on board our Jubilee/TEN FPSOs,
ineffective EHS procedures, competence of personnel and/or lack
of training.
- Asset and well integrity maintenance with regular assurance
over FPSO systems and asset integrity.
- Comprehensive all-risk insurance in place.
- Jubilee safety case re-issued.
- TEN FPSO shut down for maintenance and inspections.
- Jubilee asset integrity programme Phase 1 completed.
- Comprehensive assurance over computerised maintenance
management system project initiated.
- Re-aligned responsibilities and accountabilities over FPSO
operatorship with MODEC.
Financial risk
Link to KPI/scorecard – Business delivery
Risk of insufficient liquidity and funding capacity
Risk owner: Les Wood
Risk details
Risk mitigation and 2019 outcomes
- Tullow remains exposed to erosion of its balance sheet and
- Operations reset to be viable in a low oil price environment.
revenues due to oil price volatility, unexpected costs arising from
operational incidents, failure to complete portfolio options or
inability to refinance (refer to Going Concern disclosure on
page 20 and Viability Statement disclosure on pages 36–37).
- Board approved two-year oil hedge programme with downside
protection and access to upside.
- Range of high-quality assets that could be sold as part of portfolio
management to unlock capital and pay down debt.
- Comprehensive insurance programme in place.
- Leverage targets and minimum headroom policy approved
by the Board.
- 2019 year-end undrawn facility headroom and free cash of
$1.2 billion; net debt of $2.8 billion; and net debt/EBITDAX of
2.0 times.
- c.60 per cent of 2020 oil entitlement hedged at an average floor
price of $57/bbl (refer to viability statement disclosure).
- Consideration of Going Concern and Viability Statement provided
on pages 20, 36–37 respectively.
Tullow Oil plc 2019 Annual Report and Accounts
35
STRATEGIC REPORT Governance and risk management continued
Organisation risk
Link to KPI/scorecard – Business delivery and progressive organisation
Risk that the organisational model, people strategy and culture do not support strategy
Risk owner: Ian Cloke
Risk details
Risk mitigation and 2019 outcomes
- Tullow’s success depends on the quality of talent it can attract and
- Regular review of organisational model to support delivery of
retain, a strong ethically minded and performance-focused
culture and a clear fit-for-purpose organisational model, which
enables the delivery of Tullow’s strategy.
- Tullow may be unable to maintain or improve operational
performance and pursue growth if the Company is unable to
maintain, evolve and sustain its organisational capabilities,
particularly at a time of significant organisational change.
strategic objectives. A review of the business is currently ongoing.
- Smart working rolled out and embedded.
- Enhanced talent identification process through people forum process.
- Diversity targets introduced and being monitored.
- Total compensation benchmarking review considering gender and
equal pay.
Conduct risk
Link to KPI/scorecard – Business delivery
Risk of major breach of business conduct standards
Risk owner: Les Wood
Risk details
Risk mitigation and 2019 outcomes
- Tullow operates in high-risk geographies defined by the
- Annual employee eLearning and code certification process.
Transparency International Corruption Index map and is required
to comply with applicable regulation and legislation across a
range of jurisdictions. Tullow maintains high ethical standards
across its business, without which the Company could be exposed
to increased risk of non-compliance with bribery and corruption
legislation along with other applicable business conduct legislation
and regulation and associated prosecutions and fines.
- Due diligence standard and processes in place.
- Misconduct and loss reporting standard and associated
procedures reviewed and updated.
- Developed a positive approach to GDPR investigations in
alignment with the DPO.
- Recorded and investigated 87 concerns raised, of which 76 cases
are closed. Appropriate actions have been taken including
employee dismissal (for serious breaches).
Cyber risk
Link to KPI/scorecard – Business delivery
Risk of major cyber or information security incident
Risk owner: Ian Cloke
Risk details
Risk mitigation and 2019 outcomes
- External cyber-attacks resulting in network compromise,
- Advanced security operations centre in place providing
network or industrial control system disruption and/or internal
theft/loss of confidential information is an ongoing risk and
continuously evolving.
24/7 network and device monitoring.
- Security awareness programme in place.
- Joint Tullow/MODEC industrial control system security
programme in place and progressing.
- Corporate security programme in place and progressing.
- Annual mandatory security and GDPR awareness training.
- Staff susceptibility to phishing regularly tested.
Viability statement
In accordance with provisions of the 2018 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 assessed the business over a number of time
horizons for different reasons, including the following:
Annual Corporate Budget (i.e. 2020), Two-year Forecast
(i.e. 2020–2021), Five-year Corporate Business Plan
(i.e. 2020–2024), Long-term Plan.
The Board conducted the review for the purposes of the
Viability Statement over a three-year period. The three-year
period was selected for the following reasons:
i. in light of the current highly volatile market environment the
Group considers the Group’s facility and free cash headroom,
debt: equity mix, and other financial ratios, over a three-year
period as opposed to the five-year CBP period;
ii. the current contractual maturity of the Group’s 2021
Convertible Bond and 2022 Corporate Bonds fall within a
three year period, as such the three-year period is largely
aligned with Tullow’s funding cycle; and
iii. alignment with industry peers.
Notwithstanding this fact the Group will continue to monitor
the business over all time horizons noted above.
36
Tullow Oil plc 2019 Annual Report and Accounts
As noted on page 20 in the Group’s going concern
assessment, utilising the annual business plan and
considering the base assumption and a severe downside
scenario, the Group continues to have headroom under its
contractually committed facilities for the 12-month going
concern assessment period. However, the Directors have
identified that the Group’s leverage could be above the RBL
gearing covenant when calculated at 31 December 2020,
which the Directors believe could be amended in advance as
required which is both consistent with past practice and the
reasonable expectation of the commercial interests of the
counterparties involved. Furthermore the Board has plans
to raise in excess of $1 billion from portfolio management
activities, including equity dilutions, farm-outs of exploration
licences and asset sales in 2020.
On a longer-term basis, when considering the Viability
Statement under the base assumptions and a combination of
reasonably plausible, albeit severe, downside scenarios over
the three-year period, the Group generates insufficient free
cash flow to meet the contractual debt maturity profile of the
RBL, as well as repay the 2021 convertible bonds and 2022
corporate bonds (which are assumed to require repayment
at maturity). The projected liquidity shortfall arises after
two years of the three-year period.
However, the Board plans to raise in excess of $1 billion
of proceeds from portfolio management, including equity
dilutions, farm-outs of exploration licenses and asset
disposals, in order to mitigate the potential risk, enable the
Group to repay the $300 million 2021 convertible bonds and
the $650 million 2022 corporate bonds and position it for
future growth. Timely delivery of such portfolio management
initiatives is required to support the Viability Statement
conclusions. The Directors are confident that these can be
delivered within the next two years and they therefore believe
that the Group continues to be viable over the three-year
assessment period.
Tullow’s current long-term price assumption is $65/bbl
from 2024, materially in line with the IEA’s Sustainable
Development Scenario which projects a price of $62/bbl
by 2030. However, Tullow has also considered the impact
of long-term oil prices declining to $50/bbl on its exploration
portfolio and its development and producing assets. The
majority of prospects in its exploration portfolio remain
commercially robust at that price but would result in a
$2.0 billion additional write-off or impairment as disclosed
in notes 10 and 11 of the financial statements.
Principal risks*
Base assumption
Downside scenario
Strategy risks
Uganda: FID June 2022 with first oil 2026
and carry from FID. Kenya: minimum
activity required to FID
No reasonably plausible financial exposure has been modelled
Stakeholder risks
Inclusion of financial exposure of all known
risks assessed as “probable” of occurrence
Inclusion of financial exposure of all known risks assessed
as ‘possible’ of occurrence
Climate change risk
n/a
Oil price: 2020: $30/bbl, 2021 $30/bbl 2022+: $45/bbl
EHS or security risks
50/mean production and capex profiles
8 per cent reduction in production
Financial risks
Forward curve 2020 ($38/bbl) and 2021
($43/bbl) followed by $50/bbl 2022–2024
Contractual debt maturity profile of RBL
and 2022 bonds (i.e. no refinancing)
No Conversion of convertible bonds
and repayment at maturity (2021)
Oil price: 2020: $30/bbl, 2021 $30/bbl 2022+: $45/bbl
Organisation risk
Conduct risk
Cyber risk
n/a
n/a
n/a
No reasonably plausible financial exposure has been modelled
No reasonably plausible financial exposure has been modelled
No reasonably plausible financial exposure has been modelled
* For detailed information on risk mitigation, assurance and progress in 2019 refer to discussion of the detailed risks above.
This Strategic Report and the information referred to herein have been approved by the Board and signed on its behalf by:
Dorothy Thompson
Executive Chair
Adam Holland
Company Secretary
11 March 2020
11 March 2020
Tullow Oil plc 2019 Annual Report and Accounts
37
STRATEGIC REPORT
Directors’ report
A framework for
corporate governance
Read more about
Stakeholder
engagement
on pages 46 and 47
As a UK-listed company Tullow Oil plc’s governance
policies and procedures are based on the Financial
Reporting Council’s UK Corporate Governance Code
(the Code) and the Financial Reporting Council’s
Guidance on Board Effectiveness, both of which can
be found at www.frc.org.uk. This Directors’ Report
summarises how the Group has complied with the
Code during the year ended 31 December 2019 and
describes changes to the governance structure that
took place before year end. The Code sets out how
governance is achieved through the application of
its five main principles and their supporting provisions:
- Board leadership and Company purpose;
- division of responsibilities;
- composition, succession and evaluation;
- audit, risk and internal control; and
- remuneration.
Board leadership and Company purpose
The Board is accountable to shareholders and the
Group’s other stakeholders for the creation and
delivery of long-term, sustainable operational and
financial performance for the enhancement of
shareholder and stakeholder value. The Board
meets these aims through setting the Group’s
objectives, values and strategy and ensuring that
the necessary resources are available to achieve
the agreed strategic priorities. During 2019 the
Group has been focused on being an Africa and
South America focused, sustainable and
progressive upstream exploration and production
company whose purpose is to create shared
prosperity through the exploration and
development of oil and gas.
The Board operates through a governance framework
with clear procedures, lines of responsibility and
delegated authorities to ensure that strategy is
implemented, and key risks assessed and managed
effectively. These are underpinned by the Board’s
work to set the Group’s core values, behaviours,
culture and standards of business conduct and
to ensure that these are clearly understood by the
workforce, shareholders and other stakeholders.
38
Tullow Oil plc 2019 Annual Report and Accounts
The Board also ensures that there is sufficient
engagement with the Group’s stakeholders such
that their views can be considered in Board decision
making. The Group’s stakeholders are divided into
the following main groups: our investors, our host
countries and their communities, our people, our
business partners and our suppliers.
Division of responsibilities
In our normal course of business the Chair is
responsible for leadership of the Board and its
overall effectiveness 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 with the Executive
Team1. One of the non-executive Directors has
been selected by the Board to be the Senior
Independent Director. The Board is fully satisfied
that the Senior Independent Director demonstrates
complete independence and robustness of character
in this role. The Senior Independent Director is
available to meet shareholders if they have concerns
that cannot be resolved through discussion with
the Chair or for matters where such contact would
be inappropriate. In addition, during the year the
Senior Independent Director meets with the other
non-executive Directors, without the Chair present,
to discuss the Chair’s performance. The Chair
meets regularly with the other non-executive
Directors, without executives Directors present,
to review Board discussions and engagement as
well as the performance of the Executive Team.
The Chair offers governance meetings with
shareholders at least once a year to receive their
direct feedback. In line with the guidance issued
by the Institute of Chartered Secretaries and
Administrators (ICSA), the Board has approved
formal terms of reference for a Committee of the
Executive Directors. The separation of responsibilities
between the Board and the Executive Team is clearly
defined and agreed by the Board and is published
on the Group’s website.
Up to 9 December 2019, the Board consisted of seven
independent non-executive Directors and three
Executive Directors. The independent non-executive
Directors consisted of an independent non-executive
Chair, one Senior Independent Director and five
independent non-executive Directors.
1. Governance framework up to 9 December 2019.
The Board of Directors
Chair, Executive Directors, Senior Independent Director and non-executive Directors
The Board operates under the leadership of the Chair and is collectively responsible for setting the Company’s strategy to deliver
long-term value to shareholders and other stakeholders. The Board ensures the appropriate resources, leadership and effective
controls are in place to deliver the strategy. The Board also sets out the Company’s culture and values, monitors business
performance, oversees risk management and determines the Company’s risk appetite. The Board delegates some of its
responsibilities to the Board sub-committees. The Board is accountable for the stewardship of the Company’s business to the
shareholders and other stakeholders.
Audit
Committee
Responsible for financial
reporting, audit, internal
control and risk
management processes.
Nominations
Committee
Responsible for Board
composition, appointment
of Directors and
succession planning.
Safety and
Sustainability
Committee
Responsible for health,
safety, environment,
climate change, shared
prosperity, security and
business sustainability.
Remuneration
Committee
Responsible for reward
and compensation for
Executive Directors, the
Chair and Senior
Managers and reviewing
the remuneration
arrangements of the
workforce.
pages 48–53
pages 54–55
pages 56–57
pages 58–79
Executive Team¹
Chief Executive Officer, Chief Financial Officer, Exploration Director and five Executive Vice Presidents
The Executive Team operates under the leadership of the Chief Executive Officer and is responsible for the delivery and
execution the Board’s strategy as well as the day-to-day management of the Company’s business including operational
performance. The Executive Team is accountable to the Board.
1. Governance framework up to 9 December 2019.
The Executive Directors consisted of the Chief
Executive Officer, the Chief Financial Officer and
the Exploration Director. On 9 December 2019, the
Chief Executive Officer and the Exploration Director
resigned by mutual agreement and stepped down
from the Board with immediate effect. The Board
then appointed the Chair as Interim Executive
Chair and initiated a search for a new Chief
Executive Officer. The Executive Chair will lead the
Group through this interim period until a new Chief
Executive Officer has been appointed, whereupon
the Executive Chair will revert back to the position
of non-executive Chair of the Board.
As of 31 December 2019, the Board consisted of
five independent non-executive Directors, a Senior
Independent Director, an Executive Chair and one
non-independent Executive Director (the Chief
Financial Officer).
Also, in December 2019, the Executive Team was
disbanded and a Management Team was formed
in its place. The Management Team is led by the
Executive Chair (with the support of the Company
Secretary) and consists of the recently appointed
Chief Operating Officer, the Chief Financial Officer,
one Executive Vice President and the Chief of Staff.
The Management Team oversees the day-to-day
operational matters of the Group and is carrying out
a Business Review covering all areas of the business,
its operations and cost base. The Management
Team reports to the Board on these matters.
This temporary change in governance structure
of the Group since December 2019 does not affect
the roles of the other non-executive Directors. They
have a broad range of business and commercial
experience and provide independent and constructive
challenge to the Executive Team and, latterly, the
Management Team. They monitor the performance
in implementing strategy and delivering the agreed
objectives and targets.
The Board considers each of the non-executive
Directors to be independent in character and
judgement with no conflicts of interest. In addition,
the Board is satisfied that all non-executive
Directors have disclosed their other significant
commitments and confirmed that they have
sufficient time to discharge their duties effectively.
The Board is also of the view that no one individual
or group of individuals dominates decision making.
Tullow Oil plc 2019 Annual Report and Accounts
39
CORPORATE GOVERNANCE Directors’ report continued
Division of responsibilities continued
As part of the governance framework, the Board
has delegated some of its responsibilities to four
Committees: the Audit Committee, the
Nominations Committee, the Safety and
Sustainability Committee and the Remuneration
Committee. The Board is satisfied that the
Committees have sufficient time and 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 to the Board. The
individual Committee terms of reference can be
found on the Group’s website. Director attendance
at Board and Committee meetings is summarised
in the following table:
Committee Reports
on pages 48–79
Board and Board Committee attendance 2019
Director
Paul McDade1
Angus McCoss1
Les Wood
Dorothy Thompson
Jeremy Wilson
Steve Lucas
Mike Daly4
Sheila Khama2
Genevieve Sangudi2
Martin Greenslade2
Tutu Agyare1
Board (9)
Audit
Committee (4)
Nominations
Committee (5)
Safety and
Sustainability
Committee (4)
Remuneration
Committee (6)
7
7
9
9
9
9
9
7
7
3
2
4
4
3
1
1
5
5
4
2
1 3
4
4
3
6
6
4
2
1. Denotes Director(s) who were no longer Directors of the Company as at 31 December 2019.
2. Denotes Director(s) who joined the Company part way through the year.
3. Denotes Director(s) who ceased to be a Committee member part way through the year.
4. Denotes Director(s) who joined a Committee part way through the year.
The Board is supported and advised by the Company
Secretary who ensures that it has the policies,
processes, information, time and resources it
needs for it to function effectively and efficiently.
The Company Secretary is also responsible for
ensuring compliance with all Board procedures
and for providing advice to Directors when required.
The Company Secretary acts as secretary to the
Audit, Nominations, Safety and Sustainability and
Remuneration Committees and has direct access
to the Chairs of these Committees.
A programme of strategy presentations covering
a wide number of operational and other strategic
issues is made to the Board in June each year.
In June 2019 the Board discussed in depth the
Group’s people and organisation, opportunities
for organic growth within the subsurface portfolio
and the Company’s strategy for energy transition
and sustainability. It also received presentations
from the Company’s brokers and defence advisers
on the equity and other investment markets. During
the year, the Board received presentations from
Business Managers and reviewed and approved
the Company’s strategy. The Board also reviewed
in detail the key risks facing the Company and
agreed the Group’s appetite for those risks.
In December 2019 following the downward revision
of production guidance, the resignation of the Chief
Executive Officer and the Exploration Director and
the material drop in the Group’s share price, the
Board resolved to suspend the dividend policy and
the Board meetings that took place focused on the
Group’s near-term business plan and budget, the
governance structure, stakeholder engagement and
initial proposals for the strategic reorganisation
of the business.
The Board normally holds at least one Board
meeting a year at an overseas office of the Group.
These meetings provide the Board with deeper
insights into the Company’s operations and provides
the Board with an opportunity to engage with the
Group’s stakeholders. Additional time is made for
management to present to the Board on matters
of strategic relevance, in-depth operational matters
and key risks. In addition, opportunities are made
for the Board to engage with a broad cross-section
of the workforce. In 2019 overseas Board meetings
were held at the Group’s regional offices in Nairobi
and Dublin.
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Tullow Oil plc 2019 Annual Report and Accounts
Composition, succession and evaluation
To ensure that serving Executive Directors and senior
managers of the Company continue to possess the
necessary skills and experience required for the
strategy of the business, the Board has established
a Nominations Committee to oversee the process
of appointments and succession planning for
Directors and other senior managers. The role of
the Nominations Committee is critical in ensuring
that the Group’s Board and Committee composition
and balance support both the Group’s business
ambitions and best practice in the area of
corporate governance.
During 2019, there were a number of scheduled
Board changes. In April, after almost nine years
on the Board, Tutu Agyare stepped down as a
non-executive Director, whereupon Genevieve
Sangudi and Sheila Khama were appointed
to the Board, both as non-executive Directors.
In November, Martin Greenslade was also
appointed a non-executive Director. In December,
as referenced previously, there was an additional
unscheduled change to the Board when Paul McDade
and Angus McCoss resigned by mutual agreement.
The Nominations Committee subsequently
initiated a search for the recruitment of a new
Chief Executive Officer.
Upon joining the Board, the three new non-executive
Directors received induction programmes which
were specifically designed to complement their
background, experience and knowledge with a
more detailed understanding of the upstream
industry and other matters regularly discussed at
the Board. The programmes included one-to-one
meetings with senior management, functional
leaders and visits to the Group’s principal offices
and operations. The new non-executive Directors
also received an overview of their duties, corporate
governance policies and Board processes.
Directors are initially appointed for a term of three
years. All of the Directors will seek re-election at
the next Annual General Meeting with the exception
of Steve Lucas, who has served on the Board for
eight years, and has indicated his intention to
step down from the Board at the Annual General
Meeting in April 2020. The Board will set out in the
Notice of Annual General Meeting its reasons for
supporting the re-election or election of each of
the Directors.
Board time (%)
Succession planning 4%
Risk management 6%
Exploration and
appraisal 8%
Development
and operations
12%
Governance 12%
30+
Safety, sustainability and
external affairs 12%
O Strategy 30%
Financial management
and capital allocation
16%
Nominations
Committee Report
on pages 54 and 55
As part of the ongoing evaluation of the Board’s
effectiveness, an external review of the Board
was carried out during the latter half of 2019.
The evaluation was carried out by Lintstock Ltd,
which has no other connection with the Company,
its Group or any of the Directors. The review required
each of the Directors to submit anonymous responses
to a series of questionnaires and undergo individual
interviews to reflect on their performance and
main areas under consideration by the Board
and its Committees.
The evaluation reported a number of positive
observations including that the Board shared a
positive commitment to drive business success,
including a shared commitment to the sustainability
strategy and the energy transition. The review also
found that the Board conducts its business in an
environment where freedom of expression, diversity
of opinions and challenge is both encouraged and
accepted. In addition, the inclusion and diversity and
the strong leadership of the Board was recognised.
However, the review also found that the Board had
some areas in which to progress further development
including a clearer direction for the future growth
of the business, to implement improvements in the
accountability of performance management and
to address the lack of a unanimous conviction that
the organisational structure changes put in place
in early 2019 would deliver the strategic goals set
by the Board. The evaluation concluded that the
Board needs to prioritise these issues during 2020
in order to rebuild investor confidence, grow the
business and strengthen the balance sheet.
Tullow Oil plc 2019 Annual Report and Accounts
41
CORPORATE GOVERNANCE16
+
12
+
12
+
12
+
8
+
6
+
4
+
Directors’ report continued
Audit, risk and internal control
The Board has delegated responsibility to the Audit
Committee to satisfy itself on the integrity of the
financial statements and announcements on
financial performance, overseeing the relationship
with the external auditor and reviewing significant
financial reporting and accounting policy issues.
The Audit Committee has also assumed
responsibility for overseeing the Groups’ internal
audit programme and the process of identifying
principal and emerging risks and ensuring that
they are managed effectively. As part of that
process, the company’s internal financial controls
and internal control and risk management systems
are assessed annually.
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 Code. Overall control is ensured
by a regular detailed reporting system covering both
operational and commercial performance and the
state of the Group’s financial affairs.
The Board has procedures for identifying, evaluating
and managing principal risks that impact the
Group and are regularly reviewed. Tullow
recognises that any systems of risk management
and internal control can only provide 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 does seek to ensure that
Tullow has appropriate systems in place for the
identification and management of key risks,
including emerging risks. In accordance with the
requirements of the Code, the Board has
established procedures to manage risk, oversee
the internal control framework and determine the
nature and extent of the principal risks the
company is willing to take in order to achieve its
long-term strategic objectives.
Safety and Sustainability Committee
In 2019, the remit of the Environment, Health and
Safety Committee was broadened and renamed the
Safety and Sustainability Committee. The Board
has delegated to this Committee the responsibility
and oversight of the Company’s’ occupational and
process safety, people and asset security, health
and environmental stewardship. The Committee
monitors performance and key risks associated
with these areas. The Committee now provides
oversight of the implementation of the Company’s
strategic priorities with respect to sustainability,
namely: shared prosperity, responsible operations,
environmental stewardship, and equality and
transparency.
42
Tullow Oil plc 2019 Annual Report and Accounts
Audit Committee
pages 48–53
Remuneration
Committee Report
pages 58–79
Safety and
Sustainability
Committee Report
pages 56–57
Audit Committee
The Audit Committee will retain responsibility for
oversight of the external audit of reserves and
resources with Board governance strengthened by
the nomination of a non-executive Director with
appropriate technical expertise who will have
responsibility for engagement with the Chief
Petroleum Engineer on all matters relating to
reserves and resources. The same nominated
non-executive Director will be available to assist
with technical concerns raised through the
Company’s confidential speaking-up service,
Safe Call.
Remuneration Committee
The policies and practices for determining the
remuneration of the Executive Directors and the
senior managers has been delegated to the
Remuneration Committee. The principal role of
the Remuneration Committee is to develop and
maintain a Remuneration Policy that ensures
Executive Directors and senior managers are
rewarded in a manner that closely aligns with the
successful delivery of the Company’s long-term
purpose and strategy as well as those of the
shareholders and other stakeholders, including
the workforce.
Board oversight of climate change and
disclosures in alignment with TCFD
The Board has recognised that climate change
and the decarbonisation of the global economy
represent fundamental strategic risks to its
business. Climate-related risks have,
accordingly, been designated as an enterprise-
level risk (and a distinct principal risk category)
with the Board as a whole assuming direct
responsibility for overseeing the identification
and assessment of, and response to, these
risks. Directors have responsibility for ensuring
they remain sufficiently informed of climate-
related risks to Tullow and the broader energy
sector in order to be able to meet their fiduciary
duties under the UK Companies Act 2006.
The Board will take particular account of the
financial impact on Tullow’s existing portfolio
stemming from the risks of lower oil demand,
lower oil prices and potential carbon taxes
associated with scenarios aligned with the goals
of the Paris Agreement. The Board will also use
these scenarios to evaluate the commercial
viability of new development projects and
exploration campaigns.
The Board will monitor indications of any changes
in Tullow’s access to and cost of capital and debt,
particularly stemming from shifts in investor
sentiment towards the oil and gas sector related
to climate change. The Board will agree Tullow’s
carbon management and performance, including
targets for emissions reductions, as part of the
establishment of the energy transition and net
zero delivery plan in 2020. In addition, the Board
will receive updates relating to host governments’
energy transition and climate resilience plans
as well as requests for support for private
sector initiatives in those countries.
The main Tullow Board is supported by its four
Committees – Audit, Nominations, Safety and
Sustainability and Remuneration – to ensure
governance related to climate change is
implemented through the Company’s existing
governance structure.
Audit Committee
The Committee will assess and provide assurance
of the financial impact of scenario analysis on
our portfolio and ensure it is appropriately and
transparently reflected in our financial
disclosures including valuation of reserves.
Nominations Committee
The Committee ensures the Board and
Executives have access to the relevant skills
and capabilities to assess, address and report
on exposure to climate change and the low
carbon transition.
Safety and Sustainability Committee
The Committee has full oversight of Tullow’s
operational performance on carbon emissions
management and how that performance
translates into sustainability benchmarks and
ratings scores, recognising the growing
importance of these tools in investor decision
making. In addition, the Safety and Sustainability
Committee has broader oversight of Tullow’s
sustainability disclosure, ensuring it is
balanced, complete and accurate.
The Executive Chair, Dorothy Thompson, is
currently designated as the owner of climate-
related risk. She is ultimately responsible for
determining Tullow’s strategic response to
climate change and the energy transition, for
identifying, assessing and managing climate-
related risks and opportunities and for
monitoring the progress of mitigation actions.
She is supported in this by the other members
of the Management Team.
The Management Team is responsible for
reviewing the commercial resilience of Tullow’s
portfolio against the assumptions of the IEA, or
other challenging, scenarios at least annually
and evaluating the risks to the commercial
viability of new development projects and
exploration campaigns. The Management Team
will also set and monitor targets established to
improve climate performance and periodically
review Tullow’s mitigation of climate risks.
Climate change risks, opportunities and scenario
assumptions (including oil demand, oil price,
and carbon taxes) are considered and integrated
into all stages of the business cycle and into
financial accounting processes.
Remuneration
Committee Report
page 58–79
Nominations
Committee Report
pages 54–55
Safety and
Sustainability
Committee Report
pages 56–57
Each part of the business will evaluate climate-
related risks and opportunities within their
areas of responsibility, bearing in mind the
cross-cutting nature of climate change risk
which may affect other principal risk categories
including strategy risk, stakeholder risk, EHS
risk, financial risk, organisation risk and
conduct risk.
Remuneration Committee
The Board approved the inclusion of an energy
approved transition KPI in tge 2020 scorecard,
which aligns both executive pay abd employees’
performance releated pay, which is to define and
energy transition strategy in 2020 for Tullow to
achieve net zero emissions (scope 1 and 2)
Compliance
The Board is satisfied that the Group has complied
in full with the Code during the year ending
31 December 2019, with the following exceptions:
i. The Directors’ Remuneration Policy, approved
by shareholders in 2017, provides for Executive
Director pension contributions, or payments in
lieu, of up to 25 per cent of basic salary. This
does not comply with Provision 38 of the Code
which requires these contributions to be aligned
with those available to the workforce. Provision 143
of the FRC’s Guidance on Board Effectiveness
acknowledges that it may not be practical to
alter existing contractual arrangements and
therefore the Remuneration Committee will
propose, in a revised Remuneration Policy for
new Directors to be presented at the Annual
General Meeting in April 2020, that these
arrangements be brought into line with those
available to the workforce. For existing
Executive Directors contributions will be
adjusted so that they are in line with those
available to the workforce by 1 January 2023.
ii. The Directors’ Remuneration Policy does
not contain any formal policy for Directors’
post-employment shareholding requirements
as set out in Provision 36 of the Code. However,
the revised Remuneration Policy to be presented
at the Annual General Meeting in April 2020 will
contain such provisions.
iii. In contravention to Provision 9 of the Code, the
roles of Chair and the Chief Executive Officer are
currently being performed by Dorothy Thompson
on an interim basis while the search for a new
Chief Executive Officer is being conducted.
A search for a new CEO is currently underway.
On appointment Dorothy Thompson will revert
back to the position of Non-Executive Chair
of the Board.
Dorothy Thompson
Executive Chair
11 March 2020
Tullow Oil plc 2019 Annual Report and Accounts
43
CORPORATE GOVERNANCE Board of Directors
N
S
Dorothy Thompson
Executive Chair
Age: 59
Les Wood
Chief Financial Officer
Age: 57
Tenure: 1 year
Appointment: 2018
Independent: No
Key strengths
Executive leadership, public company
governance and leadership, investor
relations, corporate finance,
accounting and audit, business
development, risk management,
technology and innovation.
Experience
Dorothy brings extensive leadership
and governance experience to Tullow
developed over a 35-year career in
international business. Dorothy spent
12 years, until the end of 2017, as chief
executive officer for Drax Group plc,
the international power and energy
trading company. Before joining Drax,
Dorothy was vice president of the
global independent power generation
company InterGen Services Inc,
managing its European business.
Dorothy previously worked for
PowerGen plc as head of project
finance having started her career in
development banking with the
Commonwealth Development
Corporation and the National
Development Bank of Botswana, roles
in which Dorothy gained significant
experience in emerging markets in
Africa. In addition, Dorothy spent nine
years as a non-executive director of
Johnson Matthey, a multinational
specialist in the supply and innovation
of sustainable technologies in the
chemical industry, where she served
on the audit, remuneration and
nominations committees. Dorothy
holds BSc (Hons) and MSc degrees
in Economics from the London School
of Economics and Political Science
and was appointed a Commander
of the Order of the British Empire
in 2013 for services to the UK
electricity industry.
Current external roles
Dorothy is currently a non-executive
director of Eaton Corporation plc, an
international power management
company, where she chairs the
governance committee and serves on
the audit committee. In addition,
Dorothy is a director of the Court of
the Bank of England, where she
chairs the audit and risk committee,
is the senior independent director
and is a member of the nominations
committee and the real time gross
settlement renewal committee.
Tenure: 2 years
Appointment: 2017
Independent: No
Key strengths
Upstream business, corporate
finance, accounting and audit,
business development, risk
management, executive leadership,
investor and government relations.
Experience
Les brings considerable financial
and commercial expertise to Tullow,
including major mergers and
acquisitions delivery, joining in 2014
as Vice President Commercial and
Finance after a 28-year career at BP
plc. Les held a number of senior
roles at BP plc including chief
financial officer for BP plc Canada
and BP plc Middle East as well as
global head of business development.
Les holds a BSc (Hons) in Chemistry
from Herriot Watt University,
Edinburgh, and an MSc in Inorganic
Chemistry from Aberdeen University.
Current external roles
None.
N
R
S
Mike Daly
Non-executive Director
Age: 66
Tenure: 5 years
Appointment: 2014
Independent: Yes
Key strengths
Upstream business, exploration
and appraisal executive leadership,
business development, executive and
public company leadership, technology
and innovation, environment, health,
safety and sustainability.
Experience
Mike brings significant upstream
experience to Tullow from a 40-year
career in the oil and gas business.
Mike spent 28 years at BP plc where
he held a number of senior executive
and functional roles within the
exploration and production division
across Europe, South America, the
Middle East and Asia, including eight
years as head of exploration and
new business development. He also
served on BP’s executive team as
44
Tullow Oil plc 2019 Annual Report and Accounts
executive vice president exploration,
accountable for the leadership of BP’s
exploration business. Mike was a
member of the World Economic
Forum’s Global Agenda Council on the
Arctic and was on the board of the
British Geological Survey. He remains
a visiting Professor at the Department
of Earth Sciences, Oxford University.
He holds a BSc in Geology from
Aberystwyth University and a PhD in
Geology from Leeds University. Mike is
also a graduate of the Program for
Management Development, Harvard
Business School, and in 2014 was
awarded The Geological Society of
London’s Petroleum Group Medal.
Current external roles
Non-executive director of Compagnie
Générale de Géophysique, a global
provider of geoscience and
geophysical services to the oil and
gas industry, where he is chair of the
health, safety, environment and
sustainable development committee.
A
Martin Greenslade
Non-executive Director
Age: 54
Tenure: <1 year
Appointment: 2019
Independent: Yes
Key strengths
Corporate finance, accounting and
audit, risk management and executive
and public company leadership.
Experience
Martin, a chartered accountant,
brings extensive corporate financial
experience to Tullow from a 32-year
career in the property, engineering
and financial sectors in the UK and
across Africa, Scandinavia and
Europe. Since 2005 Martin has been
Chief Financial Officer at Land
Securities Group plc, a listed UK real
estate company. Previously, he spent
five years as group finance director of
Alvis plc, an international defence
and engineering company. Martin
holds an MA in Computer and
Natural Sciences from Cambridge
University and is also a graduate of
the Stanford Executive Program,
Stanford University, California.
Current external roles
Martin is currently chief financial
officer and board member at Land
Securities Group plc. Martin is also a
board trustee of the International
Justice Mission, a human rights
charity focused on protecting the
poor from violence and ending
human slavery.
S
Sheila Khama
Non-executive Director
Age: 62
Tenure: <1 year
Appointment: 2019
Independent: Yes
Key strengths
Extractives project and policy
reform, executive leadership,
corporate governance, business
development, public–private
partnership and sustainability.
Experience
Sheila brings to Tullow a wealth of
executive experience in the banking
and natural resources sectors across
Africa from a distinguished 40-year
career in high-profile business and
advisory roles. Sheila spent eight
years as group secretary at Anglo
American, Botswana, before joining
the First National Bank of Botswana
as a marketing and communications
executive. In 2005, Sheila returned to
the Anglo American–De Beers Group
to become chief executive officer of
De Beers, Botswana. From 2010,
Sheila moved to Accra, Ghana, to
spend three years as director of
the extractives advisory programme
at the African Centre for Economic
Transformation, an economic policy
unit that supports the long-term
growth and transformation of African
countries. In 2013, Sheila took up a
position as director of the Natural
Resources Centre at the African
Development Bank, Abidjan, Côte
d’Ivoire, before becoming a policy
adviser at the World Bank in
Washington in 2016. In both roles
Sheila advised host governments on
sustainable development polices for
natural resources. During this time
she also represented the African
Development Bank as an observer on
the international board of directors of
the Extractive Industries Transparency
Initiative. Sheila holds a BA from the
University of Botswana and an MBA
from the Edinburgh University
Business School.
Current external roles
Sheila is currently a member of the
Advisory Panel of LafargeHolcim,
the United Nations Sustainable
Development Solutions Network,
the Advisory Board of the Centre for
Sustainable Development Investment,
Columbia University and the audit
committee of the United Nations
Office of Operations, as well as a
non-executive director of the
Development Partner Institute.
A
N
Steve Lucas
Non-executive Director
Age: 65
Tenure: 7 years
Appointment: 2012
Independent: Yes
Key strengths
Upstream business, corporate finance,
accounting and audit, risk management,
executive and public company
leadership and investor relations.
Experience
Steve brings significant financial and
leadership experience in the energy
and extractive industries to Tullow
after a 40-year business career.
Steve, a chartered accountant, most
recently spent eight years as finance
director of National Grid plc.
Previously, he held senior financial
positions during an 11-year career at
Royal Dutch Shell and 6 years at BG
Group plc, latterly as group treasurer.
During this time Steve has also held
non-executive directorships at the
American oil and gas drilling
company Transocean Ltd, the
Compass Group plc and the Indian
energy and power company Essar
Energy. Steve holds a BA in Geology
from Oxford University.
Current external roles
Steve is currently chair of mining
company Ferrexpo plc where he
chairs the nominations committee.
R
A
Genevieve Sangudi
Non-executive Director
Age: 43
Tenure: <1 year
Appointment: 2019
Independent: Yes
Key strengths
Corporate finance, accounting and
audit, business development, risk
management, executive leadership
and investor relations.
Experience
Genevieve brings considerable
marketing, investment and fund
management experience to Tullow
from a 22-year career in the financial
sector in the US and across Africa.
Genevieve began her career in
business development as a marketing
executive at Proctor & Gamble, Boston,
before joining Emerging Capital
Partners, a pan-African private equity
firm, as a partner and managing
director. At Emerging Capital Partners
Genevieve served on the boards of
portfolio companies working closely
with the executive teams and set up
the company’s operations in Nigeria.
Since 2011, Genevieve has been
managing director, Sub-Saharan
Africa, for the American private
equity company Carlyle Group, based
in Johannesburg, South Africa,
leading on a number of significant
transactions in Gabon, Tanzania,
Nigeria and Uganda. Genevieve holds
a BA from Macalester College, St
Paul, Minnesota, an MA in
International Affairs from Columbia
University, New York, and MBA from
the Columbia Business School,
Columbia University.
Current external roles
Genevieve is currently managing
director, Sub-Saharan Africa, for the
American private equity company
Carlyle Group.
A
N
R
Jeremy Wilson
Senior Independent
Director
Age: 55
Tenure: 6 years
Appointment: 2013
Independent: Yes
Key strengths
Corporate finance, accounting and
audit, business development, risk
management, executive leadership,
public company governance and
leadership and investor relations.
Experience
Jeremy brings extensive strategic
and corporate finance experience
to Tullow developed over a 30-year
business career. Most recently
Jeremy spent 26 years at the
investment bank JP Morgan where
he held a number of senior executive
roles including head of European
mergers and acquisitions, co-head
of global natural resources and
diversified industrials and latterly
vice chair of the bank’s energy group.
Jeremy holds an MSc in Engineering
from Cambridge University.
Current external roles
Jeremy is currently a non-executive
director of John Wood Group plc, an
international engineering company
providing project and technical
services to the energy industry, where
he is senior independent director,
serves on the audit and nominations
committees and chairs the
remuneration committee. Jeremy
is also a co-founder and chair of
the Lakeland Climbing Centre.
Board composition statistics
Tenure (yrs)
0<5
5–10
Age (yrs)
40<50
50<60
60–70
Nationality (%)
58
average
age
3
average
tenure
63+
13+
75+
63+
87+
Independent
Non-independent
87.5%
independent
Independence (%)
Gender (%)
37.5%
female
25.0%
African
Male
Female
British
African
5
3
1
4
3
75.0
25.0
62.5
37.5
87.5
12.5
Committee membership key
Committee Chair
A Audit Committee
N Nominations Committee
S Safety and Sustainability Committee
R Remuneration Committee
Tullow Oil plc 2019 Annual Report and Accounts
45
CORPORATE GOVERNANCE
37
+
O
50
+
37
+
O
37
+
O
25
+
O
13
+
O
Stakeholder engagement
Engaging with
our stakeholders
To deliver the Company’s strategy the Board understands the
need to build and maintain successful relationships with all
the Company’s stakeholders. The Company has multiple
stakeholders across its operations: our investors; our host
countries; and our people. Below are examples of how the
members of the Board have directly engaged with these
three stakeholder groups during 2019. Engagements are
undertaken by individual Directors, including non-executive
Directors, and also by the Board as a whole. Feedback
from these engagements is regularly communicated to
the Board and taken into account during Board discussions
and decision making.
Our key stakeholders
How the Board engaged
Our investors
S
R
VEST O
R IN
U
O
OUR H
O
S
T
C
O
U
N
T
R
I
E
S
OUR PEO P L E
- Executive Directors attended and
participated in investor relations
roadshows and conferences
engaging with over 55 per cent
of the share ownership
- Chair and Senior Independent Director
met with shareholders to discuss
remuneration and succession planning
- Chair met with major investors to
discuss governance
- Directors attended Annual General Meeting
- Ghana Investor Forum in Accra, led by CEO
and CFO
- Directors attended ‘Facts behind the
Figures’ investor relations event at the
Ghana Stock Exchange
Our host countries
- New Directors visited Ghana and Kenya
as part of Board induction
- Chair met with presidents, ambassadors
and key officials of certain host countries
S
R
VEST O
R IN
U
O
OUR H
O
S
T
C
O
U
N
T
R
I
E
S
OUR PEO P L E
Our people
S
R
VEST O
R IN
U
O
OUR H
O
S
T
C
O
U
N
T
R
I
E
S
OUR PEO P L E
- Board hosted a stakeholder event in
Nairobi engaging with government
ministers and other key strategic
partners of Project Oil Kenya
- Directors visited communities and projects
in areas of operations
- Directors attended Africa Oil Week in
South Africa and hosted a stakeholder event
- Directors travelled to our office locations
to present and engage in ‘Tullow in
Focus’ events with staff and contractors
- CEO presented town hall events which
included open Q&A throughout the year
at different locations
- Board hosted informal evening event
for all staff when visiting Nairobi and
Cape Town offices
- Chair visited our offices and engaged with
staff in Nairobi, Accra, Dublin, Cape Town
and London including the operational base
in Kenya and the TEN FPSO in Ghana
- Board attended deep-dive session with
the exploration group in Dublin
- New Directors engaged with workforce
at office locations during Board
induction visits
- Executive Directors host ‘Meet the
- Safety and Sustainability Committee
Exec’ breakfasts with staff
members visited staff and contractors
involved in the EOPS trucking project
in Kenya
- The workforce Tullow Advisory Panel (TAP)
was established and held its inaugural
meeting with the Board
46
Tullow Oil plc 2019 Annual Report and Accounts
Executive Vice President Kweku Awotwi
addresses the brokers and analysts (Oct 2019)
Members of the TAP at the inaugural
meeting with the Board (Nov 2019)
Our investors
Facts behind the figures
In October, Tullow participated in a Facts Behind the Figures
event in Accra, hosted by the Ghana Stock Exchange. The
event was well attended by fund managers, brokers, analysts,
media and other market participants. Les Wood, CFO and
Executive Director, gave a keynote presentation on Tullow’s
performance in 2019 and Kweku Awotwi, Managing Director
of Tullow Ghana, presented on Tullow’s operations and impact
in Ghana since 2007. The event provided the audience with
a chance to engage with the senior management and
Directors to understand Tullow’s performance, investment
case and plans both in Ghana and across the Group. This
event was in addition to the annual Ghana Investor Forum,
which was held in Accra in May, which is an event for local
shareholders, analysts and investors led by Paul McDade,
CEO, and Ike Duker, Chair West and East Africa, supported
by other senior Tullow executives.
Our people
Tullow Advisory Panel
During the year, the Company added to its existing workforce
engagement opportunities by establishing the Tullow Advisory
Panel (TAP). Twelve members of the workforce, who collectively
represent employees and contractors at all of Tullow’s offices
worldwide, were nominated by the workforce to sit on the
panel. The TAP provides an opportunity for the the Board
to understand and take into consideration the interests of
Tullow’s workforce as it makes decisions for the long-term
success and sustainability of the Company. The TAP will
meet with members of the Board at least twice a year and
the attending non-executive Directors will rotate so that
they each attend. Meetings will be chaired by the Company
Secretary. In November, the TAP held its inaugural meeting
with Dorothy Thompson, Chair, and Les Wood, CFO and
Executive Director, and fed back to the Board the views
of the workforce on the significant matters that were
important to our staff and contractors.
The Board visiting the Amosing EOPS
well site, Kenya (Oct 2019)
The Board visiting Lamu Port, Kenya
(Oct 2019)
Our host countries
Board visit to Kenya
In October, the Board held one of its meetings at Tullow’s offices in Nairobi. During the visit, the Board took the opportunity
to visit the EOPS operational base in Turkana County and Lamu Port. The site visit provided an opportunity for the Board to
directly engage with and receive the views of our host communities and our strategic Kenyan Government partners as well
as our contractors and staff. In addition, the Board hosted an informal evening reception for Nairobi office staff as well as a
more formal dinner for senior government ministers and officials including the Cabinet Secretary for the Ministry of Petroleum
and Mining, Cabinet Secretary for the Ministry of Water and Sanitation, the Principal Secretary for the Ministry of Energy, the
Chief Executive officer of LAPSSET, the director of the Petroleum Regulatory Authority and the Chief Secretary to the National
Treasury. At these events the Board was able to personally reinforce the Company’s commitment to Project Oil Kenya as well
as receiving feedback from stakeholders on the execution strategy for the project.
Main shareholder events 2019
January – Trading Statement and Operational Update
June
– Trading Statement and Operational Update
February – 2018 Full-Year Results
July
– 2019 Half-Year Results
April
– Annual General Meeting and Trading Update
November – Trading Statement
May
– Ghana Investor Forum
Tullow Oil plc 2019 Annual Report and Accounts
47
CORPORATE GOVERNANCE Audit Committee report
“ The Audit Committee
remains focused on
maintaining strong
standards of governance
and risk management
across the Group to
support and exercise
oversight of our business.”
Steve Lucas
Chair of the Audit Committee
2019 highlights
- Monitoring the transition of the external auditor
from Deloitte LLP to Ernst & Young LLP.
- Reviewing the Group’s supplier due
diligence strategy.
- Implementing new solutions to strengthen
financial controls.
- Regular review of risk management and
internal control effectiveness.
- Overseeing an independent assessment
of internal audit effectiveness.
- Maintaining a diversity of experience on
the Committee with the introduction of
Genevieve Sangudi and Martin Greenslade.
- Reviewing the impact of IFRS 16
Lease Accounting.
- Reviewing financial reporting and key financial
judgement including impairment and going
concern assessments.
- Oversight of the transition of the reserves and
resources auditor from ERCE to TRACs.
48
Tullow Oil plc 2019 Annual Report and Accounts
Dear shareholder
The Audit Committee continues to focus on key areas
including ensuring a strong system of financial and
non-financial controls, risk management and internal
audit. In particular, the Audit Committee’s activities in
2019 included oversight of Tullow’s financial reports
as well as assessing the effectiveness of the
Company’s risk management and internal control
processes. In this report, I also outline key areas
of financial judgement and estimation, which were
considered in Tullow’s accounts and the action taken
by the Committee to ensure they fairly reflect Tullow’s
financial position.
In 2019 the composition of the Audit Committee has
changed significantly. Tutu Agyare stepped down from
the Board and the Audit Committee at the 2019 AGM.
I would like to thank him for the unique perspectives
and challenge which he provided. Genevieve Sangudi
was appointed to the Audit Committee at the
conclusion of the 2019 AGM. Martin Greenslade
joined the Board and the Audit Committee in
November and will replace me as Chair of the
Committee from the 2020 AGM. The Committee
now consists of four members until the 2020
AGM and, going forward, I am confident that the
Committee will have the required competence
and experience relevant to Tullow’s business
and the oil and gas industry.
This year the Committee’s focus also included
accounting, reporting and disclosure implications
of new accounting standards, especially IFRS 16
Lease Accounting.
We have monitored the introduction of Ernst &
Young LLP as the Company’s statutory auditors for
2020, subject to shareholder approval at the 2020
AGM. I am glad that the rotation to Ernst & Young
LLP will allow Tullow to stop applying transitional
rules regarding auditor rotation. We have also
overseen the transition of the Group’s reserves
auditor from ERCE to TRACS.
The Audit Committee saw further improvements to
financial as well as compliance and operational
controls, particularly relating to supplier due
diligence, and we are further strengthening our
financial and other systems and processes in 2020.
I am also pleased to report that the Committee has
undergone an annual assessment of its effectiveness
and it was found to be functioning effectively
throughout 2019.
Steve Lucas
Chair of the Audit Committee
11 March 2020
Read more about the
Committee members
on pages 44 and 45
Governance
Steve Lucas has been Audit Committee Chair since
May 2012. Steve is a chartered accountant. He was
finance director at National Grid plc from 2002 to 2010
thus meeting the requirement of the UK Corporate
Governance Code for the Audit Committee to have
at least one member who has recent and relevant
financial experience. The other members of the
Audit Committee are Martin Greenslade, Genevieve
Sangudi and Jeremy Wilson. Together, the members
of the Committee demonstrate competence in
the oil and gas industry, with Steve Lucas having
significant prior experience in oil and gas companies,
while other Committee members 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 Financial
Controller, the Group Head of Internal Audit and
representatives of the external auditor are invited
to attend each meeting of the Committee and
participated in all of the meetings during 2019.
The Chair of the Board and the CEO also attend
meetings of the Committee by invitation and
were present at most of the meetings in 2019.
The external auditor and the Group Head of
Internal Audit have unrestricted access to the
Committee Chair.
In 2019, 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 its terms of reference
during the year to ensure they comply with relevant
regulation, including the UK Corporate Governance
Code 2018, the Companies Act 2006, the FRC’s
2016 Guidance on Audit Committees, the FRC’s
2014 Guidance on Risk Management, Internal
Control and Related Financial and Business
Reporting and the FRC’s Revised Ethical Standards
2019. The Audit Committee’s terms of reference
can be accessed via the corporate website.
The Board approved the terms of reference on
5 December 2019.
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 including going concern and
viability assessments;
- review and, where necessary, challenge the
consistency of significant accounting policies,
and whether appropriate accounting standards
have been used;
- review the content of the Annual Report and
Accounts and advise the Board on whether it is
fair, balanced and understandable and if it provides
the information necessary for shareholders to
assess Tullow’s position, performance, business
model and strategy;
- monitor and review the adequacy and effectiveness
of the Company’s internal financial controls and
internal control and risk management systems;
- 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
- oversee the system of Ethics and Compliance,
including its procedures to prevent bribery and
corruption, and response to any significant
instances of non-compliance.
Tullow Oil plc 2019 Annual Report and Accounts
49
CORPORATE GOVERNANCE Audit Committee report continued
Significant financial
judgements and areas
of estimation
Carrying value
of intangible
exploration and
evaluation assets
Carrying value
of property, plant
and equipment
How the Committee addressed these judgements and areas of estimation
A detailed accounting paper was received by the Committee from management on the Group’s exploration and
evaluation assets, with a separate paper for Kenya and Uganda, given their materiality. The papers documented the
management’s assessment of indicators for impairment and, if required, showed calculations for the impairments.
The Committee reviewed these papers and challenged management’s position, with particular focus on the Kenya
and Uganda development projects following the decrease in the Group’s oil price assumption, at both the November
and February Audit Committee meetings.
Furthermore, the Committee met and discussed the Group’s reserves and resources with the Group’s external
reserves auditor, TRACs, at the December Board meeting to ascertain the hydrocarbon volumes audited by TRACs
support the impairment assessment.
The Committee supported management’s assessment that an impairment was required in respect of Kenya and
Uganda based on the value-in-use assessment performed. While the Committee also concurred that exploration
assets in Mauritania, Namibia, Guyana and Kenya should be written off as proposed by management and ensured
there was an adequate disclosure of this judgement in the Annual Report and Accounts.
The Committee received and reviewed the papers prepared by management on the Group’s oil price and discount
rate assumptions, which are used in the assessment of the carrying value of PP&E. At the November and February
Audit Committee meetings these assumptions were challenged by the Committee compared to independent oil
price forecasts. The Committee also challenged the Company’s calculation of impairment discount rates, with
particular focus on the asset and exploration risk adjustments made by management to a peer group WACC.
At the November and February Audit Committee meetings the Audit Committee reviewed and challenged detailed
papers on management’s assessment of impairment triggers and resulting impairment tests for PP&E. The Committee
gave particular focus to TEN, given the materiality of historical impairments made to that asset. The Committee also
discussed the Group’s reserves and resources with the Group’s external reserves auditor, TRACs, at the December
Board meeting to get comfort over management’s view of the carrying value of PP&E. The Committee concurred
with the impairment and impairment reversals proposed by management and ensured there was an adequate
disclosure of this judgement in the Annual Report and Accounts.
Recognition of assets
held for sale
The Committee received and reviewed a detailed accounting paper from management on assessment of the farm-down
of Uganda assets and their classification as held for sale. Following the termination of the SPA the assumption that
the transaction would be completed within 12 months was reviewed by the Committee at the November and February
Audit Committee meetings. The Committee concurred with management’s judgement that whilst the Group is committed
to a sale of interests in Uganda, it does not have a signed SPA ,therefore timing of any transaction is uncertain and
verified there was an adequate disclosure of this judgement in the Annual Report and Accounts.
Going concern
and viability
A detailed accounting paper and cash flow analysis was prepared by management and provided to the Committee,
which then reviewed and challenged the assumptions and judgements in the underlying going concern and Viability
Statement forecast cash flows. The Committee discussed with management the risks, sensitivities and mitigations
identified by management to ensure the Company has sufficient headroom to continue as a going concern. The
Committee agreed with management that there is however material uncertainty in relation to this assessment. The
Committee also discussed the three-year time horizon used by management for the Viability Statement. The
Committee concurred with management’s assessment and ensured there was an adequate disclosure of this
judgement in the Annual Report and Accounts.
Decommissioning
costs
A detailed paper was prepared by management detailing the Group’s decommissioning provision assumptions
making reference, where appropriate, to relevant operator estimates and market data. At the February Audit
Committee meeting the Committee challenged reasonableness of and got comfort around management’s
assessment of the changes to estimated decommissioning costs made during 2019. The Committee concurred with
management’s assessment and ensured there was an adequate disclosure of this judgement in the Annual Report
and Accounts.
Provisions
Uncertain tax
and regulatory
positions
A detailed accounting paper was prepared by management on provisions and reviewed by the Committee. This
included a summary of independent legal advice on such disputes where appropriate. The Committee regularly
monitors the risk by receiving regular summaries of all open litigations and disputes as part of the Group’s Quarterly
Performance reporting. The Committee then challenged management’s position at the November and December
Audit Committee meetings. The Committee concurred with management’s assessment and ensured there was an
adequate disclosure of this judgement in the Annual Report and Accounts.
Detailed accounting papers on all tax and regulatory exposures were prepared by management for the Committee’s
review. Where relevant, the papers included summaries of external legal or tax advice on particular tax claims and
assessments received. The committee also met with the Head of Tax in the February meeting to discuss and
challenge the key judgements and estimates made including the likelihood of success and the value of the exposure
which had been provided for. The Committee concurred with management’s assessment and ensured there was an
adequate disclosure of this judgement in the Annual Report and Accounts.
50
Tullow Oil plc 2019 Annual Report and Accounts
Key areas reviewed in 2019
The Committee fully discharged its responsibilities
during the year and the following describes the
work completed by the Audit Committee in 2019:
Annual Report
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:
- collaborative approach taken by the Group, with
support from the Executives and Group functions
and direct input from the Board;
- a central dedicated project team working closely
with our external auditor;
- early engagement and planning, taking
into consideration investors’ feedback, regulatory
changes and leading practice;
- comprehensive guidance issued to key report
contributors across the Group;
- validation of data and information included in the
report both internally and by the external auditor;
- 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.
Financial reporting
The Committee monitors the integrity of the
Financial Statements and formal announcements
relating to the Group’s financial performance.
As part of the financial reporting process the
Committee kept under review ongoing and emerging
financial reporting risks and judgements. The
Committee met in July 2019 to review half-year
financial statements and in December 2019 at the
financial reporting audit and planning phase to
discuss an initial view of key financial reporting
risks and judgements before the year-end process.
Finally, the Committee met for the full-year accounts
approval in February 2020. At each stage of the
process the Committee considered the key risks
identified as being significant to the 2019 Annual
Report and Accounts as well as accounting policy
changes and their most appropriate treatment
and disclosure. The primary areas of judgement
considered by the Committee in relation to the
2019 accounts and how these were addressed
are detailed overleaf. Details on management’s
view of the overleaf key estimates and judgements
can be found in the Group Accounting Policies on
pages 101 to 108.
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 overseeing the
selection of a new external auditor, and assessing
the effectiveness of the external audit process is a
key responsibility of the Audit Committee.
Allocation of Audit Committee time (%)
Governance 15%
Risk and controls
25%
40+
Internal audit 20%
Financial results
40%
- 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
competitive tender process carried out in 2018, the
Committee recommended to the Board that it
recommends to shareholders the appointment of
Ernst & Young LLP as Tullow’s statutory auditor
at the 2020 AGM.
- The external auditor is required to rotate the audit
partner responsible for the Group audit every five
years. Mr Paul Wallek will be Ernst & Young LLP’s
lead audit partner with effect from 2020.
- The Group’s current external auditor is
Deloitte LLP. The Audit Committee assessed
the qualifications, expertise and resources, and
independence of Deloitte LLP 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
2019 the Committee held private meetings with
the external auditor. The Audit Committee Chair
also maintained regular contact with the audit
partner, Mr Anthony Matthews, throughout the
year. These meetings provide an opportunity for
open dialogue with the external auditor without
management being present. Matters discussed
included the auditor’s assessment of significant
financial risks and the performance of
management in addressing these risks, the
auditor’s opinion of management’s role in
fulfilling obligations for the maintenance of
internal controls, the transparency and
responsiveness of interactions with management,
confirmation that no restrictions have been placed
on it by management, maintaining the
independence of the audit, and how it has
exercised professional challenge.
Read more on
Accounting policies
on pages 101–108
Tullow Oil plc 2019 Annual Report and Accounts
51
CORPORATE GOVERNANCE20
+
25
+
15
+
O
Audit Committee report continued
External auditor continued
- 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 2019 audit, the key audit risks identified included
carrying value of intangible exploration and evaluation
assets, carrying value of property, plant and equipment,
recognition of assets held for sale, going concern and viability,
decommissioning costs and provisions for onerous service
contracts. These and other identified risks are reviewed
through the year and reported at Audit Committee meetings
where the Committee challenges the work completed by
the auditor and tests management’s assumptions and
estimates in relation to these risks. The Committee also
seeks an assessment from management of the
effectiveness of the external 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 2019, the Audit Committee reviewed, discussed and briefed
the Board on risks, controls and assurance, including the
annual assessment of the system of risk management and
internal control, to monitor the effectiveness of the
procedures for internal control over financial reporting,
compliance and operational matters.
The Audit Committee obtained comfort over the effectiveness
of the Group’s risk management and internal control systems
through various assurance activities that included:
- audits undertaken by the Internal Audit team;
- assurance undertaken by the Group functions and
Business Units;
- enterprise risk management and assurance processes;
- external auditor’s observations on internal financial
controls identified as part of its audit; and
- The Committee closely monitors the level of audit and
- regular performance, risk and assurance reporting by the
non-audit services provided by the external auditor to the
Group. Non-audit services are normally limited to assignments
that are closely related to the annual audit or where the
work is of such a nature that a detailed understanding
of the Group is necessary. 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 biannually and was revised in 2018. It requires
Audit Committee approval for all non-trivial categories of
non-audit work. A breakdown of the fees paid in 2019 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.
External auditor rotation
Following the tender conducted in 2018, the Board appointed
Ernst & Young LLP in December 2018 as the Group’s statutory
auditor for the financial year commencing 1 January 2020.
This appointment remains subject to approval by shareholders
at the 2020 Annual General Meeting. Throughout 2019,
management has engaged with Ernst & Young LLP and
Deloitte LLP to ensure a smooth transition.
Throughout 2018 and 2019 Tullow has reviewed non-audit
services provided by Ernst & Young LLP to ensure that,
where appropriate, they have been or will be terminated
before Ernst & Young LLP becomes the statutory auditor. The
Audit Committee has not identified any areas for concern for
the independence of Ernst & Young LLP and will receive
regular reports on its independence and objectivity once
Ernst & Young LLP assumes its role as statutory auditor
following the 2020 AGM.
Business Unit and Corporate teams to the Board.
During the year, in concert with the Board, the Audit Committee
completed a robust assessment of the significant risks facing
the company, including those that would threaten its business
model, future performance, solvency or liquidity. This assessment
included the identification of emerging risks, such as the impact
of climate change which was deemed material enough to be
included as a significant risk for Tullow in the medium to long
term. The assessment process included several engagements
with the Executive Team which has resulted in better understanding,
ownership and accountability of enterprise-wide risks across
all layers of the company. For each of the principal risk
categories the Board reviewed the risk strategies and
associated risk appetites to ensure they were still valid. The
risk appetites were embedded in the Tullow IMS to ensure
they are visible to the whole organisation and help risk owners
define risk tolerance and target levels for each key risk.
Internal Audit periodically presented their findings to the
Audit Committee, over delivery of the assurance plan,
progress of issues raised and their timely resolution.
On occasions, Senior Management representatives from
the business were also invited to the Audit Committee to
provide updates on key matters such as Group Finance
Controls Project, S4 Hana and SAP health check, the
Finance Enhancement Project, annual tax strategy review
and endorsement of disclosure as well as improvements
made in the SCM supplier due diligence process.
In addition, during the year, the Audit Committee received
reports from the independent reserves auditor TRACS and
reviewed the arrangements in place for managing risk
relating to the Group’s critical information systems.
All identified findings were assessed, with no indications of
fraud noted. However, material findings were identified around
the timing of a reserves audit and the production forecast
reporting process and governance issues involving
management override and a lack of independent reporting
lines as per the Society of Petroleum Engineers (SPE)
52
Tullow Oil plc 2019 Annual Report and Accounts
Reserves standard. This finding has been addressed with
direct interaction channels now in place between the Chief
Petroleum Engineer and a Non-Executive Director for
independent oversight on reserves and production forecast
reporting. Tullow’s Petroleum Reserves Management Standard
is also under review to include requirements for Board
approval prior to any forecasting disclosures being made.
The fact that issues and root causes had been identified
through the Company’s integrated assurance programme
and for each issue, corrective actions were developed that
are either addressed or in the process of being implemented,
demonstrates that the system of risk management and
internal controls is effective up to the date on which the
Financial Statements were signed. As mentioned previously,
there were areas identified for improvement during the course
of 2019 and the Audit Committee is confident that systems
and processes are in place to address them.
Internal audit requirements
The Audit Committee’s role is to consider how the Group’s
internal audit requirements are satisfied and make relevant
recommendations to the Board.
- The Group Head of Internal Audit has direct access and
responsibility to the Audit Committee Chair and Committee.
The position’s main responsibilities include evaluating the
Group’s assessment of the overall control environment.
During 2019, the Group Head of Internal Audit met twice
with the Audit Committee or its Chair without the presence
of management. The Group Head of Internal Audit left the
Company in 2019 and the Company has commenced the
search for a new Group Head of Internal Audit.
- The Committee reviewed and challenged the programme
of 2019 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. 36
internal audits were undertaken during the year, covering
a risk-based range of financial and business processes in
the Group’s London office and the main operational
locations in Ghana and Kenya and locations in the
Non-Operated and New Ventures portfolios.
- Internal Audit also ran a systematic programme of audits of
suppliers’ compliance with commercial and business ethics
clauses, including bribery and corruption with regard to
significant and high-risk contracts.
- Detailed results from of the internal audits were reported
to management and in summary to the Audit Committee
during the year. Where required, the Audit Committee
receives full reports and details on any key findings. The
Audit Committee receives regular reports on the status
of the implementation of Internal Audit recommendations.
- The Audit Committee assessed the effectiveness of Internal
Audit through meeting with the Head of Internal Audit, its
review and assessment of the internal audit plan and the
results of audits reported, as well as an independent external
assessment in 2019. In line with the requirements of the
Institute of Internal Auditors, PwC was engaged to undertake
the external assessment of Internal Audit’s quality and
effectiveness. The assessment covered compliance with
the Institute of Internal Auditors’ Standards including
professional practice, size and scope of the function.
Internal Audit was deemed to be demonstrating good
practice, was adequately resourced and cost effective
in conducting its activities.
Whistleblowing procedure
We ensure 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 established in 2011 and operated throughout
2019 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 intranet. Each
member of staff needs to complete an online awareness
course to refresh their knowledge of key provisions of
Tullow’s Code of Ethical Conduct. The Committee considers
the whistleblowing procedures to be appropriate for the size
and scale of the Group.
- The Committee receives from the Group Ethics and
Compliance Manager summaries of investigations of
significant known or suspected misconduct by third parties
and employees including ongoing monitoring and following
up of internal investigations.
Review of effectiveness of the Audit Committee
- During the year, the Audit Committee has undergone an
independent review of its 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.
Looking forward to 2020
- The Committee will continue to ensure a smooth transition
from Deloitte LLP to Ernst & Young LLP as statutory auditors.
- The Committee will ensure an effective handover of the role
of Chair from Steve Lucas to Martin Greenslade from the
2020 AGM.
- The Committee will review externally the effectiveness
of the Internal Audit function.
- The Committee will continue to review the effectiveness
of risk management process, integrated assurance,
effectiveness of material controls and management’s
control improvement activities.
Tullow Oil plc 2019 Annual Report and Accounts
53
CORPORATE GOVERNANCE Nominations Committee report
“ For the Company to deliver
on its strategy it needs the
best leaders with a diversity
of skills and experience who
are bound together by the
same values.”
Dorothy Thompson
Chair of the Nominations Committee
2019 highlights
- Appointment of three new independent
non-executive Directors to the Board.
- Commencement of new search process
for Chief Executive Officer.
- External Board evaluation.
- Achievement of diversity target of at least
30 per cent female and at least 20 per cent
African membership on the Board by 2020.
54
Tullow Oil plc 2019 Annual Report and Accounts
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 and deliver its strategy
for sustainable long-term success. Below board level, the
Committee focuses on the recruitment, development and
retention of a diverse pipeline of managers who will occupy
the most senior positions in the Company in the future.
The diversity of a board contributes to its success and in early
2019, as part of the Committee’s strategy to equip the Board
with the skills and attributes it requires, we announced two
diversity targets for the Board: at least 20 per cent African
membership and at least 30 per cent female membership
on the Board by 2020. I am pleased to report that following
thorough searches based on individual merits and objective
criteria, the Committee achieved both of these targets when
Sheila Khama and Genevieve Sangudi joined the Board following
the AGM in April 2019. Both of these search processes were
assisted by the search consultant Odgers Berndtson which
has no other connection with the Company, its Group or any
of the Directors.
Sheila brings a deep knowledge and understanding of working
with host governments and wider stakeholders in the countries
and communities in which we operate. Genevieve has over
15 years of strategic investment experience of mergers and
acquisitions across multiple sectors in Africa, including oil
and gas and her skills encompass transaction strategy,
fundraising, origination and execution. Further details of
their biographies and committee memberships can be found
on pages 44 and 45. The insights of Sheila and Genevieve and
their contributions to the Board are of particular importance
following the resignation of Tutu Agyare in April 2019 after
nine years on the Board as a non-executive Director. I would
like to take this opportunity to thank Tutu for his contribution
to Tullow and his constant source of wise counsel to the Board
during that period.
On 1 November 2019, the Board appointed Martin Greenslade
as a non-executive Director and a member of the Audit
Committee. Martin brings extensive financial experience to
the Board from his current position as Chief Financial Officer
and Executive Director of Land Securities Group plc, which
he has held since 2005. Further details of his biography can
be found on page 44. The search process for Martin’s role
was assisted by the search consultant Odgers Berndtson
(already referred to above). It is anticipated that Martin will
take over as Chair of the Audit Committee from the conclusion
of the AGM in April 2020 when Steve Lucas, non-executive
Director and current Chair of the Audit Committee, will step
down from the Board after eight years with Tullow. The timing
of Martin’s appointment has provided for an orderly transition
from Steve to Martin of this important role. I would like to
thank Steve for his long-standing service to Tullow and in
particular for his recent oversight of the successful tender
process for the proposal of the appointment of Ernst & Young
LLP as the Company’s new external auditors from 2020.
Committee’s role
The Committee reviews the composition and balance of
the Board and senior managers on a regular basis and
also ensures robust succession plans are in place for all
Directors and senior managers. 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.
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 managers;
- 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 membership and attendance of the Committee meetings
held in 2019 are shown on page 40.
In addition to five formal meetings, the Committee held
several informal discussions, telephone conference calls
and interviews during the year.
The Committee believes that the diversity of a board is also
improved by appointing non-executive Directors that still
currently serve as Executives on other boards, and the
Committee has promoted this in the appointments of
Genevieve and Martin.
As many of our shareholders will be aware, on 9 December 2019,
the Company announced that Paul McDade (Chief Executive
Officer) and Angus McCoss (Exploration Director) resigned
from the Board as Executive Directors by mutual agreement
and with immediate effect. This followed a period of significant
disappointing performance by the business. The Board appointed
Mark MacFarlane, then Executive Vice President for East Africa
and Non-Operated as Chief Operating Officer in a non-Board
role and myself, Dorothy Thompson as Executive Chair for an
interim period until a new Chief Executive Officer is appointed.
The Committee has initiated a search for a new Chief Executive
Officer and the process is well underway. This will be a critical
appointment for the business and the Committee is determined
to appoint an individual that possesses the skills, experience
and values to lead Tullow and deliver our long-term strategy
for the benefit of all our stakeholders.
The Committee is also responsible for ensuring there are
plans in place for the orderly succession of senior manager
positions within the business. During the course of 2019, the
Committee and the Board reviewed the succession candidates
and arrangements in place for the recruitment, development
and retention of managers that will occupy the most senior
positions in the Company in the future. In 2020, the Committee
will continue in this work and will be particularly focused on
achieving a diverse and inclusive workforce population with
a nationality mix which is representative of our assets’
geographic footprint and improves our gender diversity.
Further details of our inclusion and diversity policy and how
it has been implemented in 2019, including our diversity
statistics can be found on page 30.
In October 2019, the Committee commissioned an external
evaluation of the performance of the Board and its committees
by Lintstock Ltd. Further details on the process and results
of the evaluation can be found on page 41 and those results
have been used to shape the Committee’s most recent search
processes and will continue to inform the work of the
Committee in 2020.
Dorothy Thompson
Chair of the Nominations Committee
11 March 2020
Tullow Oil plc 2019 Annual Report and Accounts
55
CORPORATE GOVERNANCE Safety and Sustainability Committee report
“ The Committee has added
the monitoring of Tullow’s
sustainability strategy to the
focus on reliable process
safety performance, personal
safety and environmental
management.”
Mike Daly
Chair of the Safety and Sustainability Committee
2019 highlights
- Established a keen focus on process safety
and contractor management in Ghana and
Kenya EOPS.
- Integrated sustainability into the
Committee agenda.
- Pursued the instigation of the TCFD
recommendations and the development
of emissions targets, offsets and their
performance management in Tullow.
56
Tullow Oil plc 2019 Annual Report and Accounts
Dear shareholder
The EHS Committee in 2019 modified its scope to
cover safety and sustainability. The core tenant of
the Committee’s role in terms of safety did not
change; however, the scope expanded to include
sustainability. The inclusion of sustainability was
delivered through in-depth reviews of the evolving
position of the oil and gas industry in relation to
carbon emissions, climate change and long-term
viability. The Committee operates a set agenda to
monitor safety performance and increasingly is
searching for meaningful metrics to monitor
sustainability and carbon emissions and offsetting.
The Committee also executes in-depth reviews of
strategically important and immediate issues for
the Group. In 2019 the Committee continued to
recognize the importance of process safety and
particularly the need for a focus on asset integrity
and maintenance in Ghana. As part of this focus
the Group also monitored operational and safety
management systems including those of our
contractors across both Ghana and Kenya.
The impact of climate change and carbon emissions
was also a key area of focus in 2019 with the Group
reviewing its business against the recommendations
of the Task Force on Climate-Related Financial
Disclosures (TCFD), as well as the Company’s
overall approach to sustainability.
Mike Daly
Chair of the Safety and Sustainability Committee
11 March 2020
Committee’s role
The Committee’s expanded role is to monitor the
performance and key risks that the Company
faces in relation to safety and sustainability. 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,
and potential future changes in external market
drivers. 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.
The Committee reviews high-potential incidents,
especially where they have occurred repeatedly
in one location or activity (also see Responsible
Operations, page 24). It also scrutinises the
outcome of audits and investigations and
importantly the closure of related actions.
Focus on Process Safety
To address the material risk of major accidents, Tullow
applies process safety management standards and
procedures to all operational activities and projects.
During 2019, the Company Process Safety Management
Standard has been embedded in our operations and
compliance monitored. This has been supported by the
provision of training and reinforced by the work of the
Process Safety Management Steering Committee.
Our process safety performance in 2019 has seen overall
improvement, with a 24 per cent reduction in the number
of process safety events (PSE) related to losses of primary
containment (LOPC) releases. We have seen improvement
in the number of Tier 3 PSEs with a 32 per cent reduction
from last year.
However, we have experienced an increase in the severity
of our PSEs (Tier 1 and 2). In Ghana we experienced three
Tier 2 PSEs in our offshore operations and in Kenya we had
one Tier 1 PSE at our EOPS onshore production facility.
These events were contained and resulted in no harm or
injury to personnel and remediation measures were quickly
taken to mitigate the impact on the environment.
Subsequent root cause investigations were conducted, and
measures taken to prevent recurrence and ensure lessons
were learned.
Tullow continued to support a positive incident reporting
safety culture and ensure joint investigation of all incidents
with key contractors.
We are reviewing key findings from investigations and
audits including Land Transport, and the Kenya Early Oil
Pilot Scheme which was supplemented by in-country visits
from Board members to engage directly with staff. 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.
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 review 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 with Sheila Khama joining and other leadership
changes following the initiation of the Business
Review. The Committee currently comprises two
non-executive Directors and the Executive Chair,
Dorothy Thompson. The membership of Committee
and attandance throughout the year is set out on
page 40. The Committee is supported by the
Company Secretary and Julia Ross, Chief of Staff.
The EHS related KPIs that the company measured
its performance on in 2019 can be found on page 72
of this report.
Committee activities in 2019
In 2019, the Committee reviewed the EHS elements
of the Safety and Sustainability Plan and reviewed
Tullow’s response to the Taskforce on Climate-
Related Financial Disclosure (see page 26).
Looking forward to 2020
- The Committee will have a continuing emphasis
on process safety, and the asset integrity in
Ghana. Together with an increased focus on
the close out of actions in relation to High
Potential Incidents.
- The Committee will provide ongoing oversight
of appropriate EHS risk management at all
operational sites.
- The Committee will review the capability
and organisation set up to deliver Safety
and Sustainability performance across
the organisation.
Tullow Oil plc 2019 Annual Report and Accounts
57
CORPORATE GOVERNANCE Remuneration report
Annual statement
on remuneration
The Remuneration Committee is focused on ensuring
Executive Directors are rewarded for promoting the
long-term sustainable success of the Company and
delivering on its strategy
Dear shareholder
On behalf of the Board, I am presenting the
Remuneration Committee’s report for 2019 on
Directors’ remuneration. The report is divided into
three main sections:
- this Annual Statement, which contains details
of the 2020 Remuneration Policy review, how we
will implement our Policy for 2020, a summary
of performance and pay for 2019, an ‘at a glance’
summary of Executive Director remuneration for
2019 and 2020 and details in respect of the
operation of the Committee;
- the Directors’ Remuneration Policy Report,
which presents our proposed Remuneration
Policy given that our current Policy, originally
approved by shareholders at the 2017 AGM, is
reaching the end of its three-year term; and
- the 2019 Annual Report on Remuneration, which
provides details of the remuneration earned by
Directors in the year ended 31 December 2019
and how the Policy will be operated in 2020.
Tullow’s current approach to executive
remuneration is explained overleaf:
“ The Remuneration
Committee seeks to align
reward with the Company’s
values and long-term
strategy.”
Jeremy Wilson
Chair of the Remuneration Committee
58
Tullow Oil plc 2019 Annual Report and Accounts
Tullow’s approach to executive remuneration
Salary
Pension
Benefits
- Market base salary levels with annual increases not normally exceeding the average increase awarded to other
UK-based employees.
- 25 per cent of salary (although see proposed changes to Policy in next section).
- Market aligned.
Tullow Incentive
Plan (TIP)
Tullow operates a single incentive arrangement called the TIP which uses a combination of annual in-year performance
indicators and three-year total shareholder return (TSR) to determine the payout, which is then awarded and split
between an annual cash bonus and a share award with a five-year vesting period. The purpose of the TIP is to combine
annual and long-term performance into a simple, competitive performance-linked plan which provides a real incentive to
achieve our strategic targets and deliver superior shareholder returns.
Under the TIP, an award of up to 400 per cent of base salary may be awarded each year subject to performance targets:
- 50 per cent of awards are based on a balanced scorecard of stretching annual in-year financial, operational and
strategic objectives linked to the achievement of Tullow’s long-term strategy; and
- 50 per cent of awards are based on three-year relative TSR measured against a comparator group of oil and gas
exploration and production companies.
Following the assessment of performance targets:
- TIP awards up to 200 per cent of salary are 50 per cent payable in cash and 50 per cent payable in deferred shares
that do not vest for five years; and
- any part of a TIP award in excess of 200 per cent of salary is awarded in deferred shares that do not vest for five
years (i.e. the maximum cash award under the TIP is 100 per cent of salary).
The following diagram explains how the TIP is expected to operate for 2020:
2018
2019
2020
2021
2022
2023
2024
2025
Performance periods (one and three years)
Deferral periods (five years)
Three-year relative TSR (50 per cent)
One-year
financial/
operation
scorecard
(50 per cent)
TIP awards up to 200 per cent of salary: 50 per cent cash,
50 per cent deferred TIP shares*
Any part of a TIP award >200 per cent of salary:
100 per cent deferred TIP shares*
* Deferred TIP shares vest after five years.
T
I
P
A
W
A
R
D
- Malus and clawback provisions (although see proposed changes to Policy in next section.
- 300 per cent of salary shareholding guidelines (although see proposed changes to Policy in next section).
Shareholding
guidelines
2020 Remuneration Policy review
Following a review of the current Remuneration Policy and
consultation with our major shareholders, the Committee
concluded that the Policy remains appropriate and fit for
purpose, albeit it wishes to make a number of minor changes
to reflect developments in governance and good practice more
generally. The Remuneration Policy changes, for which
shareholder approval will be sought, are as follows:
- In respect of pension provision:
- the maximum limit permitting 25 per cent of salary
pension will be removed and pension contributions for
existing Executive Directors will be frozen in cash terms
with immediate effect and will be reduced to align to the
percentage contribution available to the wider workforce
by 1 January 2023; and
- furthermore, a commitment that pension provision for
future Executive Director appointments/promotions will
be aligned to the workforce will be added.
- Shareholding guidelines have been enhanced and updated
to reflect the IA’s Remuneration Principles:
- shareholding guidelines will be increased from 300 per cent
to 400 per cent of salary;
- Executive Directors will be expected to retain 100 per cent
of the net of tax shares which vest until they reach the
guideline (currently Executive Directors are expected to
retain at least 50 per cent of the net of tax shares which
vest under the TIP until their shareholding guideline
is achieved);
Tullow Oil plc 2019 Annual Report and Accounts
59
CORPORATE GOVERNANCE 2020 Remuneration Policy review continued
- 2019 TIP award level given that 50 per cent is based on
- the guidelines will be amended so that unvested deferred
TIP Awards net of applicable taxes will count towards the
shareholding guideline (as per the IA’s recent update to
its Remuneration Principles); and
- consistent with the 2018 UK Corporate Governance Code,
the current shareholding guidelines will be extended to
apply post cessation. As such, it is proposed that from
the 2020 AGM, 50 per cent of the shareholding guideline
(i.e. 200 per cent of salary) shall be retained by Executive
Directors for two years post cessation.
- Malus and clawback provisions have been updated in the
TIP to extend the circumstances in which clawback may
be applied by the Committee, including corporate failure
and insolvency.
How we will implement the new Policy for 2020
Dorothy Thompson, for the period she performs her interim
role as Executive Chair and during any transition period following
the appointment of a new CEO will receive an increase in her
annual fee from £300,000 to £600,000, pro-rated as
appropriate. She will not receive any further benefit or pension
provision or receive incentive awards. Dorothy intends to revert
to her previous role of non-executive Chair once a new CEO
has been appointed and a transition of duties effected. It is
intended after which her annual fee will revert to £300,000.
Les Wood, in his role as CFO, will receive:
- a base salary of £461,495 (i.e. no change from the prior year);
- a pension of 25 per cent of salary frozen in cash
terms (noting that this will be aligned to the workforce by
1 January 2023) and benefit provision in line with the
current Policy; and
- a TIP Award with a maximum potential of 400 per cent
of salary based on: safety performance (10 per cent),
production performance (15 per cent), financial performance
(5 per cent), energy transition (5 per cent), strategic
performance (15 per cent) and relative TSR (50 per cent).
Please see page 12 of this report for further disclosure
and details of these targets and how they are linked to
our strategy.
No changes will be made to non-executive Director fees from
2019 levels.
Pay and performance for 2019
Base salary levels were last increased with effect from
1 January 2019 (3 per cent increases). No increases have
been awarded for 2020.
2019 was a challenging year for Tullow in terms of business
performance (performance outcomes against the key
performance metrics can be found on pages 71 to 73),
culminating in a considerable downturn of share price at
year end. As a result the Remuneration Committee took the
decision to exercise negative discretion and as such awarded
no TIP award to the Executive Directors. Furthermore, in
setting the TIP awards for 2020, the Committee considered
reducing the maximum potential of 400 per cent of salary
given the material share price decline during the course of
the year. However, on balance, the Committee feels that the
share price decline is already captured in respect of the:
60
Tullow Oil plc 2019 Annual Report and Accounts
relative TSR which resulted in a zero payout and noting that
negative discretion was applied in respect of the other half
of the awards to reduce the 2019 TIP award to zero; and
- 2020 and 2021 TIP awards (performance period ending
31 December 2020 and 31 December 2021 respectively),
given that relative TSR target for 50 per cent of each award
is now significantly underwater.
That said, to the extent that there is any TIP award for the
performance period ending 31 December 2020, the Committee
will assess the appropriateness of the award quantum and
the number of shares which are ultimately deferred to ensure
that cash and deferred share award levels are appropriate and
in line with the shareholder experience.
Shareholder consultation in respect of the Policy
Tullow is committed to maintaining good communications
with investors. In formulating our revised Policy, the Company
Chair and Remuneration Committee Chair met with a number
of our major shareholders which were generally supportive of
the changes that are being proposed for 2020. The Committee
considers the AGM to be an opportunity to meet and communicate
with investors, giving shareholders the opportunity to raise
any issues or concerns they may have. The Committee will
seek to engage directly with major shareholders and the main
representative bodies should any material changes be proposed
to the Policy.
Workforce consultation
During the year, the Company re-enforced its existing workforce
engagement processes by establishing the Tullow Advisory Panel
(TAP) (see page 47). Twelve staff, who collectively represent
employees and contractors from all of Tullow’s global offices,
were nominated by the workforce to sit on the panel. The panel
provides an opportunity for the Board to understand and take into
consideration the interests of Tullow’s workforce , including their
remuneration arrangements as it makes decisions for the
long-term success and sustainability of the Company.
During 2019, fellow members of the Committee and I engaged
with staff during visits to the Group’s offices and operations,
including in Dublin and Nairobi. Such visits help the Board to
gain insight into the culture of the organisation and hear the
views of the workforce first hand.
Concluding thoughts
On behalf of the Committee, I would like to thank shareholders
for their vote approving the 2019 Annual Statement and 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
contact me via our Company Secretary, Adam Holland, at
companysecretary@tullowoil.com.
Jeremy Wilson
Chair of the Remuneration Committee
11 March 2020
Remuneration report continued At a glance
Implementation of Policy for Executive Directors for 2019
Single figure remuneration
Name of Director
Dorothy Thompson1
Paul McDade2
Angus McCoss2
Les Wood
Fees/salary
£
318,904
Pension
£
–
769,160
192,288
434,970
108,742
461,500
115,374
Taxable
benefits
£
–
25,258
13,016
1,487
TIP cash
£
Deferred TIP
shares
£
–
–
–
–
–
–
–
–
Total
£
318,904
986,706
556,728
578,361
1. Dorothy Thompson switched from non-executive Chair to Executive Chair from 9 December.
2. Stepped down from the Board on 9 December 2019.
Assessment of TIP Awards
Maximum
Business delivery
(15%)
Growing our business
(20%)
Pursuing our vision
(15%)
Relative TSR
(50%)
Actual
6.2% out
of 15%
5.8% out
of 20%
6.5% out
of 15%
0% out
of 50%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Paul McDade and Angus McCoss were not entitled to TIP Awards for 2019.
Notwithstanding performance against the TIP targets, the Remuneration Committee exercised negative discretion based on
company performance to reduce the value of the TIP Award for Les Wood to £0.
- No changes will be made to non-executive Director fees
from 2019 levels:
- Base fee:
- Senior independent Director fee:
- Audit Committee Chair fee:
- Remuneration Committee Chair and
£65,000
£15,000
£20,000
Safety and Sustainability Committee Chair: £15,000.
Implementation of Policy for Executive Directors for 2020
The Remuneration Policy will be implemented during 2020
as follows:
- Dorothy Thompson, for the period she performs her interim
role as Executive Chair, will receive an increase in her
annual fee from £300,000 to £600,000. She will not receive
any further benefit or pension provision or receive incentive
awards. Dorothy intends to revert to her previous role of
non-executive Chair once a new CEO has been appointed,
at which point her annual fee will revert to £300,000.
- Les Wood, in his role as CFO, will receive:
- a base salary of £461,495 (no change from the prior year);
- a pension of 25 per cent of salary (noting that the cash
value of his pension is frozen at this level and this will be
then aligned to the workforce by 1 January 2023);
- benefit provision in line with the current Policy; and
- a TIP Award with a maximum opportunity of 400 per cent
of salary based on:
- Safety performance (10 per cent);
- Production performance (15 per cent);
- Financial performance (5 per cent);
- Energy transition (5 per cent);
- Strategic performance (15 per cent).
- Relative TSR (50 per cent).
Please see page 12 of this report for further disclosure and
details of these targets and how they are linked to our strategy.
Tullow Oil plc 2019 Annual Report and Accounts
61
CORPORATE GOVERNANCE Governance
Remuneration Committee members
Jeremy Wilson (Committee Member for full year and
Committee Chair from 25 April 2019), Tutu Agyare (Committee
Chair to 25 April 2019), Mike Daly and Genevieve Sangudi
(from 26 April 2019).
Remuneration Committee membership and attendance
All members of the Committee are independent non-executive
Directors. None of the Committee members has day-to-day
involvement with the business and nor do they have any
personal financial interest, except as shareholders, in the
matters to be recommended. The number of formal meetings
held and the attendance by each member is shown in the
table on page 40. The Committee also held informal
discussions as required. The Group Company Secretary acts
as Secretary to the Committee and is available to assist the
members of the Committee as required, ensuring that timely
and accurate information is distributed accordingly.
Simplicity
The Committee is mindful of the need to avoid overly complex
remuneration structures which can be misunderstood and
deliver unintended outcomes. Therefore, a key objective of
the Committee is to ensure that our executive remuneration
policies and practices are straightforward to communicate
and operate.
Risk
Our Policy has been designed to ensure that inappropriate
risk taking is discouraged and will not be rewarded via (i)
the balanced use of both annual and three-year performance
periods which employ a blend of financial, non-financial
and shareholder return targets; (ii) the significant role
played by deferred equity in our incentive plans (together
with in-employment and post-cessation shareholding
guidelines and five-year vesting period); (iii) malus/clawback
provisions; and (iv) the ability to exercise negative discretion
to remuneration outcomes.
Activities of the Committee during 2019
A summary of the main Committee activities during 2019 are
set out below:
Predictability
The TIP is subject to an individual annual cap and market
standard dilution limits.
- appointment of new Remuneration Committee Consultant
to advise on the 2020 Directors’ Remuneration Policy;
- meetings with shareholders to discuss proposed changes
to the Directors’ Remuneration Policy;
- monitoring progress against the 2019 KPI scorecard;
- reviewing feedback received from shareholders at the
2019 AGM;
- review of changes in remuneration-related guidance,
shareholder policies and governance matters;
- review of remuneration arrangements for the wider workforce;
- determination of leaver treatment for Paul McDade and
Angus McCoss;
- review and approval of remuneration arrangements for
Senior Managers, including benchmarking and approval of
interim package for the Executive Chair, Dorothy Thompson;
- review of the Committee’s performance and terms
of reference; and
- review of new KPIs for 2020 to align with strategy and
culture of Tullow.
In addition, the Committee has sought to ensure that the new
proposed Policy and practices are consistent with the six
factors set out in Provision 40 of the new UK Corporate
Governance Code:
Clarity
Our Policy is well understood by our senior executive team
and has been clearly articulated to our shareholders and
representative bodies (both on an ongoing basis and during
the recent consultation exercise).
Proportionality
There is a clear link between individual awards, delivery
of strategy and our long-term performance. In addition, the
significant role played by incentive/‘at-risk’ pay, together with
the structure of the Executive Directors’ service contracts,
ensures that poor performance is not rewarded.
Alignment to culture
Our executive pay policies are fully aligned to Tullow’s culture
through the use of metrics in the TIP that measure how we
perform against our financial and non-financial KPIs.
Advice received from the Committee during 2019
During 2019, the Committee consulted the Executive Directors
and Senior Managers about remuneration items relating to
individuals other than themselves. The Company Secretary
and the Committee’s consultants also provided corporate
governance guidance support to the Committee.
The Committee received external advice from FIT Remuneration
Consultants LLP (FIT) during 2019 in respect of the
implementation of the Policy and preparations for the 2020
Directors’ Remuneration Policy. FIT was appointed as the
Committee’s advisers during 2019 following a competitive
tender process. Both FIT is a member of the Remuneration
Consultants Group and is a signatory to its Code of Conduct
and provided no other services to the Company. Fees (ex VAT)
paid to FIT respectively for advice provided in the year amounted
to £51,372.31. FIT does not provide any other services and
does not have any other connections to the Company its
Group or the Directors that may affect its independence.
The Committee evaluates the services provided by external
advisors and is satisfied that the advice received from FIT
was objective and independent.
62
Tullow Oil plc 2019 Annual Report and Accounts
Remuneration report continued Directors’ Remuneration Policy Report
This part of the Remuneration Report sets out the proposed Remuneration Policy for the Company which is intended to
be effective following approval from shareholders through a binding vote at the AGM to be held in April 2020. The previous
Remuneration Policy for the Company commenced on 1 January 2017 and became formally effective following approval
from shareholders through a binding vote at the AGM held in April 2017.
Policy overview
The principles of the Remuneration 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.
Policy changes
This revised Policy is broadly consistent with our existing Policy that was approved by shareholders at the 2017 AGM, albeit it
has been updated for developments in corporate governance and feedback received from our shareholders.
The main changes to the Policy which was approved by shareholders at the 2017 AGM are as follows:
- In respect of pension provision:
- the maximum limit permitting 25 per cent of salary pension has been removed;
- a commitment that pension provision for future Executive Director appointments/promotions will be aligned to the
workforce has been added; and
- a commitment that pension provision for existing Executive Directors (excluding the current Interim Executive Chair,
who does not receive a pension) will be aligned to the workforce by 1 January 2023 has been added.
- In respect of maximum opportunity:
- the discretion of the Committee to increase the maximum TIP Award opportunity from 400 per cent to 500 per cent
of base salary in the event that Tullow is a member of the FTSE 100 index for a full financial year has been removed,
so that the maximum opportunity during the period of this Policy is 400 per cent of salary.
- Shareholding guidelines have been toughened and updated to reflect the IA’s Remuneration Principles:
- shareholding guidelines have been increased from 300 per cent to 400 per cent of salary;
- Executive Directors will be expected to retain 100 per cent of the net of tax shares which vest until they reach the
guideline (currently Executive Directors are expected to retain at least 50 per cent of the net of tax shares which vest
under the TIP until their shareholding guideline is achieved);
- the guidelines have been amended so that unvested deferred TIP Awards net of applicable taxes will count towards the
shareholding guideline (as per the IA’s recent update to its Remuneration Principles); and
- consistent with the 2018 UK Corporate Governance Code, the current shareholding guidelines will be extended to apply
post cessation. As such, from the 2020 AGM, 50 per cent of the shareholding guideline (i.e. 200 per cent of salary) will
need to be retained by Executive Directors for two years post cessation.
- Malus and clawback provisions have been enhanced and the TIP rules have been updated to extend the circumstances in
which clawback may be applied by the Committee, including corporate failure and insolvency.
Tullow Oil plc 2019 Annual Report and Accounts
63
CORPORATE GOVERNANCE Directors’ Remuneration Policy Report continued
Summary Directors’ Remuneration Policy
Base salary
Purpose and link to strategy
Operation
Maximum opportunity
To provide an appropriate level of
fixed cash income.
To attract and retain individuals
with the personal attributes, skills
and experience required to deliver
our strategy.
Generally reviewed annually with increases normally
effective from 1 January. Base salaries will be set by
the Committee taking into account:
- the scale, scope and responsibility of the role;
- the skills and experience of the individual;
- the base salary of other employees, including
increases awarded to the wider population; and
- the base salary of individuals undertaking similar
roles in companies of comparable size and
complexity. This may include international oil and
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 2020’ column below 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.
Performance and provisions for the recovery
A broad assessment of individual and business performance is used as part of the salary review.
No recovery provisions apply.
Pension and benefits
Purpose and link to strategy
Operation
Maximum opportunity
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.
Pension: Workforce aligned for new Executive
Directors. Workforce aligned (as a percentage
of salary) by 1 January 2023 for incumbent
Directors.
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).
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.
Tullow UK SIP: Up to HM Revenue & Customs
(HMRC) limits. 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.
Performance and provisions for the recovery
Not applicable.
64
Tullow Oil plc 2019 Annual Report and Accounts
Remuneration report continued Maximum opportunity
400 per cent of salary.
Dividend equivalents will accrue on TIP deferred
shares over the vesting period.
Tullow Incentive Plan (TIP)
Purpose and link to strategy
Operation
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 shares.
Deferred shares are normally subject to 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.
Performance and provisions for the recovery
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 which 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.
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.
No more than 25 per cent of the maximum TIP opportunity will be payable for threshold performance.
Maximum opportunity
400 per cent of salary.
Recovery provisions apply (see below).
Shareholding guidelines
Purpose and link to strategy
Operation
To align the interests of
management and shareholders
and promote a long-term
approach to performance and
risk management.
Executive Directors are required to retain at least 100
per cent of post-tax share awards until a minimum
shareholding equivalent to 400 per cent of base salary
is achieved in owned shares.
Unvested TIP shares net of applicable taxes 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.
From the 2020 AGM, 50 percent of the shareholding
guideline (i.e. 200 per cent of salary) will need to
be retained by Executive Directors for two years
post cessation.
Performance and provisions for the recovery
Not applicable.
Tullow Oil plc 2019 Annual Report and Accounts
65
CORPORATE GOVERNANCE Directors’ Remuneration Policy Report continued
Summary Directors’ Remuneration Policy continued
Non-executive Directors
Purpose and link to strategy
Operation
Maximum opportunity
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.
The Chair 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 including associated tax costs.
Non-executive Directors do not participate in any
share scheme or annual bonus scheme and are not
eligible to join the Group’s pension schemes.
Non-executive Director remuneration is
determined within the limits set by the Articles
of Association.
There is no maximum prescribed fee increase
although fee increases for non-executive
Directors will not normally exceed the average
increase awarded to Executive Directors.
Increases may be above this level if there is an
increase in the scale, scope or responsibility of
the role.
Performance and provisions for the recovery
Not applicable.
Operation of share plans
The Committee will operate the TIP in accordance with the
Plan rules, 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 Directors’ Remuneration Policy):
- 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.
In addition to the TIP, Executive Directors are also eligible to
participate in the UK SIP or any other all employee share
plans 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 normally, reflect 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 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 on page 65 of this report.
66
Tullow Oil plc 2019 Annual Report and Accounts
Remuneration report continued 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.
Discretion
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.
Recovery provisions
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, triggers are outlined in the TIP rules, including
but not limited to a material adverse restatement of the financial
accounts or reserves, a catastrophic failure of operational,
EHS and risk management or corporate failure or insolvency.
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:
Les
Wood
Fixed
Target
Maximum
£m
0.5
1
1.5
2
2.5
Fixed pay
TIP (cash)
TIP (deferred shares)
1. Base salary is effective as at 1 January 2020.
2. Fixed pay for the CFO includes pension which is 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 2020 (200 per cent
of salary).
4. The maximum value of the TIP is taken to be 400 per cent
of salary (i.e. the maximum annual opportunity) for 2020.
5. No share price appreciation has been assumed for the
fixed, target and maximum scenarios.
6. The Committee is aware of the regulations requiring
an indication of the impact of 50 per cent share price
appreciation on the maximum scenario in the chart above.
Given that TSR performance is measured over three years
prior to grant of award, share price appreciation over the
performance period would not impact on the value of the
maximum award.
Service agreements
Executive Director service agreements set 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.
The Executive Directors’ service agreements and the appointment
letters of the non-executive Directors are available for inspection
by shareholders at the Company’s registered office.
External appointments
The Board operates a formal policy in relation to the external
directorships that an Executive Director may hold. Whilst the
policy does not prescribe a maximum number of external
appointments, it sets out guidance that an Executive Director
should not hold more than one non-executive director position
in a FTSE 350 company.
Tullow Oil plc 2019 Annual Report and Accounts
67
CORPORATE GOVERNANCE Directors’ Remuneration Policy Report continued
Policy for new appointments
Base salary levels will take into account market data for the relevant role, internal relativities, the individual’s experience
and their current base salary. Where an individual is recruited at below market norms, they may be re-aligned over time
(e.g. two to three years), subject to performance in the role. Benefits will generally be in accordance with the approved Policy.
Individuals will participate in the TIP up to the normal annual limit subject to: (i) award levels in the year of appointment being
pro-rated to reflect the proportion of the financial year worked; and (ii) where a performance metric is measured over more than
one year, the proportion of awards based on that metric may be reduced to reflect the proportion of the performance period
worked. Depending on the timing and the specific circumstances of an appointment, it may be necessary to set alternative
performance conditions for TIP awards following appointment. This may mean using different measures, rebalancing the
weightings or using different performance periods to that used for existing Executive Directors. Any transitional arrangements
will be explained in the relevant Annual Report of Remuneration. 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 where possible.
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.
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.
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.
The Committee’s policy in respect of the treatment of Executive Directors leaving Tullow following the introduction of the TIP is
described below:
TIP
(cash)
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 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).
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.
Cessation of employment due to other
reasons (e.g. termination for cause)
No entitlement to the cash part
of the TIP following the date
notice is served.
Unvested TIP shares lapse. No
entitlement to the deferred share
element of the TIP following the
date notice is served.
68
Tullow Oil plc 2019 Annual Report and Accounts
Remuneration report continued
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 currently formally consult
directly with employees on the executive pay policy, but it does receive regular updates from Adam Holland (Company Secretary)
and Joanne Rich (Group Head of HR).
The following differences exist between the Company’s policy for the remuneration of Executive Directors, as detailed in the
summary table overleaf, and its approach to the payment of employees generally:
- benefits offered to other employees generally include a performance bonus award of up to 35 per cent of salary;
- pension provision of a payment of 10 per cent of salary into our Company defined contribution plan, increasing to 15 per cent
of salary for employees over 50; and
- participation in the TIP is limited to the Executive Directors and Senior Management according to their role and responsibility.
All other employees are eligible to participate in the Company’s below Board-level share-based plans.
In general, these differences exist to ensure that remuneration arrangements are market competitive for all levels of role in the
Company. Whilst there is a performance link to remuneration for all employees, in the case of the Executive Directors and
Senior Management, a greater emphasis tends to be placed on variable pay given their opportunity to impact directly upon
Company performance.
Non-executive Director terms of appointment
Non-executive Director
Dorothy Thompson
Mike Daly
Martin Greenslade
Sheila Khama
Steve Lucas
Genevieve Sangudi
Jeremy Wilson
Number of
complete
years on
the Board
Year
appointed
Date of current
engagement
commenced
Expiry of
current term
2018
2014
2019
2019
2012
2019
2013
1
5
–
–
7
–
6
25.04.18
24.04.21
31.05.17
30.05.20
01.11.19
31.10.22
26.04.19
25.04.22
13.03.18
13.03.21
26.04.19
25.04.22
21.10.19
20.10.22
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.
Looking forward to 2020
- The Committee will continue to engage and consult with major shareholders on the suitability of the current Directors’
Remuneration Policy and any proposed changes to it ahead of the AGM in 2020.
- The Committee will seek feedback and confirmation with regard to the implementation of approved changes.
- The Committee will continue to review the remuneration arrangements of the wider workforce when considering
arrangements for Executives and Senior Management.
Tullow Oil plc 2019 Annual Report and Accounts
69
CORPORATE GOVERNANCE Annual Report on Remuneration
Directors’ remuneration (audited)
The remuneration of the Directors for the year ended 31 December 2019 payable by Group companies and comparative figures
for 2019 are shown in the table below:
Executive Directors
Paul McDade6
Angus McCoss6
Les Wood
Subtotal 2019
Subtotal 2018
Non-executive Directors
Dorothy Thompson7
Tutu Agyare8
Mike Daly
Steve Lucas
Jeremy Wilson
Genevieve Sangudi9
Sheila Khama10
Martin Greenslade11
Subtotal 2019
Fixed pay
Tullow Incentive Plan
Salary/fees 1
£
Pensions 2
£
Taxable
benefits 3
£
TIP cash 4
£
Deferred TIP
shares 5
£
Total
£
2019
2018
2019
2018
2019
2018
769,160
192,288
25,258
–
–
986,706
746,750
186,687
25,086
746,750
1,054,411
2,759,684
434,970
108,742
13,016
–
–
556,728
422,300
105,575
12,661
422,300
596,288
1,559,124
461,500
115,374
1,487
–
–
578,361
448,050
112,012
1,304
448,050
632,647
1,642,063
2019 1,665,630
416,404
39,761
–
– 2,121,795
2018
1,617,100
404,274
39,051 1,617,100
2,283,346
5,960,871
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2019
2019
2019
318,904
139,945
25,205
80,000
80,000
70,247
85,000
80,000
90,274
86,520
44,520
44,520
10,863
699,286
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,824
36,540
–
–
2,026
991
9,862
6,011
4,554
5,301
–
34,567
77,601
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
318,904
139,945
38,029
116,540
80,000
70,247
87,026
80,991
100,136
92,531
49,074
49,821
10,863
733,853
713,542
– 2,855,648
Subtotal 2018
(includes former non-executive Directors)
2018
635,941
Total
2019 2,364,916
416,404
74,328
2018
2,253,041
404,274
116,652 1,617,100
2,283,346
6,674,413
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 and any other taxable expenses. Travel and subsistence benefits
provided to Executive Directors and NEDs have also been included on a
grossed-up basis as Tullow meets the UK tax liability on their behalf.
4. Given the poor performance of the Company during 2019, the Remuneration
Committee has exercised negative discretion to award cash bonuses of nil.
5. These figures represent that part of the TIP award required to be deferred
into shares. Given the poor performance of the Company during 2019, the
Remuneration Committee has exercised discretion to award no deferred
shares awards.
6. Paul McDade and Angus McCoss resigned as CEO and Exploration Director
following mutual agreement between the Company and both Executive Directors
effective 9 December 2019. Salary and cash in lieu of pension were payable
to 31 December 2019 to settle accrued but unused leave entitlement.
7. Dorothy Thompson became Executive Chair of the Company effective
9 December 2019 following the announcement of Paul McDade stepping
down as CEO. Salary and fees reflect the increase in fees effective
9 December 2019 in recognition of her increased responsibilities in the role
of Executive Chair.
8. Tutu Agyare stepped down as a member of the Tullow Board and as Chairman
of the Remuneration Committee following the AGM on 25 April 2019.
9. Genevieve Sangudi was appointed to the Tullow Board following the AGM
on 25 April 2019; Genevieve is also a member of the Remuneration and
Audit Committees.
10. Sheila Khama was appointed to the Tullow Board following the AGM on
25 April 2019; Sheila is also a member of the Board subcommittee for
Safety and Sustainability.
11. Martin Greenslade was was appointed as a non-executive Director of Tullow
with effect from 1 November 2019. Martin has also been appointed as a
member of the Audit Committee and will stand for election to the Board at
the 2020 Annual General Meeting (AGM).
70
Tullow Oil plc 2019 Annual Report and Accounts
Remuneration report continued Material contracts
There have been no 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
No payments were made to past Directors in 2019.
Payments for loss of office
In connection with the termination of their employment, Paul
McDade and Angus McCoss received a payment for salary and
pension contributions in lieu of their contractual notice period
of 12 months, continued private healthcare coverage/cash in
lieu of benefit for up to 12 months and capped contributions
towards both their legal fees and the provision of outplacement
services, of £7,500 and £25,000 respectively.
Neither Paul McDade nor Angus McCoss will receive any cash
or share-based awards under the Tullow Incentive Plan (TIP)
in respect of the financial years ending 31 December 2019 or
31 December 2020.
In respect of the TIP, the Remuneration Committee has
determined that Paul McDade’s and Angus McCoss’ unvested
awards may continue to vest on their scheduled vesting dates,
subject to the terms of the Tullow Incentive Plan. In respect of
the Tullow Share Incentive Plan, the shares which Paul McDade
and Angus McCoss hold were released on termination
of employment.
Details of variable pay earned in the year
Determination of 2020 TIP Award based on performance to
31 December 2019 (audited)
The Group’s progress against its corporate scorecard is tracked
during the year to assess its performance against its 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 2019 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 2019 financial year, the corporate scorecard KPI
performance was 18.5 per cent of the maximum. However the
Committee made the decision that there would be no bonuses
for members of the Executive due to the overall poor
performance of the Company.
Details of the performance targets and performance against
those targets are as follows:
% of award
(% of salary
maximum)
Actual
15%
(60)%
6.2%
(24.8)%
Performance metric
Performance
Business delivery
Production
Targets relating to
production, opex,
net G&A and capex,
EHS, operational
projects and
financing. These
targets focused on
delivering business
activities and
projects safely
whilst minimising
environmental
impacts and
delivering
sustainable benefits
Production
mboepd
Payout
Trigger target
Base target
Stretch target
2019 performance
91.3
0%
98.1
50%
105
100%
82.7
0%
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 86,800 boepd. Gas production has been excluded.
Opex/boe
Opex/boe
$/boe
Payout
Trigger target
Base target
Stretch target
2019 performance
10.1
0%
9.6
50%
9.2
100%
11.1
0%
The operating costs are net of insurance proceeds.
Net G&A
Net G&A
Net G&A ($)
Payout
Trigger target
Base target
Stretch target
2019 performance
113
0%
106
50%
95
100%
111.5
80%
Capex
The capex numbers have been adjusted to remove Uganda. The capex including Uganda is
$490 million. Decommissioning capex is not included and is $81 million (budget: $125 million).
Due to the underspend on capex, the Committee decided to allocate 1.5 per cent of the
maximum 2 per cent for capex.
Capex
Capex
Payout
Trigger target
Base target
Stretch target
2019 performance
607
0%
570
50%
530
100%
458
100%
Tullow Oil plc 2019 Annual Report and Accounts
71
CORPORATE GOVERNANCE Annual Report on Remuneration continued
Details of variable pay earned in the year continued
Determination of 2020 TIP Award based on performance to 31 December 2019 (audited) continued
Performance metric
Performance
% of award
(% of salary
maximum)
Actual
Business delivery
continued
SSEA
Tullow’s safe and sustainable operations KPIs were focused on the reduction of process
safety events (LOPC releases) and maintaining continuous improvement in our occupational
health and safety performance.
In 2019, we recorded one Tier 1 PSE (LOPC release) at our EOPS onshore production facility
in Kenya, and three Tier 2 PSEs (LOPC releases) in our operations in Ghana, two which
occurred on the Jubilee FPSO and one which occurred during drilling operations on the
Maersk Venturer rig. All of these PSEs resulted in no harm or injury to personnel. The 2019
KPI target (zero) set for both Tier 1 and Tier 2 PSEs was not achieved. The KPI target set for
Tier 3 PSE’s (LOPC releases) was achieved in 2019, with an overall 32 per cent reduction.
As part of our ongoing journey to further improve and measure our company EHS performance,
Tullow introduced a new ‘Perfect EHS Days’ initiative in 2019. Perfect EHS Days are days where we
have no near miss (HiPo) incidents, no injuries or illnesses, no motor vehicle accidents and no
environmental harm spill events. In 2019, we achieved an overall total of 318 Perfect EHS Days,
which was similar to that achieved during the previous year.
In view of the above performance and due to the Tier 1 and Tier 2 incidents, the Committee
decided a 1.5 per cent score out of a maximum 4 per cent allocation.
Delivery of operational projects
The delivery of New Ventures operational programmes saw 3000 sq km of 3D seismic surveys
recorded in Comoros, and 9,000 sq km 3D seismic in Argentina has commenced and is to be
completed in 2020. 2D seismic planning and stakeholder engagement completed in Côte d’Ivoire.
Ghana’s 2019 drilling and completions programme resulted in the drilling and completion of
five wells (target seven wells).
The FPSO brownfields projects included the Jubilee CALM Buoy which exceeded its target
60 per cent complete by year end, although at increased costs due to delays in tank cleaning.
The decommissioning programme was delivered as per plan and within budget.
In view of the above performance the Committee determined a 1.1 per cent achievement out
of a maximum 2 per cent allocation.
Financing
Ensuring sufficient liquidity to deliver the business plan was achieved by proactively
managing debt facilities resulting in headroom and free cash in excess of $1 billion
throughout the year.
Net debt was reduced to $2.8 billion from $3.1 billion at the beginning of the year and
leverage (net debt:EBITDAX) was maintained within the target range of up to 2.0x despite
lower production and a lower oil price.
In view of this the Committee determined an allocation of 2 per cent out of a maximum
allocation of 2 per cent.
Growing our
business
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.
20%
(80%)
5.8%
(23.2%)
KPI
Outcome
Target
2019
West Africa growth
West Africa
Multi-year Asset Venture Plan developed.
6% 2.5%
- Ghana: Pursue a
multi-year Asset
Venture Plan, mature
new projects to FID
and secure new
exploration licence
and E&A rights
across both DPAs
- Non-op: Secure
material value growth
opportunities in West
Africa core area
Two further development opportunities reached
sanction gate. Unfortunately, Tullow was
unsuccessful in the Ghana licence bid round and
unable to secure E&A rights on Development and
Production Area (DPA).
Reserve replacement ratio exceeded our stretch
target of 100 per cent. In Gabon, Simba and Ruche
were added into production. Two high-graded
prospects within Gabon matured through full
geophysical and geological, engineering and
commercial evaluation.
East Africa
- Commercialise Kenya
investment
- Complete SPA and FID
Uganda development
In Kenya, the Head of Terms was approved. The
First Oil export (240 kbbl) was flagged off by the
President in August 2019. However Tullow was
unable to commercialise Kenya in 2019.
In Uganda, the SPA terminated; therefore the
SPA approval and FID targets were not met.
6%
0%
East Africa growth
72
Tullow Oil plc 2019 Annual Report and Accounts
Remuneration report continued Performance metric
Performance
Growing our
business continued
New Ventures
growth
KPI
Outcome
New Ventures
- Access and portfolio
management and
effective proceeds
- Inventory progress
and planning for 2019
- Exploration outcome
Acquired six Blocks covering 25,740 sq km in Argentina,
Peru and Namibia.
Over $36 million of value has been generated for the
Group through portfolio management in 2019.
Eight prospects progressed to drill worthy status.
Three oil discoveries made in Guyana confirm the
petroleum system elements in Orinduik and Kanuku.
Cretaceous discovery at Carapa extends light oil play
from Stabroek blocks. Tertiary discoveries at Jethro and
Joe encountered heavy oil.
% of award
(% of salary
maximum)
Actual
Target
2019
8% 3.3%
Pursuing our vision
Progressive
Pursuing Tullow’s
2030 vision of being
a progressive and
sustainable
company
- Progressive
organisation
- Innovation and
process improvement
Line management training to majority of managers, senior
leadership and executive development programmes were
developed and delivered and a comprehensive progressive
organisation people plan has been developed. Continued focus
on people development through two people forum and executive
forum events which continue to evolve. Smart and flexible working
was launched and has been successfully taken up.
S4 Hana, Concur and Success Factor were delivered. New
collaboration tools have been installed. 60 predictive analytics
models were developed and tested.
15%
(60)%
6.5%
(26)%
Sustainability
- Responsible operations
- Shared prosperity
Focusing on increasing spend with local companies, negotiating
an industry leading consent agreement in Turkana and achieving
socio-economic investments. All on track, except the community
consent has made limited progress.
- Environmental
stewardship
- Equality and
transparency
Flare reduction opportunities assessment completed in 2019
focused on unplanned flaring. CDI seismic programme utilised
light touch environmental footprint methodologies including pre
line screening with drones.
TCFD work completed in 2019, and carbon offsetting project
feasibility work commenced, Kenya ESIA drafted, and Biodiversity
Advisory Panel established.
Inclusiveness and diversity targets have been set. Improved
performance in Hampton Alexander and gender pay gap reporting.
Leadership effectiveness The purpose of this performance element is to consider the
effectiveness of the executive leadership of Tullow which shall include:
effectiveness of the Executive Team; Executive Team cohesion;
demonstration of leadership; and management of unforeseen matters
throughout the year. The below were taken into consideration in the
scoring of the discretionary element:
- market communications and trading statement updates;
- reorganisation, business delivery and transformation;
- government relations;
- joint Venture Partnership relations; and
- H&M insurance settlement.
Relative TSR
(total shareholder
return)1
Performance against a bespoke group of listed exploration and production companies
measured over three years to 31 December 2019 – 25 per cent is payable at median,
increasing to 100 per cent payable at upper quartile.
50%
(200%)
0%
(0%)
Total
100%
(400%)
18.5%
(74.0%)
1. The TSR comparator group for the 2019 TIP award was as follows: Africa Oil, Aker BP, Apache, Cairn Energy, Cobalt Energy, Enquest, Genel Energy, Hess,
Kosmos Energy, Lundin Petroleum, Oil Search, Ophir Energy, Pharos Energy, Premier Oil, Seplat Petroleum, Santos and Woodside Petroleum.
Tullow Oil plc 2019 Annual Report and Accounts
73
CORPORATE GOVERNANCE Annual Report on Remuneration continued
TIP Awards granted in 2019 (audited)
The fifth set of TIP Awards were granted to Executive Directors on 14 February 2019, based on the performance period ended
31 December 2018, as follows:
Executive
Paul McDade
Angus McCoss
Les Wood
Number of TIP
shares awarded 1
Face value of awards at
grant date
Normal vesting dates
(end of exercise window)
Pre-grant
performance period
481,027
272,030
288,617
1,054,411
596,288
632,647
14.02.2024
01.01.2018 to 31.12.2018
(TSR 01.01.2016 to
31.12.2018)
1. Awards are 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 2018 and
the number of shares awarded is calculated using the price on the day preceding the grant date which on 13 February 2019 was 219.2p.
UK SIP shares awarded in 2019 (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
Paul McDade
Angus McCoss
Les Wood
Shares held
01.01.19
Partnership
shares acquired
in year
Matching
shares awarded
in year
Total shares
held 31.12.19 2
(including dividend
shares)
Dividend
shares acquired
in the year
SIP shares that
became
unrestricted
in year
Total unrestricted
shares held at
31.12.19 1
17,453
11,514
3,421
911
910
910
911
910
910
19,762
13,662
5,353
487
328
112
516
516
291
9,821
3,882
291
1. Unrestricted shares (which are included in the total shares held at 31 December 2019) are those which no longer attract a tax liability if they are withdrawn from
the plan.
2. Paul McDade and Angus McCoss left the business on 9 December 2019. Total shares held are as at 9 December 2019.
CEO – total pay versus TSR
For 2019 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 RI
TOTAL SHAREHOLDER RETURN
Return index
120
96
72
48
24
0
CEO pay £000
5,000
350
4,000
3,000
2,000
1,000
300
250
200
150
100
50
0
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
CEO total pay
Return index
Tullow
FTSE 250
74
Tullow Oil plc 2019 Annual Report and Accounts
Remuneration report continued
Comparison of overall performance and pay
The Remuneration Committee has chosen to compare the TSR of the Company’s ordinary shares against the FTSE 250 index.
The values indicated in the graph above show the share price growth plus re-invested dividends for the period 2009 to 2019 from
a £100 hypothetical holding of ordinary shares in Tullow Oil plc and in the index.
The total remuneration figures for the Chief Executive during each of the last nine financial years are shown in the tables 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 (2011 to 2019), PSP
awards based on three-year performance periods ending in the relevant year (2011 to 2012) and the value of TIP Awards based
on the performance period ending in the relevant year (2013 to 2019). The annual bonus payout, PSP vesting level and TIP
Award, as a percentage of the maximum opportunity, are also shown for each of these years. For 2019, based on the poor
performance of the company the TIP Award was 0 per cent of base pay.
Year ending in
Aidan Heavey
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
remuneration
Annual bonus
PSP vesting
TIP
£4,688,541 £2,623,116 £2,750,273 £2,378,316 £2,835,709 £2,893,232 £1,717,276
80%
100%
–
70%
23%
–
–
–
–
–
–
–
–
–
–
–
30%
23%
38%
39%
40%
–
–
–
–
–
–
–
–
Paul McDade
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
remuneration
TIP
n/a
–
n/a
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a £1,416,281 £2,759,684
£986,706
n/a
40%
60.3%
0%
Year ending in
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 2018 and 31 December 2019, compared to that
of the average for all employees of the Group.
Chief Executive
Average employees
% change from 2018 to 2019
Salary
3%
(3.6%)*
Benefits
0.7%
0%
Bonus
(100%)
(38.4%)
* Decrease in average pay for all employees is driven by a decrease in headcount from 31 December 2018 to 31 December 2019, with some leavers being in the
highest earnings category.
Tullow Oil plc 2019 Annual Report and Accounts
75
CORPORATE GOVERNANCE
Annual Report on Remuneration continued
CEO pay ratio 2019
Year
2019
2018 (Voluntary Disclosure)
Method
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
A
A
8:1
23:1
5:1
15:1
4:1
10:1
In response to the CEO pay ratio requirements established by the Companies (Miscellaneous Reporting) Regulations 2018, Tullow
has undertaken to adopt the calculation of a CEO pay ratio to compare the single total figure of remuneration (STFR) for the CEO
to the STFR of all UK employees. This has been calculated using the methodology described as ‘Option A’ in the Regulations, as
Tullow recognises that this is the most statistically accurate form of calculation.
For the CEO and each UK employee1 the STFR has been calculated as a summation of base pay, benefits, employer pension
contributions receivable during the year ended 31 December 2019 and cash bonus payable and value of share awards to be granted
for the performance year ending 31 December 2019.
1. All STFRs have been based on a full-time equivalent and annualised to provide a dataset for the full year ending 31 December 2019. Tullow would like to build on
this reporting in future years by looking at the same dataset for employees globally to determine a global CEO pay ratio.
The STFR at 25th percentile is £116,891, £184,003 at median and £252,470 at 75th percentile.
The wages component at 25th percentile is £79,435, £123,840 at median and £156,735 at 75th percentile.
In setting both our CEO remuneration and the remuneration structures for the wider UK workforce, Tullow has adopted a
remuneration structure which includes the same core components for employees at all levels (base pay, benefits, pension, cash bonus
and share awards). Whilst all employees receive a base salary commensurate to our position in the market, the differences exist in the
quantum of variable pay achievable by our Executives and Senior Management; at these levels there is a greater emphasis placed on
variable pay given their opportunity to impact directly on Company performance. Based on this distinction, the Company believes
taking into account company performance in a particular financial year and the impact on variable pay, that the median pay ratio is
consistent with and reflective of the wider pay, reward and progression policies impacting our UK employees.
Relative importance of spend on pay
The following table shows the Group’s actual spend on pay for all employees relative to tax and retained profits.
Staff costs have been compared to tax expense, and retained profits in order to provide a measure of their scale compared to
other key elements of the Group’s financial metrics.
Staff costs (£m)
Tax (credit)/expense (£m)1
Retained profits (£m)1
1. Voluntary disclosure.
2018
155.1
131.3
497.7
2019
% change
156.4
31.9
(904.8)
1%
(76%)
(282%)
Shareholder voting at the AGM
At last year’s AGM on 25 April 2019 the remuneration-related resolution received the following votes from shareholders:
For
Against
Total votes cast (for and against)
Votes withheld
2018 Annual Statement and Annual Report on Remuneration
Total number of votes
% of votes cast
795,256,539
120,176,428
915,432,967
488,576
86.87
13.13
65.28
At the AGM on 26 April 2017, the remuneration-related resolution to approve the Directors Remuneration Policy Report received
the following votes from shareholders:
For
Against
Total votes cast (for and against)
Votes withheld
76
Tullow Oil plc 2019 Annual Report and Accounts
To approve the Directors’ Remuneration Policy Report
Total number of votes
% of votes cast
582,011,448
79,143,373
661,154,821
73,467
88.03
11.97
72.19
Remuneration report continued
Summary of past TIP Awards
Details of nil-cost options granted to Executive Directors under the TIP:
Director
Paul McDade
Award grant
date
Share price on
grant date
19.02.14
18.02.15
11.02.16
27.04.17
08.02.18
14.02.19
10.05.19
10.05.19
17.10.19
17.10.19
18.02.15
11.02.16
27.04.17
08.02.18
14.02.19
10.05.19
10.05.19
17.10.19
17.10.19
11.02.16
27.04.17
08.02.18
14.02.19
10.05.19
10.05.19
17.10.19
17.10.19
774p
400p
148p
214p
187p
219p
187p
219p
187p
219p
400p
148p
214p
187p
219p
187p
219p
187p
219p
148p
214p
187p
219p
187p
219p
187p
219p
Dividend equivalents
08.02.18
14.02.19
08.02.18
14.02.19
Total awards
Angus McCoss
Dividend equivalents
08.02.18
14.02.19
08.02.18
14.02.19
Les Wood2
Dividend equivalents
08.02.18
14.02.19
08.02.18
14.02.19
As at
01.01.19
68,334
101,364
375,157
226,927
278,628
–
–
–
–
–
Granted
during
the year
–
–
–
–
–
481,027
4,877
8,420
2,569
4,435
Exercised
during
the year
68,334
50,682
–
–
–
–
–
–
–
–
As at
31.12.19 4
Earliest date
shares can be
acquired 1
Latest date
shares can
be acquired 3
–
19.02.17
19.02.24
50,682
18.02.19
18.02.21
375,157
11.02.21
11.02.22
226,927
27.04.22
27.04.23
278,628
08.02.23
08.02.24
481,027
14.02.24
14.02.25
4,877
8,420
2,569
4,435
08.02.23
08.02.24
14.02.24
14.02.25
08.02.23
08.02.24
14.02.24
14.02.25
1,050,410
501,328
119,016
1,432,722
101,364
375,157
226,927
197,082
–
–
–
–
–
900,530
160,053
101,249
148,802
–
–
–
–
–
–
–
–
–
272,030
3,450
4,762
1,817
2,508
50,682
50,682
18.02.19
18.02.21
–
–
–
–
–
–
–
–
375,157
226,927
197,082
272,030
11.02.21
11.02.22
27.04.22
27.04.23
08.02.23
08.02.24
14.02.24
14.02.25
3,450
4,762
1,817
2,508
08.02.23
08.02.24
14.02.24
14.02.25
08.02.23
08.02.24
14.02.24
14.02.25
284,567
50,682
1,134,415
–
–
–
288,617
2,605
5,052
1,372
2,661
160,053
–
11.02.19
11.02.26
–
–
–
–
–
–
–
101,249
148,802
288,617
27.04.20
27.07.27
08.02.23
08.02.28
14.02.24
14.02.29
2,605
5,052
1,372
2,661
08.02.23
08.02.28
14.02.24
14.02.29
08.02.23
08.02.28
14.02.24
14.02.29
410,104
300,307
160,053
550,358
1. 50 per cent of the 2014 award vests on 19 February 2017 and 50 per cent vests on 19 February 2018; 50 per cent of the 2015 award vests on 18 February 2019 and
50 per cent vests on 18 February 2020.
2. Les Wood – TIP Awards granted prior to appointment as an Executive Director have a three-year vesting period.
3. Latest dates shares can be acquired are reflective of good leaver treatment under the TIP rules for Paul McDade and Angus McCoss.
4. As at 9 December 2019 for Paul McDade and Angus McCoss.
Tullow Oil plc 2019 Annual Report and Accounts
77
CORPORATE GOVERNANCE
Annual Report on Remuneration continued
Summary of past 2005 Performance Share Plan (PSP)
Details of shares granted to Executive Directors for nil consideration under the PSP:
Director
Award grant date
Share price on
grant date
As at
01.01.19
Exercised during
year
As at
31.12.19
Paul McDade
18.03.09
17.03.10
778p
1,281p
115,392
16,392
131,784
115,392
16,392
131,784
–
–
–
Earliest date
shares can be
acquired
Latest date
shares can be
acquired
18.03.12
17.03.13
18.03.19
17.03.20
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 and safety) over the relevant
period are satisfactory. 50 per cent of awards were measured against an international oil sector comparator group (see past
remuneration reports for details of specific companies) and 50 per cent of awards were measured against the FTSE 100. All
outstanding awards under PSP have been granted as, or converted into, nil exercise price options.
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
Award grant date
As at
01.01.19
Exercised
during the year
As at
31.12.19
Earliest date
shares can be
acquired
Latest date
shares can be
acquired
18.03.09
17.03.10
18.03.11
21.03.12
22.02.13
33,289
18,702
13,266
30,291
30,287
33,289
18,702
13,266
30,291
30,287
125,835
125,835
01.01.12
01.01.13
01.01.14
01.01.15
01.01.16
18.03.19
17.03.20
18.03.21
21.03.22
22.02.23
–
–
–
–
–
–
All outstanding awards under the DSBP were granted as, or have been converted into, nil exercise price options.
Share price range
During 2019, the highest mid-market price of the Company’s shares was 250p and the lowest was 40p. The year-end price was 64p.
78
Tullow Oil plc 2019 Annual Report and Accounts
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 2019 or during FY 2019, are set out
in the table below:
%
of salary
under 2019
Remuneration
Policy
shareholding
guidelines 1
% of salary
represented by
ordinary shares
and all award, i.e.
sum of vested and
unvested (net of
applicable taxes)
Ordinary shares held
01.01.19
31.12.19
TIP awards
SIP
Unvested
Vested
Restricted
Unrestricted
Executive Directors
Paul McDade
520,738
719,910
59.9%
123.09% 1,432,722
Angus McCoss
360,839
403,660
59.39%
147.86% 1,134,415
Les Wood
60,280
144,919
20.10%
60.55% 550,358
Non-executive Directors
Tutu Agyare3
Mike Daly
Steve Lucas
Dorothy
Thompson
2,930
4,795
720
2,930
4,795
720
68,148
68,148
Jeremy Wilson4
67,959
87,959
Genevieve
Sangudi
Sheila Khama4
Martin
Greenslade4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,941
9,780
5,062
9,821
3,882
291
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
SIP total
31.12.19
19,762
13,662
5,353
2,930
4,795
720
68,148
87,959
–
–
–
1. Calculated using share price of 64p 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 current salary, which increases to 400% of salary under the new policy if approved.
Further details of the minimum shareholding requirement are set out in the Remuneration Policy Report.
2. Calculated taking into account the total of ordinary shares held and unvested awards net of applicable taxes.
3. Ordinary Shares held by Tutu Agyare at 25 April 2019.
4. Acknowledged that no ordinary shares are held at 31 December 2019. There is an intention to purchase timing permitted.
On 6 January 2020 Les Wood was awarded 1,502 SIP shares, all of which are restricted. Accounting for certain restricted SIP
shares becoming unrestricted SIP shares in the period between 1 January 2020 and the date of this report, Les Wood holds
6,302 restricted SIP shares and 553 unrestricted SIP shares (total 6,855).
There have been no other changes in the interests of any Director between 1 January 2020 and the date of this report.
Approval
This report was approved by the Board of Directors on 11 March 2020 and signed on its behalf by:
Jeremy Wilson
Chair of the Remuneration Committee
11 March 2020
Tullow Oil plc 2019 Annual Report and Accounts
79
CORPORATE GOVERNANCE
Other statutory information
The Directors present their Annual Report and audited
financial statements for the Group for the year ended
31 December 2019.
Principal activities
Tullow is an independent oil and gas, exploration and
production group, quoted on the London, Euronext Dublin
and Ghanaian stock exchanges. The Group has interests in
74 exploration and production licences across 14 countries.
Strategic Report
The Group is required by section 414A of the Companies Act
2006 to present a Strategic Report in the Annual Report. This
can be found on pages 1 to 37. The Strategic Report contains
an indication of the directors’ view on likely future developments
in the business of the Group. In addition, following the introduction
of the EU Non-Financial Reporting Directive, the Strategic
Report also provides direction on where information on the
impact of activities on employees, social and environmental
matters, human rights and anti-corruption and anti-bribery
matters can be found within the Annual Report and financial
statements, as well as a description of the Group’s policies
and where these are located. The Corporate Governance
Report on pages 38 to 84 is the corporate governance
statement for the purposes of Disclosure Guidance and
Transparency Rule 7.2.1. The Annual Report and Financial
Statements use financial and non-financial KPIs wherever
possible and appropriate.
Results and dividends
The loss on ordinary activities after taxation of the Group
for the year ended 31 December 2019 was $1,694million
(2018: profit of $85million).
An interim 2019 dividend of US0.0235 share ($33million) was
paid in October 2019. In November 2019 the Board announced
that it has suspended the current dividend policy and as a
result is not recommending to shareholders that a final
dividend be paid to shareholders in May 2020 in respect of the
financial year 2019.
Subsequent events since 31 December 2019
In February 2020, Tullow concluded its Business Review –
which included a review of organisation structure and resources.
Subject to the outcome of the consultation, this will most likely
result in a 35% reduction in headcount, with an associated
expected restructuring cost of c.$50 million. It is anticipated
that the reorganisation will generate cash G&A savings of
c.$200 million over the next three years.
The six-monthly redetermination of Tullow’s Reserves Based
Lending (RBL) facility is expected to conclude at the end of
March, with debt capacity is expected to be c.$1.9bn. Subject
to confirmation of this debt capacity amount the Group will
have headroom of c.$0.7 billion which is above the Group’s
policy target of no less than $500 million and is appropriate
in light of Tullow’s reduced future capital commitments.
On completion of the redetermination process the Group plans
to voluntarily reduce facility commitments by $210 million,
effectively accelerating the October 2020 scheduled amortisation.
The reduction in debt capacity and commitments will result in
a reduction of finance costs.
On 6 March 2020, OPEC and non-OPEC allies (OPEC+) met
to discuss the need to cut oil supply to balance oil markets in
the wake of the COVID-19 outbreak which has had a material
impact on oil demand. The group failed to reach agreement and
on 7 March 2020, Saudi Aramco unilaterally and aggressively
cut its Official Selling Prices (OSP) in an attempt to prioritise
market share rather than price stability and effectively started
a price war. As a result, on 9 March 2020, oil prices fell by
around 20 per cent and the forward curve for 2020 and 2021
fell to approximately $38/bbl and $42/bbl respectively. These
recent events will continue to have an impact on oil price
volatility. Tullow prudently manages its commodity risk and is
well hedged with 60 per cent of 2020 production hedged at a
floor price of $57/bbl and 40 per cent hedged at a floor price
of $52/bbl for 2021. Realised oil prices for January and
February 2020 are expected to average over $60/bbl.
Share capital
As at 10 March 2020, the Company had an allotted and fully
paid up share capital of 1,408,413,172 ordinary shares each
with a nominal value of £0.10.
Substantial shareholdings
As at 10 March 2020 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
% of issued
capital (as at
date of
notification)
Number of
shares
Sam Dossou-Aworet
168,960,502
12.00%
M&G plc
RWC Asset Management LLP
Summerhill Trust Company
(Isle of Man) Limited
Azvalor Asset Management
S.G.I.I.C., S.A.
73,686,244
71,022,015
5.23%
5.09%
58,838,104
4.19%
45,533,489
3.24%
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Tullow Oil plc 2019 Annual Report and Accounts
Shareholders’ rights
The rights and obligations of shareholders are set out in the
Company’s Articles of Association (which can be amended by
special resolution). The rights and obligations attaching to the
Company’s shares are as follows:
- dividend rights – holders of the Company’s shares may, by
ordinary resolution, declare dividends but may not declare
dividends in excess of the amount recommended by the
Directors. The Directors may also pay interim dividends.
No dividend may be paid other than out of profits available
for distribution. Subject to shareholder approval, payment
or satisfaction of a dividend may be made wholly or partly
by distribution of specific assets;
- voting rights – voting at any general meeting 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;
- return of capital – in the event of the liquidation of the
Company, after payment of all liabilities and deductions
taking priority, the balance of assets available for distribution
will be distributed among the holders of ordinary shares
according to the amounts paid up on the shares held by
them. A liquidator may, with the authority of a special
resolution, divide among the shareholders the whole or any
part of the Company’s assets, or vest the Company’s assets
in whole or in part in trustees upon such trusts for the benefit
of shareholders, but no shareholder is compelled to accept
any property in respect of which there is a liability;
- control rights under employee share schemes – the
Company operates a number of employee share schemes.
Under some of these arrangements, shares are held by
trustees on behalf of employees. The employees are not
entitled to exercise directly any voting or other control
rights. The trustees will generally vote in accordance with
employees’ instructions and abstain where no instructions
are received. Unallocated shares are generally voted at the
discretion of the trustees; and
- restrictions on holding securities – there are no restrictions
under the Company’s Articles of Association or under UK
law that either restrict the rights of UK resident shareholders
to hold shares or limit the rights of non-resident or foreign
shareholders to hold or vote the Company’s ordinary shares.
There are no UK foreign exchange control restrictions on the
payment of dividends to US persons on the Company’s
ordinary shares.
Material agreements containing ‘change of control’ provisions
The following significant agreements will, in the event of a
‘change of control’ of the Company, be affected as follows:
- to the extent that a ‘change of control’ occurs as a result of
any person, or group of persons acting in concert (as defined
in the City Code on Takeovers and Mergers), gaining control
of the Company:
- under the $2.4 billion senior secured revolving credit
facility agreement between, among others, the Company
and certain subsidiaries of the Company, Natixis, 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; and
Tullow Oil plc 2019 Annual Report and Accounts
81
CORPORATE GOVERNANCE
- 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 44 and 45.
Details of Directors’ service agreements and letters of
appointment can be found on page 68. 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 pages 70 to 79 in the Directors’ Remuneration Report.
Other statutory information continued
Material agreements containing ‘change of control’ provisions
continued
- 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; and
- to the extent that a ‘change of control’ occurs, in general
terms, as a result of (i) a disposal of all or substantially all
the properties or assets of the Company and all its restricted
subsidiaries (other than through a merger or consolidation)
in one or a series of related transactions; (ii) a plan being
adopted relating to the liquidation or dissolution of the
Company; or (iii) any person becomes the beneficial owner,
directly or indirectly, of shares of the Company which grant
that person more than 50 per cent of the voting rights of
the Company:
- under an indenture relating to $650 million of 6.25 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
under an indenture relating to $800 million of 7 per cent
Senior Notes due in 2025 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
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Tullow Oil plc 2019 Annual Report and Accounts
Directors’ indemnities and insurance cover
As at the date of this report, indemnities are in force under
which the Company has agreed to indemnify the Directors, to
the extent permitted by the Companies Act 2006, against
claims from third parties in respect of certain liabilities
arising out of, or in connection with, the execution of their
powers, duties and responsibilities as Directors of the
Company or any of its subsidiaries. The Directors are also
indemnified against the cost of defending a criminal prosecution
or a claim by the Company, its subsidiaries or a regulator
provided that where the defence is unsuccessful the Director
must repay those defence costs. The Company also maintains
directors’ and officers’ liability insurance cover, the level of which
is reviewed annually.
Conflicts of interest
A Director has a duty to avoid a situation in which he or she has,
or can have, a direct or indirect interest that conflicts, or possibly
may conflict, with the interests of the Group. The Board requires
Directors to declare all appointments and other situations
that could result in a possible conflict of interest and has
adopted appropriate procedures to manage and, if appropriate,
approve any such conflicts. The Board is satisfied that there is
no compromise to the independence of those Directors who
have appointments on the boards of, or relationships with,
companies outside the Group.
Powers of Directors
The general powers of the Directors are set out in Article 104
of the Articles of Association of the Company. It provides that
the business of the Company shall be managed by the Board
which may exercise all the powers of the Company whether
relating to the management of the business of the Company
or not. This power is subject to any limitations imposed on the
Company by applicable legislation. It is also limited by the
provisions of the Articles of Association of the Company and
any directions given by special resolution of the shareholders
of the Company which are applicable on the date that any
power is exercised.
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 138,913,807 ordinary shares. The authority
lasts until the earlier of the conclusion of the Annual
General Meeting of the Company in 2019 or 30 June 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.
Tullow Oil plc 2019 Annual Report and Accounts
83
CORPORATE GOVERNANCE Annual General Meeting
The Notice of Annual General Meeting will set out the
resolutions to be proposed at the forthcoming AGM.
The meeting will be held on 23 April 2020 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 have been approved by the Board and signed on its
behalf by:
Adam Holland
Company Secretary
11 March 2020
Registered office:
9 Chiswick Park
566 Chiswick High Road
London W4 5XT
Company registered in England and Wales No. 3919249
Other statutory information continued
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.
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.
In 2019, we established the TAP (Tullow Workforce Advisory
Panel) in conjunction with existing means to continue engaging
with our workforce. Further details on the TAP and employee
engagement are described on pages 46 and 47 of this report.
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 23 to 30 of this report. Further information
is available on the Group website: www.tullowoil.com, and our
2019 Sustainability Report.
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 appoint Ernst & Young as the Company’s
auditor will be proposed at the AGM. More information can
be found in the Audit Committee Report on pages 48 to 53.
84
Tullow Oil plc 2019 Annual Report and Accounts
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 judgements 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, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Company’s position and performance, business model
and strategy.
By order of the Board
Dorothy Thompson
Executive Chair
Les Wood
Chief Financial Officer
11 March 2020
11 March 2020
Tullow Oil plc 2019 Annual Report and Accounts
85
FINANCIAL STATEMENTS Independent auditor’s report
to the members of Tullow Oil plc
Report on the audit of the Financial Statements
1. Opinion
In our opinion:
- the Financial Statements of Tullow Oil plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view
of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2019 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 which comprise:
- the Group income statement;
- the Group statement of comprehensive income;
- 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 30 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).
2. 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 Financial Reporting Council’s (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.
3. Material uncertainty relating to going concern
We draw attention to the accounting policies on page 101 in the Financial Statements and the detailed information on page 20,
regarding the Group’s ability to continue as a going concern; this is dependent on the Group’s ability to generate sufficient
cashflows in order to meet scheduled loan repayments and covenant requirements, and hence to operate within its existing debt
facilities. Oil price volatility continues to place increased pressure on these cashflows and the ability of the Group to comply in
the future with the gearing covenant. As indicated on page 20, given current market conditions, there is a risk that the Group
may not be able to complete any planned portfolio management activities and that its lenders may not approve the semi-annual
RBL redetermination liquidity assessments or amendments to covenants.
In response to this, we obtained, challenged and assessed management’s going concern forecasts, and performed procedures, including:
- testing the clerical accuracy of the model used to prepare the going concern forecasts;
- assessing the historical accuracy of forecasts prepared by management;
- verifying the consistency of key inputs relating to future costs, hedging and production to other financial and operational
information obtained during our audit;
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Tullow Oil plc 2019 Annual Report and Accounts
3. Material uncertainty relating to going concern continued
- agreeing the available facilities to underlying agreements and external confirmation from debt providers and testing covenant
calculation forecasts performed by management;
- challenging management as to the reasonableness of pricing assumptions applied, based on benchmarking to market data;
- performing sensitivity analysis on management’s forecasts, including applying downside scenarios such as lower oil prices
and reduced production, and considering the mitigating actions highlighted by management in the event that they were required;
- with assistance from Deloitte restructuring specialists, challenging management as to their ability to obtain approvals of the
RBL capacity redetermination and amendments to loan covenants if required, including consideration of past precedence and
other correspondence with the finance providers; and
- challenging management as to the adequacy of disclosures made in the Annual Report and Accounts.
As stated on page 20, these events or conditions indicate that a material uncertainty exists that may cast significant doubt on
the Group’s and the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
4. 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); <>
- going concern (see material uncertainty relating to going concern section); !
- management override of controls; ! and
- the provision for tax claims ! .
Within this report, key audit matters are identified as follows:
! Newly identified
> Increased level of risk
>
<> Similar level of risk
>
> Decreased level of risk
Materiality
Scoping
The materiality that we used for the Group Financial Statements was $40 million which represents
approximately 3 per cent of adjusted EBITDAX (earnings before interest, tax, depreciation, amortisation and
exploration) and approximately 4 per cent of 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 relevant locations. The materialities applied to components ranged
from $16 million to $32 million (2018: $25 million to $40 million).
Significant changes
in our approach
Reflecting the shortfall against expected production in 2019 and the reduction in subsequent forecasts,
both our work on the going concern and viability statements and management override of controls have
been identified as key audit matters in the current year.
We have also identified the provision for tax claims as a key audit matter for 2019 due to the quantum
of exposure to uncertain tax positions.
There have been no other significant changes to our approach to the audit.
Tullow Oil plc 2019 Annual Report and Accounts
87
FINANCIAL STATEMENTS Independent auditor’s report
to the members of Tullow Oil plc continued
5. Conclusions relating to going concern, 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:
Viability means the ability
of the Group to continue
over the time horizon
considered appropriate by
the Directors.
- the disclosures on pages 31–37 that describe the principal risks, procedures to identify emerging
risks, and an explanation of how these are being managed or mitigated;
- the Directors’ confirmation on page 52 that they have carried out a robust assessment of the
principal and emerging risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity; or
- the Directors’ explanation on page 36–37 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 going concern and
prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit.
In addition to the impact of
the matters disclosed in
the material uncertainty
relating to going concern
section, we draw attention
to the disclosures on
pages 36–37 regarding the
longer-term viability of
the Group.
6. 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.
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. In addition to the matter described in the material uncertainty
relating to going concern section, we have determined the matters described below to be the key audit matters to be communicated
in our report.
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Tullow Oil plc 2019 Annual Report and Accounts
6. Key audit matters continued
6.1. Carrying value of exploration and evaluation (E&E) assets >
>
Key audit matter
description
The carrying value of E&E assets as at 31 December 2019 is $1,764.4 million (2018: $1,898.6 million) and
the Group has written off or impaired E&E expenditure totalling $1,253.4 million (2018: $295.2 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 107.
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, and the assessment of
whether sufficient data exists to indicate that the carrying amount is unlikely to be recovered through
successful development or sale.
If sufficient data exists to indicate that the carrying amount is unlikely to be fully recovered through
successful development or sale, an impairment test is performed in accordance with the requirements of
IAS 36 Impairment of Assets. As these assets have not yet reached Final Investment Decision stage, there
is inherent uncertainty in the estimation of the future timing and amount of forecast cash flows used to
perform the impairment test. 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, specifically those with ongoing
significant values held, being the Kenyan and Ugandan CGUs.
The carrying values in respect of Kenya and Uganda constitute $667 million and $960 million respectively of
the Group’s E&E assets.
Given the assets’ importance to the Group in terms of longer-term production and the level of estimation
uncertainty in the determination of their recoverable amounts, we also considered there to be a fraud risk
that the assumptions applied to the valuations are inappropriate. The impact of climate change on
commodity prices and investment decisions were also considered.
Please refer to note 10 on page 115 of the Annual Report and Accounts and the Audit Committee Report on
page 48 for further information.
We evaluated management’s assessment of E&E assets held on the balance sheet at 31 December 2019
with reference to the criteria of IFRS 6 Exploration for and Evaluation of Mineral Resources, IAS 36 Impairment
of Assets and the Group’s accounting policy (see page 107).
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 to understand the plan for recovering value
from these assets and the level of certainty over the forecast future cash flows, including review of
associated evidence;
- benchmarking and analysis of oil price assumptions against forward curves and other market data,
including the impact of climate change;
- agreement of forecast hydrocarbon production profile estimates to third-party resource reports;
- verification of estimated future costs by agreement to the latest operator information, internal budgets or
third-party estimates where available, and assessment of their appropriateness with reference to field
development and production profiles with involvement from Deloitte petroleum engineering experts;
- recalculation and benchmarking of discount rates applied, with involvement from Deloitte industry
valuation specialists;
- reviewing the appropriateness of disclosure in relation to the level of uncertainty around the timing and
amount of future cash flows, including the impact of climate change; and
- consideration of evidence of potential management bias in the assumptions selected.
How the scope of
our audit responded
to the key audit
matter
Key observations
The assumptions made by management when determining the Kenya and Uganda assets’ recoverable
amount fall within a reasonable range.
Overall, we are satisfied that the recoverable amount of the assets has been determined and impairment
charges recognised in accordance with the requirements of IAS 36 Impairment of Assets.
Management has appropriately disclosed the impact of sensitivities on the impairments recognised on the
Kenyan and Ugandan CGUs in respect of both the discount rate and commodity prices in particular in the
intangible E&E note on page 115. We concur that the risks associated with climate change are appropriately
captured in the commodity price sensitivity disclosure.
Tullow Oil plc 2019 Annual Report and Accounts
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FINANCIAL STATEMENTS Independent auditor’s report
to the members of Tullow Oil plc continued
6. Key audit matters continued
6.2. Carrying value of property, plant and equipment (PP&E) <>
Key audit matter
description
In 2019 Tullow recognised a net impairment of $781.2 million against the value of its PP&E assets, of
which $712.8 million related to the impairment of the TEN asset. Please refer to note 11 and the Audit
Committee Report on page 48 for further details.
As described in the ‘key sources of estimation uncertainty’ section of the Annual Report and Accounts on
page 108, the assessment of the carrying value of PP&E assets for impairment requires management to
compare it against the recoverable amount of the asset. The calculation of the recoverable amount
requires judgement in estimating future oil prices, the applicable asset discount rate and the cost and
production profiles of reserves estimates. The impact of climate change on commodity prices and
investment decisions were also considered.
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 estimation
uncertainty in the determination of its recoverable amount, we also considered there to be a fraud risk
that the assumptions applied to the valuation are inappropriate.
Management has disclosed the impact of sensitivities of both the discount rate and commodity prices in
the PP&E note on page 116.
How the scope of
our audit responded
to the key audit
matter
We examined management’s assessment of impairment indicators, which concluded that a decrease in
the forecast oil price assumption and the revisions to the production profiles during the year represented
an indicator of impairment for the Group’s oil 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,
including the impact of climate change;
- 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, and the long-term oil price used was comparatively conservative when
compared to the range of the forecasts published.
Overall, we are satisfied that the recoverable amount of the assets has been determined and impairment
charges and reversals have been recognised in accordance with the requirements of IAS 36 Impairment
of Assets.
We concur that the risks associated with climate change are appropriately captured in the commodity
price sensitivity disclosure.
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Tullow Oil plc 2019 Annual Report and Accounts
6. Key audit matters continued
6.3. Management override of controls !
Key audit matter
description
The risk of management override of controls due to fraud is a pervasive risk of material misstatement in
the Financial Statements. This is because management is in a unique position to manipulate accounting
records and prepare fraudulent Financial Statements by overriding controls that otherwise appear to be
operating effectively.
We assessed an increased potential management override risk, as a result of the matters and
uncertainties noted on pages 52–53 in the Audit Committee Report.
Additionally, in 2019 the Group released a number of market announcements, including in relation to:
- the downward revision of the 2019 full-year production guidance primarily due to the
underperformance of TEN and Jubilee fields;
- a reduction in TEN reserves at 31 December 2019;
- negative drilling results from the Guyana wells; and
- the subsequent departure of the Group’s Exploration Director and CEO.
These have had a significant negative impact on Tullow’s share price and resulted in a full business
review of the operations commissioned by the Board. In addition, as disclosed on pages 52–53, we note
that certain operational reporting controls have been identified as needing remediation which includes
establishing independent reporting lines to the Board.
In light of these events, there is a risk that management override of controls occurred in the period and
increased audit effort was required. We have also assessed whether the current or prior year Financial
Statements are materially misstated as a result.
Specifically our work included, but was not limited to, the following procedures:
- obtaining an understanding of the controls in place around the significant risk areas and key financial
reporting cycles;
- evaluating whether the judgments and decisions made by management in making accounting estimates
even if they are individually reasonable, indicate a possible bias that may represent a risk of material
misstatement due to fraud;
- testing the appropriateness of journal entries and other adjustments recorded in the general ledger
using Deloitte analytics software and evaluating the business rationale and evidence for the entries;
- making inquiries of individuals involved in the financial reporting process about inappropriate or
unusual activity relating to the processing of journal entries and other adjustments;
- holding meetings with the internal audit, legal and compliance teams, including reviewing their 2019
reports and considering the impact on current and prior year financial reporting; and
- reviewing the disclosures regarding certain operational reporting controls that have been identified as
needing remediation for consistency with the recommendations provided to the Audit Committee and
our understanding of the business.
How the scope of
our audit responded
to the key audit
matter
Key observations
Certain operational reporting controls have been identified as needing remediation during the period
as set out on pages 52–53.
Through our procedures, we have not identified issues that have an impact on financial reporting in
either 2018 or 2019 and are satisfied that the current and prior year Financial Statements are not
materially misstated as a result of fraud.
Tullow Oil plc 2019 Annual Report and Accounts
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FINANCIAL STATEMENTS Independent auditor’s report
to the members of Tullow Oil plc continued
6. Key audit matters continued
6.4. Provision for tax claims !
Key audit matter
description
The nature, rate and type of taxation which is applicable to hydrocarbon exploration and production
activities varies widely by jurisdiction.
In addition, the Group is subject to various claims from local tax authorities in the normal course of its
business. The Group is in formal dispute proceedings regarding a number of these claims.
Significant judgement is required to estimate the appropriate level of provision for the tax claims against
the Group as the validity and ultimate outcome of such claims can be uncertain. As such, the Group has
included uncertain tax and regulatory positions in its disclosure of key sources of estimation uncertainty
on page 108.
How the scope of
our audit responded
to the key audit
matter
We have challenged the assumptions made by management regarding each significant claim with
Tullow’s tax team, such as its assessment of the likely outcome of the claim, and its estimate of any
future settlement value.
We have also evaluated the provisions and potential exposures together with tax specialists within the
audit team from the relevant jurisdictions.
Our audit work included the review of correspondence with the relevant tax authorities and the review of
legal advice relating to the tax claims.
We used our knowledge of the specific tax regimes to challenge the Group’s assumptions and
judgements regarding the level of provisions made and the disclosures provided to ensure these are
appropriate and sufficient.
Key observations
We are satisfied that the judgements made by management are reasonable, based on the audit evidence
gathered.
The ultimate outcome of tax dispute proceedings can be unpredictable. It is therefore appropriate that
management has disclosed the maximum potential impact of the current claims against the Group in its
disclosure of key sources of estimation uncertainty on page 108.
7. Our application of materiality
7.1. Materiality
We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Group Financial Statements
Parent Company Financial Statements
Materiality
$40 million (2018: $50 million)
$32 million (2018: $40 million)
Basis for
determining
materiality
3 per cent of adjusted EBITDAX (2018: 2 per cent
of net assets, equating to 3 per cent of
adjusted EBITDAX).
Parent Company materiality equates to 1.6 per cent
(2018: 1 per cent) of net assets, which is capped at
80 per cent (2018: 80 per cent) of Group materiality.
Management has presented a reconciliation of
adjusted EBITDAX to loss from continuing activities
on page 22 of the Annual Report and Accounts.
Rationale for the
benchmark applied
Materiality was determined based on 3 per cent
of adjusted EBITDAX.
In previous years, due to the volatility of commodity
prices, we determined materiality based on the net
asset position of the Group, benchmarked to
adjusted EBITDAX.
The Parent Company does not trade, as a result a
profitability metric is not key to understanding the
performance of the business. It holds material
investments in subsidiaries, intercompany
receivables and external debt. As a result, the net
assets are the key metric of the Parent Company.
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Tullow Oil plc 2019 Annual Report and Accounts
7. Our application of materiality continued
7.1. Materiality continued
Adjusted EBITDAX
$1,398m
Adjusted EBITDAX
Group materiality
threshold $2m97+3
Group materiality $40m
Component materiality range
$32m to $16m
Audit Committee reporting
7.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the Financial Statements as a whole. Group performance materiality
was set at 70 per cent of Group materiality for the 2019 audit (2018: 70 per cent). In determining performance materiality,
we considered the following factors:
- the control environment and the lack of significant control deficiencies identified;
- the lack of changes in the operations of the business; and
- the limited number of uncorrected misstatements historically.
7.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $2.0 million
(2018: $2.5 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the
Financial Statements.
8. An overview of the scope of our audit
8.1. Identification and scoping of components
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 $16 million to $32 million (2018: $25 million to $40 million).
8.2. Working with other auditors
The Group team either directly performed or worked as an integrated team 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 in Ghana, Gabon and South Africa; 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 to direct and review the audit
work performed by the component auditors.
9. 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.
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.
Tullow Oil plc 2019 Annual Report and Accounts
93
FINANCIAL STATEMENTS Independent auditor’s report
to the members of Tullow Oil plc continued
9. Other information continued
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.
We have nothing to report in respect of these matters.
10. 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.
11. 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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud and non-compliance
with laws and regulations are set out below.
A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website at: www.
frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.
12. Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, and then
design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
12.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
- the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for Directors’ remuneration, bonus levels and performance targets;
- results of our enquiries of management, internal audit, the Group’s ethics and compliance manager and the Audit Committee
about their own identification and assessment of the risks of irregularities, including the disclosures of their review of internal
controls as set out on pages 52–53;
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Tullow Oil plc 2019 Annual Report and Accounts
12. Extent to which the audit was considered capable of detecting irregularities, including fraud continued
12.1. Identifying and assessing potential risks related to irregularities continued
- any matters we identified having obtained and reviewed the Group’s documentation of its policies and procedures relating to:
- identifying, evaluating and complying with laws and regulations and whether it was aware of any instances of non-compliance;
- detecting and responding to the risks of fraud and whether it has knowledge of any actual, suspected or alleged fraud; and
- the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations,
- the matters discussed among the audit engagement team, including significant component audit teams and were communicated
to relevant internal specialists, including tax, valuations, IT and industry specialists regarding how and where fraud might
occur in the Financial Statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud
and identified the greatest potential for fraud in the following areas: the carrying value of exploration and evaluation (E&E)
assets and the carrying value of property, plant and equipment (PP&E). In common with all audits under ISAs (UK), we are also
required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the Financial
Statements. The key laws and regulations we considered in this context included the UK Companies Act 2006, the UK Corporate
Governance Code and the Listing Rules of the UK Listing Authority, Market Abuse Regulation and the relevant tax compliance
regulations in the jurisdictions in which Tullow operates.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the Financial Statements
but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included
environmental laws and regulations in the countries in which the Group operates and anti-bribery and corruption legislation.
12.2. Audit response to risks identified
As a result of performing the above, we identified the carrying value of exploration and evaluation (E&E) assets, the carrying
value of property, plant and equipment (PP&E) and management override of controls as key audit matters related to the
potential risk of fraud. The key audit matters section of our report explains the matters in more detail and also describes the
specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
- reviewing the Financial Statement disclosures and testing to supporting documentation to assess compliance with provisions
of relevant laws and regulations described as having a direct effect on the Financial Statements;
- enquiring of management, the Audit Committee and in-house and external legal counsel concerning actual and potential
litigation and claims;
- performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
- reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with HMRC, the Ghana Revenue Authority and the Ghana Ministry of Energy;
- reviewing the disclosures in the Audit Committee Report on pages 52–53 relating to instances of management override of
controls in 2019; and
- in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential
bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course
of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and significant component audit teams, and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the audit.
Tullow Oil plc 2019 Annual Report and Accounts
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FINANCIAL STATEMENTS Independent auditor’s report
to the members of Tullow Oil plc continued
Report on other legal and regulatory requirements
13. 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 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.
14. Matters on which we are required to report by exception
14.1. 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 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.
We have nothing to report in respect of these matters.
14.2. 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.
15. Other matters
15.1. 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 17 years, covering the years ended 31 December
2002 to 31 December 2019. 31 December 2019 is our final year as auditor to the Group.
15.2. 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).
16. 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.
Anthony Matthews FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, UK
11 March 2020
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Tullow Oil plc 2019 Annual Report and Accounts
Group income statement
Year ended 31 December 2019
Continuing activities
Sales revenue
Other operating income – lost production insurance proceeds
Cost of sales
Gross profit
Administrative expenses
Gain on disposal
Exploration costs written off
Impairment of property, plant and equipment, net
Provisions for onerous contracts and restructuring
Operating (loss)/profit
(Loss)/gain on hedging instruments
Finance revenue
Finance costs
(Loss)/profit from continuing activities before tax
Income tax expense
(Loss)/profit for the year from continuing activities
Attributable to:
Owners of the Company
Non-controlling interest
(Loss)/earnings per ordinary share from continuing activities
Basic
Diluted
Group statement of comprehensive income and expense
Year ended 31 December 2019
(Loss)/profit for the year
Items that may be reclassified to the income statement in subsequent periods
Cash flow hedges
(Loss)/gain arising in the year
(Loss)/gain arising in the year – time value
Reclassification adjustments for items included in (loss)/profit on realisation
Reclassification adjustments for items included in loss on realisation – time value
Exchange differences on translation of foreign operations
Other comprehensive (loss)/profit
Total comprehensive (expense)/income for the year
Attributable to:
Owners of the Company
Non-controlling interest
Notes
2019
$m
2018
$m
2
6
4
4
9
10
11
4,21
19
5
5
7
1,682.6
42.7
(966.7)
758.6
(111.5)
6.6
(1,253.4)
(781.2)
(4.2)
(1,385.1)
(1.5)
55.5
(322.3)
(1,653.4)
(40.7)
1,859.2
188.4
(966.0)
1,081.6
(90.3)
21.3
(295.2)
(18.2)
(170.8)
528.4
2.4
58.4
(328.7)
260.5
(175.1)
(1,694.1)
85.4
(1,694.1)
–
(1,694.1)
8
¢
(120.8)
(120.8)
Notes
2019
$m
(1,694.1)
19
19
19
19
(118.6)
(73.6)
(7.6)
61.0
(3.5)
(142.3)
84.8
0.6
85.4
¢
6.1
5.9
2018
$m
85.4
100.7
16.2
32.7
52.7
(15.4)
186.9
(1,836.4)
272.3
(1,836.4)
–
(1,836.4)
271.7
0.6
272.3
Tullow Oil plc 2019 Annual Report and Accounts
97
FINANCIAL STATEMENTS
Group balance sheet
As at 31 December 2019
ASSETS
Non-current assets
Intangible exploration and evaluation assets
Property, plant and equipment
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
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
Hedge reserve – time value
Other reserves
Retained earnings
Equity attributable to equity holders of the Company
Total equity
Approved by the Board and authorised for issue on 11 March 2020.
Dorothy Thompson
Executive Chair
Les Wood
Chief Financial Officer
11 March 2020
11 March 2020
98
Tullow Oil plc 2019 Annual Report and Accounts
Notes
2019
$m
2018
$m
10
11
12
19
22
13
14
12
7
19
15
16
17
21
19
17
18
21
22
19
23
23
19
19
1,764.4
3,891.7
623.2
3.1
517.5
1,898.6
4,916.4
696.4
51.2
649.4
6,799.9
8,212.0
191.5
38.7
928.7
42.9
0.7
288.8
–
134.8
159.4
969.0
60.5
79.7
179.8
840.2
1,491.3
2,423.4
8,291.2
10,635.4
(1,127.6)
(172.8)
(159.6)
(14.8)
(1,204.3)
(198.5)
(83.0)
(2.7)
(1,474.8)
(1,488.5)
(1,212.9)
(3,071.7)
(753.6)
(793.4)
(1.2)
(1,282.3)
(3,219.1)
(677.0)
(1,075.3)
–
(5,832.8)
(6,253.7)
(7,307.6)
(7,742.2)
983.6
2,893.2
210.9
1,380.0
48.4
(242.1)
4.6
(17.5)
755.2
(1,155.9)
209.1
1,344.2
48.4
(238.6)
130.8
(4.9)
755.2
649.0
983.6
2,893.2
983.6
2,893.2
Group statement of changes in equity
Year ended 31 December 2019
Share
capital
$m
Share
premium
$m
Notes
Equity
component
of
convertible
bonds
$m
Foreign
currency
translation
reserve 1
$m
Hedge
reserve
– time
value 2
$m
Hedge
reserve 2
$m
Other
reserves 3
$m
Retained
earnings
$m
Non-
controlling
interest
$m
Total
$m
Total
equity
$m
208.2 1,326.8
48.4
(223.2)
(2.6)
(73.8)
740.9
681.3
2,706.0
10.4
2,716.4
At 1 January 2018
Adjustment on
adoption of IFRS 94,
net of tax
Profit for the year
Hedges, net of tax
Currency translation
adjustments
Issue of shares
Issue of employee
share options
Transfers
Share-based
payment charges
Acquisition of
non-controlling
interests
At 1 January 2019
Loss for the year
Hedges, net of tax
Currency translation
adjustments
Vesting of employee
share options
Share-based
payment charges
Dividends paid
19
23
23
24
19
23
24
30
(110.8)
84.8
–
(110.8)
84.8
202.3
–
0.6
–
(110.8)
85.4
202.3
–
–
–
–
0.9
–
–
–
–
–
–
–
–
17.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
133.4
–
–
68.9
(15.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
209.1 1,344.2
–
–
–
–
48.4
–
–
(238.6)
–
–
130.8
–
(126.2)
(4.9)
–
(12.6)
–
–
–
–
–
–
–
–
14.3
(18.2)
(14.3)
–
–
(15.4)
18.3
(18.2)
–
26.2
26.2
–
–
1.8
35.8
–
–
–
–
–
–
–
–
(3.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3.5)
(37.6)
–
27.7
(100.9)
27.7
(100.9)
–
–
(11.0)
(11.0)
755.2
649.0
2,893.2
– (1,694.1) (1,694.1)
(138.8)
–
–
–
–
–
–
–
(15.4)
18.3
(18.2)
–
26.2
–
2,893.2
– (1,694.1)
(138.8)
–
–
–
–
–
–
(3.5)
–
27.7
(100.9)
983.6
At 31 December 2019
210.9 1,380.0
48.4
(242.1)
4.6
(17.5)
755.2 (1,155.9)
983.6
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. The value associated with the treasury shares reserve, disclosed in the previous year, has been represented as part
of retained earnings, consistent with share-based payment reserve movements. At 31 December 2019 the Group did not hold any shares in a Tullow Oil Employee
Trust to satisfy awards held under the Group’s share incentive plans (note 24).
4. Figures as at 1 January 2018 have been restated in relation to the adoption of IFRS 9.
Tullow Oil plc 2019 Annual Report and Accounts
99
FINANCIAL STATEMENTS Group cash flow statement
Year ended 31 December 2019
Cash flows from operating activities
(Loss)/profit before taxation
Adjustments for:
Depreciation, depletion and amortisation
Gain on disposal
Exploration costs written off
Impairment of property, plant and equipment, net
Provision for onerous contracts
Payment under onerous 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)/decrease in inventories
(Decrease)/increase in trade payables
Cash generated from operating activities
Income taxes 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
Debt arrangement fees
Repayment of borrowings
Drawdown of borrowings
Repayment of obligations under leases
Finance costs paid
Dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange (loss)/gain
Cash and cash equivalents at end of year
100
Tullow Oil plc 2019 Annual Report and Accounts
Notes
2019
$m
2018
Restated
$m
(1,653.4)
260.5
11
9
10
11
21
21
21
24
19
5
5
9
29
29
29
29
20
30
15
15
724.6
(6.6)
1,253.4
781.2
(0.4)
(20.4)
(75.1)
24.8
1.5
(55.5)
322.3
1,296.4
241.4
(56.6)
(131.5)
584.1
(21.3)
295.2
18.2
167.4
(208.6)
(99.1)
23.8
(2.4)
(58.4)
328.7
1,288.1
(100.2)
32.5
86.9
1,349.7
1,307.3
(91.0)
(103.3)
1,258.7
1,204.0
7.0
(259.4)
(261.5)
1.9
(512.0)
–
(520.0)
375.0
(172.1)
(215.4)
(100.9)
9.9
(202.1)
(238.4)
2.9
(427.7)
(15.0)
(1,755.1)
1,240.0
(117.4)
(234.5)
–
(633.4)
(882.0)
113.3
179.8
(4.3)
(105.7)
284.0
1.5
288.8
179.8
Accounting policies
Year ended 31 December 2019
(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
New International Financial Reporting Standards adopted
The Group has applied the following standards and
amendments for the first time for their annual reporting
period commencing 1 January 2019:
- IFRS 16 Leases
- Prepayment Features with Negative Compensation –
Amendments to IFRS 9
- Long-term Interests in Associates and Joint Ventures –
Amendments to IAS 28
- IFRIC Interpretation 23 Uncertainty over Income
Tax Treatments
- Annual IFRS Improvement Process IAS 12 Income Taxes –
Income tax consequences of payments on financial
instruments classified as equity
- Annual IFRS Improvement Process IAS 12 Borrowing Costs
– Borrowing costs eligible for capitalisation
The Group had to change its accounting policies as a result
of adopting IFRS 16. The Group elected to adopt the new
rules retrospectively but recognised the cumulative effect of
initially applying the new standard on 1 January 2019. This is
disclosed in note 28. The other amendments listed above
did not have any impact on the amounts recognised in prior
periods and are not expected to significantly affect the current
or future periods.
IFRS 16 Leases
IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases for the periods commencing
on, and after, 1 January 2019. The standard eliminates the dual
accounting model for lessees, which distinguishes between
on-balance sheet finance leases and off-balance sheet
operating leases. Instead, there is a single, on-balance sheet
accounting model. IFRS 16 replaces IAS 17 Leases and IFRIC
4 Determining Whether an Arrangement Contains a Lease.
In accordance with the transition provisions in IFRS 16 the
modified retrospective approach has been followed by the Group.
The adoption of IFRS 16 in the year resulted in $123.2 million
being recorded on the balance sheet as property, plant and
equipment right-of-use assets and $195.1 million as lease
liabilities. During the current year the effect on income
statement was recognised through a depreciation charge
on the right-of-use asset and interest expense on the lease
liability. In the statement of cash flows, the Group separated
the total amount of cash paid into principal (presented within
financing activities) and interest (presented within operating
activities) in accordance with IFRS 16. In prior periods
operating lease payments were all presented as operating
cash flows under IAS 17.
A summary of the impact of the implementation of IFRS 16
is shown in note 28.
Upcoming International Financial Reporting Standards not
yet adopted
Certain new accounting standards and interpretations have
been published that are not mandatory for 31 December 2019
reporting periods and have not been early adopted by the
Group. These standards are not expected to have a material
impact on the entity in the current or future reporting periods
and on foreseeable future transactions.
(c) Changes in accounting policy
Following the implementation of IFRS 16, the Group amended
the accounting policy for leases. Other accounting policies are
consistent with the prior year.
(d) Basis of accounting
The Financial Statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB).
The Financial Statements have also been prepared in accordance
with IFRS as adopted by the European Union and therefore the
Group Financial Statements comply with Article 4 of the EU
IAS Regulation.
The Financial Statements have been prepared on the historical
cost basis, except for derivative financial instruments that
have been measured at fair value and assets classified as
held for sale which are carried at fair value less cost to sell.
The Financial Statements are presented in US dollars and all
values are rounded to the nearest $0.1 million, except where
otherwise stated. The Financial Statements have been prepared
on a going concern basis (refer to the Finance Review section
of the Director’s Report).
Tullow Oil plc 2019 Annual Report and Accounts
101
FINANCIAL STATEMENTS 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 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 as 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. A loss for any initial or subsequent
write-down of the asset or disposal group to a revised fair
value less costs to sell is recognised at each reporting date.
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.
If the above criteria are no longer met, the asset ceases to be
recognised as held for sale and is reclassified to intangible
exploration and evaluation assets or to property, plant and
equipment. It is then valued at the lower of its carrying value
before the asset was classified as held for sale and the
recoverable amount at the date of the subsequent decision
not to sell. Any adjustment to the value is shown in income
from continuing operations for the year.
(g) Revenue
Sales revenue from contracts with customers 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
performance obligations have been met, which is typically
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.
102
Tullow Oil plc 2019 Annual Report and Accounts
Accounting policies continuedYear ended 31 December 2019 (j) Foreign currencies
The US dollar is the presentational 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.
(n) Impairment of property, plant and equipment
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, an element of which
is determined by whether the assets are onshore or offshore.
Where there is evidence of economic interdependency between
fields, such as common infrastructure, the fields are grouped
as a single CGU for impairment purposes.
Where conditions giving rise to impairment subsequently
reverse, the effect of the impairment charge is also reversed
as a credit to the income statement, net of any amortisation
that would have been charged since the impairment.
(o) Decommissioning
Provision for decommissioning is recognised in full when the
related facilities are installed. A corresponding amount equivalent
to the provision is also recognised as part of the cost of the
related property, plant and equipment. The amount recognised
is the estimated cost of decommissioning, discounted to its net
present value 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.
Tullow Oil plc 2019 Annual Report and Accounts
103
FINANCIAL STATEMENTS (p) Property, plant and equipment
Property, plant and equipment is stated in the balance sheet
at cost less accumulated depreciation and any recognised
impairment loss. Depreciation on property, plant and
equipment other than production assets is provided at rates
calculated to write off the cost less the estimated residual
value of each asset on a straight-line basis over its expected
useful economic life of between three and ten years.
(q) Finance costs and debt
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get
ready for their intended use or sale, are added to the cost of
those assets, until such time as the assets are substantially
ready for their intended use or sale.
All other finance costs, which include interest on borrowings
calculated using the effective interest method as described in
paragraph (aa), obligations under finance leases, the unwinding
effect of the effect of discounting provisions and exchange
differences, are recognised in the income statement in the
period in which they are incurred.
(r) Share issue expenses and share premium account
Costs of share issues are written off against the premium
arising on the issues of share capital.
(s) Taxation
Current and deferred tax, including UK corporation tax and
overseas corporation tax, are provided at amounts expected to
be paid using the tax rates and laws that have been enacted
or substantively enacted by the balance sheet date. Deferred
corporation tax is recognised on all temporary differences that
have originated but not reversed at the balance sheet date
where transactions or events that result in an obligation to
pay more, or right to pay less, tax in the future have occurred
at the balance sheet date. Deferred tax assets are recognised
only to the extent that it is considered more likely than not
that there will be suitable taxable profits from which the
underlying temporary differences can be deducted. Deferred
tax is measured on a non-discounted basis.
Deferred tax is provided on temporary differences arising on
acquisitions that are categorised as business combinations.
Deferred tax is recognised at acquisition as part of the
assessment of the fair value of assets and liabilities acquired.
Any deferred tax is charged or credited in the income
statement as the underlying temporary difference is reversed.
Petroleum revenue tax (PRT) is treated as an income tax and
deferred PRT is accounted for under the temporary difference
method. Current UK PRT is charged as a tax expense on
chargeable field profits included in the income statement and
is deductible for UK corporation tax.
(t) Pensions
Contributions to the Group’s defined contribution pension
schemes are charged to operating profit on an accruals basis.
(u) Derivative financial instruments
The Group uses derivative financial instruments such as forward
currency contracts and commodity options contracts, to hedge
its foreign currency risks and commodity price risks respectively.
Derivatives are recognised initially at fair value at the date
a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date.
The resulting gain or loss is recognised in profit or loss
immediately unless the derivative is designated and effective
as a hedging instrument, in which event the timing of the
recognition in profit or loss depends on the nature of the
hedge relationship.
For the purpose of hedge accounting, hedges are classified as:
- fair value hedges when hedging the exposure to changes
in the fair value of a recognised asset or liability or an
unrecognised firm commitment;
- cash flow hedges when hedging the exposure to variability
in cash flows that is either attributable to a particular risk
associated with a recognised asset or liability or a highly
probable forecast transaction or the foreign currency risk
in an unrecognised firm commitment; and
- hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which it
wishes to apply hedge accounting and the risk management
objective and strategy for undertaking the hedge.
The documentation includes identification of the hedging
instrument, the hedged item, the nature of the risk being
hedged and how the Group will assess whether the hedging
relationship meets the hedge effectiveness requirements
(including the analysis of sources of hedge ineffectiveness and
how the hedge ratio is determined). A hedging relationship
qualifies for hedge accounting if it meets all of the following
effectiveness requirements:
- There is ‘an economic relationship’ between the hedged
item and the hedging instrument.
- The effect of credit risk does not ‘dominate the value
changes’ that result from that economic relationship.
- The hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the
Group actually hedges and the quantity of the hedging
instrument that the Group actually uses to hedge that
quantity of hedged item.
104
Tullow Oil plc 2019 Annual Report and Accounts
Accounting policies continuedYear ended 31 December 2019 (u) Derivative financial instruments continued
If a hedging relationship ceases to meet the hedge effectiveness
requirement relating to the hedge ratio but the risk management
objective for that designated hedging relationship remains
the same, the Group adjusts the hedge ratio of the hedging
relationship (i.e. rebalances the hedge) so that it meets the
qualifying criteria again.
The Group designates only the intrinsic value of option
contracts as a hedged item, i.e. excluding the time value of
the option. The changes in the fair value of the aligned time
value of the option are recognised in other comprehensive
income and accumulated in the time value hedge reserve.
If the hedged item is transaction related, the time value is
reclassified to profit or loss when the hedged item affects
profit or loss. If the hedged item is time-period related, then
the amount accumulated in the time value hedge reserve
is reclassified to profit or loss on a rational basis. Those
reclassified amounts are recognised in profit or loss in the
same line as the hedged item. Furthermore, if the Group
expects that some or all of the loss accumulated in hedging
reserve will not be recovered in the future, that amount is
immediately reclassified to profit or loss.
Cash flow hedges
The effective portion of the gain or loss on the hedging
instrument is recognised in OCI in the cash flow hedge reserve,
while any ineffective portion is recognised immediately in the
statement of profit or loss. The cash flow hedge reserve is
adjusted to the lower of the cumulative gain or loss on the
hedging instrument and the cumulative change in fair value
of the hedged item.
The Group uses oil option contracts for its exposure to
volatility of Dated Brent prices. The ineffective portion relating
to option contracts is recognised as gain or loss on hedging
instruments in the Group income statement.
Amounts previously recognised in other comprehensive
income and accumulated in equity are reclassified to profit
or loss in the periods when the hedged item affects profit
or loss, in the same line as the recognised hedged item.
Cash flow hedge accounting is discontinued only when the
hedging relationship or a part thereof ceases to meet the
qualifying criteria. This includes when the designated hedged
forecast transaction or part thereof is no longer considered to
be highly probable to occur, or when the hedging instrument
is sold, terminated or exercised without replacement or rollover.
When cash flow hedge accounting is discontinued, amounts
previously recognised within other comprehensive income
remain in equity until the forecast transaction occurs and
are reclassified to profit or loss or transferred to the initial
carrying amount of a non-financial asset or liability as above.
If the forecast transaction is no longer expected to occur,
amounts previously recognised within other comprehensive
income will be immediately reclassified to profit or loss.
(v) Convertible bonds
Where bonds issued with certain conversion rights are
identified as compound instruments, the liability and equity
components are separately recognised.
The fair value of the liability component on initial recognition
is calculated by discounting the contractual stream of future
cash flows using the prevailing market interest rate for
similar non-convertible debt.
The difference between the fair value of the liability
component and the fair value of the whole instrument is
recorded as equity.
Transaction costs are apportioned between the liability and
the equity components of the instrument based on the amounts
initially recognised.
The liability component is subsequently measured at amortised
cost using the effective interest rate method, in line with our
other financial liabilities.
The equity component is not remeasured.
On conversion of the instrument, equity is issued and the liability
component is derecognised. The original equity component
recognised at inception remains in equity. No gain or loss is
recognised on conversion.
(w) Leases
On inception of a contract, the Group assesses whether the
contract is, or contains, a lease. The contract is, or contains,
a lease if it conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. To
determine whether the contract conveys the right to control
the use of an identified asset, the Group assesses whether the
contract involves the use of an identified asset, the Group has
the right to obtain all of the economic benefits from the use of
the asset throughout the period of use, and the Group has the
right to direct the use of the asset.
i) Lessee accounting
From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the
leased asset is available for use by the Group. The right-of-use
asset is initially measured at cost, which comprises the initial
amount of the lease liability adjusted for any amount receivable
from Joint Venture Partners and any lease payments made
at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs required to remove
or restore the underlying asset, less any lease incentives
received. The right-of-use asset is depreciated over the
shorter of the asset’s useful life and the lease term on a
straight-line basis, and the Joint Venture receivable is
allocated against the monthly Joint Venture billing cycle.
The initial measurement of the corresponding lease liability is
at the present value of the lease payments that are not paid at
the lease commencement date, discounted using the interest
rate implicit in the lease or, if that rate cannot be readily
determined, the Group’s incremental borrowing rate.
The lease payments include fixed payments, less any lease
incentive receivable, variable leases payments based on an
index or rate, and amounts expected to be payable by the
lessee under residual value guarantees.
Tullow Oil plc 2019 Annual Report and Accounts
105
FINANCIAL STATEMENTS (w) Leases continued
i) Lessee accounting continued
The lease liability is subsequently measured at amortised cost
using the effective interest method. It is remeasured when there
is a change in future lease payments arising from a change
in an index or rate, if there is a change in the Group’s estimate
of the amount expected to be payable under a residual value
guarantee or if the Group changes its assessment of whether
it will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding
adjustment is made to the carrying amount of the right-of-use
asset or is recorded in profit or loss if the carrying amount of
the right-of-use asset has been reduced to zero.
The Group has elected not to recognise right-of-use assets
and lease liabilities for short-term leases that have a lease
term of 12 months or less, those leases with a remaining
lease term of less than 12 months as at 1 January 2019 and
leases of low-value assets with an annual cost of $5,000. For
certain leases on property rental for expat staff, a threshold
of $100,000 was applied. The Group recognises the lease
payments associated with these leases as an expense on a
straight-line basis over the lease term.
Over the course of a lease contract, there will be taxable
timing differences that could give rise to deferred tax, subject
to local tax laws and regulations.
Extension and termination options are included in a number
of property and equipment leases across the Group. These are
used to maximise operational flexibility in terms of managing
the assets used in the Group’s operations. The majority of
extension and termination options held are exercisable only
by the Group and not by the respective lessor.
(x) Share-based payments
The Group has applied the requirements of IFRS 2 Share-based
Payments. The Group has share-based awards that are equity
settled and cash settled as defined by IFRS 2. The fair value of
the equity settled awards has been determined at the date of
grant of the award allowing for the effect of any market-based
performance conditions. This fair value, adjusted by the
Group’s estimate of the number of awards that will eventually
vest as a result of non-market conditions, is expensed
uniformly over the vesting period.
The fair values were calculated using a binomial option
pricing model with suitable modifications to allow for
employee turnover after vesting and early exercise. Where
necessary, this model is supplemented with a Monte Carlo
model. The inputs to the models include: the share price at
date of grant; exercise price; expected volatility; expected
dividends; risk-free rate of interest; and patterns of exercise
of the plan participants.
For cash settled awards, a liability is recognised for the goods
or service acquired, measured initially at the fair value of the
liability. At each balance sheet date until the liability is settled,
and at the date of settlement, the fair value of the liability is
remeasured, with any changes in fair value recognised in the
income statement.
(y) Financial assets
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at fair
value through profit or loss (FVPL), transaction costs that are
directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVPL are
expensed in profit or loss. The subsequent measurement of
financial assets depends on their classification, as set out below.
i) Financial assets measured at amortised cost
Assets are subsequently classified and measured at amortised
cost when the business model of the company is to collect
contractual cash flows and the contractual terms give rise to
cash flows that are solely payments of principal and interest.
These assets are carried at amortised cost using the effective
interest method if the time value of money is significant. Gains
and losses are recognised in profit or loss when the assets
are derecognised, modified or impaired. This category of
financial assets includes trade and other receivables.
Financial assets measured at amortised cost include trade
receivables, loans and other receivables that have fixed or
determinable payments that are not quoted in an active
market. 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.
ii) Financial asset measured at fair value through other
comprehensive income
Assets are subsequently classified and measured at fair value
through other comprehensive income when the business
model of the company is to collect contractual cash flows
and sell the financial assets, and the contractual cash flows
represent solely payments of principal and interest.
iii) Financial assets measured at fair value through profit or loss
Financial assets are classified as measured at fair value through
profit or loss when the asset does not meet the criteria to
be measured at amortised cost or fair value through other
comprehensive income. These assets are carried on the
balance sheet at fair value with gains or losses recognised
in the income statement. Derivatives, other than those
designated as effective hedging instruments, are included
in this category.
As at 31 December 2019, the Group does not have any
financial assets classified at fair value through profit or loss
or other comprehensive income.
Regular way purchases and sales of financial assets are
recognised on trade date, being the date on which the Group
commits to purchase or sell the asset. Financial assets are
derecognised when the rights to receive cash flows from the
financial assets have expired or have been transferred and the
Group has transferred substantially all the risks and rewards
of ownership.
(z) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, demand
deposits and other short-term highly liquid investments that
are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value.
106
Tullow Oil plc 2019 Annual Report and Accounts
Accounting policies continuedYear ended 31 December 2019 (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.
(ab) Financial liabilities
The measurement of financial liabilities is determined by the
initial classification.
i) Financial liabilities at fair value through profit or loss:
Those balances that meet the definition of being held for trading
are measured at fair value through profit or loss. Such liabilities
are carried on the balance sheet at fair value with gains or
losses recognised in the income statement.
ii) Financial liabilities measured at amortised cost:
All financial liabilities not meeting the criteria of being
classified at fair value through profit or loss are classified
as financial liabilities measured at amortised cost. The
instruments are initially recognised at its fair value net of
transaction costs that are directly attributable to the issue of
financial liability. Subsequent to initial recognition, financial
liabilities are measured at amortised cost using the effective
interest method.
Trade payables and borrowings fall under this category of
financial instruments.
As at 31 December 2019 all financial liabilities are measured
at amortised cost.
The Group derecognises a financial liability when it is extinguished,
i.e. when the obligation specified in the contract is discharged
or cancelled or expires. A substantial modification of the
terms of an existing financial liability or a part of it is
accounted for as an extinguishment of the original financial
liability and the recognition of a new financial liability.
(ac) Equity instruments
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. 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.
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.
The most material area in where this judgement was applied
during 2019 was in the assessment of the value in use (VIU)
of the Kenyan and Ugandan CGUs, following the Group’s
reduction in long-term oil price assumption being identified
as an impairment trigger. Due to the stage of these projects
being pre-final investment decision and only having 2C
resources booked, the VIU assessment required judgement in
a number of different aspects including oil prices differentials,
project financing assumptions, uncontracted cost profiles and
certain fiscal terms.
Details on impact of these key estimates and judgements
using sensitivities applied to impairment models can be found
in note 10.
Tullow Oil plc 2019 Annual Report and Accounts
107
FINANCIAL STATEMENTS (af) Critical accounting judgements continued
Lease accounting (note 28):
On initial application of IFRS 16 Leases, the following key
judgements were applied:
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.
Discount rate
The Group applied an incremental borrowing rate on transition,
as no contract contained an implicit discount rate. In assessing
the appropriate incremental borrowing rate applicable for each
contract, management has applied the practical expedient which
allows for the adoption of a portfolio approach, where a single
discount rate for a portfolio of leases with similar characteristics
can be applied. As the Group has two bonds and a convertible
bond listed on Exchanges, and a Reserves Based Lending
Facility from a consortium of lenders, these are considered
the best reference for the incremental borrowing rate for the
Group. The weighted average cost of borrowing across these
sources of funding is considered to be the Group’s “all in
rate”, which was 6.9 per cent at 31 December 2018.
Joint Venture Partner approvals
Where Tullow are Operators and have signed a leased contract
that extends beyond the duration of JV Partner approvals,
the Group have concluded that under certain circumstances
the lease would fall outside the scope of IFRS 16. These
circumstances are when the JV Partner approval is for a
period of 12 months or less, where the lease is not critical
to ongoing operations, and when there is no financial penalty
for cancellation, or non-extension.
Low value leases
The Group holds a significant number of low-value leases,
mainly property rentals for expat staff accommodations that
are above the revised annual $100,000 threshold but are
immaterial to the Group in aggregate.
(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 assumptions, pre-tax discount
rates and commercial reserves and the related cost profiles.
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. 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
108
Tullow Oil plc 2019 Annual Report and Accounts
The estimation applied by management to the exploration
risk premium adjustment to its impairment discount rates,
estimated future commodity prices and forecast cash flows
on the TEN asset would have the most material impact on
the 2019 Financial Statements should management had
concluded differently. Details on impact of these key estimates
and judgements using sensitivity applied to impairment
models can be found in note 11.
Decommissioning costs (note 21):
There is uncertainty around the cost of decommissioning as
cost estimates can vary in response to many factors, including
from changes to market rates for goods and services, 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 (note 21):
Due to the historical reduction in work programmes the Group
identified a number of onerous service contracts in prior years
and has a number of ongoing contractual disputes. Management
has estimated the value of any future economic outflows
associated with these contracts including, where relevant,
assessment based of external legal and expert advice
and prior experience of such claims.
If management had concluded differently regarding the
estimated value of any future economic outflows associated
with these contracts the provision and income statement
expense recorded would increase/decrease, respectively.
Details on the magnitude of the potential increase can be
found within the contingent liability disclosure in note 25.
Uncertain tax and regulatory positions (note 7):
The Group is subject to various material claims which arise
in the ordinary course of its business, including corporate
income tax claims, indirect tax claims, cost recovery claims
and claims from other regulatory bodies in a number of the
jurisdictions in which the Group operates. The Group is in
formal dispute proceedings regarding a number of these
claims. In order to assess whether these claims should be
provided for in the Financial Statements, management has
assessed all claims in the context of the laws and operating
agreements of the countries in which it operates. Management
has applied judgement in assessing the likely outcome of the
claims and has estimated the financial impact based on external
tax and legal advice and prior experience of such claims.
If management had concluded differently regarding the
estimated claims the maximum potential impact of the
Group’s income statement would be $990 million- by their
nature these matters can take many years to finalise.
Accounting policies continuedYear ended 31 December 2019 Notes to the Group Financial Statements
Year ended 31 December 2019
Note 1. Segmental reporting
The information reported to the Group’s Chief Executive Officer and the Executive Chair for the purposes of capital allocation
and assessment of segment performance is focused on three Business Delivery Teams – West Africa including European
decommissioning 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 2019 and 31 December 2018.
2019
Sales revenue by origin
Other operating income –
lost production insurance proceeds
Segment result1
Gain on disposal
Unallocated corporate expenses
Operating loss
Loss on hedging instruments
Finance revenue
Finance costs
Profit before tax
Income tax expense
Profit 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, net
Exploration costs written off
West
Africa
$m
East
Africa
$m
New
Ventures
$m
Unallocated
$m
Total
$m
Notes
1,682.6
–
–
–
–
–
–
1,682.6
42.7
42.7
(11.1)
(1,073.6)
(172.3)
(19.4)
(1,276.4)
6.6
(115.3)
(1,385.1)
(1.5)
55.5
(322.3)
(1,653.4)
(40.7)
(1,694.1)
6,315.8
1,762.2
175.1
38.1
8,291.2
(3,986.9)
(85.9)
(52.5)
(3,182.3)
(7,307.6)
11
10
11
11
10
434.2
8.9
(701.1)
(737.4)
(9.0)
14.2
134.4
(1.5)
–
(1,071.0)
0.4
136.0
–
–
(173.4)
79.6
–
(22.0)
(43.8)
–
528.4
279.3
(724.6)
(781.2)
(1,253.4)
1. Segment result is a non IFRS measure which includes gross profit, exploration costs written off, impairment of property, plant and equipment, and provisions for
onerous contracts.
All sales are made to external customers. Included in revenue arising from West Africa are revenues of approximately
$362.6 million, $247.0 million, $186.6 million and $181.6 million relating to the Group’s customers who each contribute more
than 10 per cent of total sales revenue (2018: $429.8 million, $280.9 million, $222.8 million, $203.6 million and $189.4 million).
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.
Tullow Oil plc 2019 Annual Report and Accounts
109
FINANCIAL STATEMENTS
Note 1. Segmental reporting continued
2018
Sales revenue by origin
Other operating income –
lost production insurance proceeds
Segment result
Gain on disposal
Unallocated corporate expenses
Operating profit
Loss on hedging instruments
Finance revenue
Finance costs
Profit before tax
Income tax credit
Profit after tax
Total assets
Total liabilities
Notes
West
Africa
$m
East
Africa
$m
New
Ventures
$m
Unallocated
$m
Total
$m
1,859.2
–
–
–
–
–
–
1,859.2
188.4
188.4
528.0
(74.5)
(100.7)
248.0
600.8
21.3
(93.7)
528.4
2.4
58.4
(328.7)
260.5
(175.1)
85.4
7,618.9
2,662.0
280.8
73.7
10,635.4
(4,252.7)
(141.8)
(96.9)
(3,250.8)
(7,742.2)
Other segment information
Capital expenditure:
Property, plant and equipment
Intangible exploration and evaluation assets
Depreciation, depletion and amortisation
Impairment of property, plant and equipment, net
Exploration costs written off
11
10
11
11
10
257.1
2.1
(569.2)
(18.2)
(139.9)
Sales revenue and non-current assets by origin
Congo
Côte d’Ivoire
Equatorial Guinea
Gabon
Ghana
Mauritania
UK
Total West Africa
Kenya
Uganda
Total East Africa
Norway
Other
Total New Ventures
Unallocated
1.4
168.3
(0.2)
–
(74.5)
Sales
revenue
2019
$m
–
51.0
57.2
312.9
1,261.5
–
–
4.3
60.0
–
–
(80.8)
5.3
–
(14.7)
–
–
268.1
230.4
(584.1)
(18.2)
(295.2)
Sales
revenue
2018
$m
Non-current
assets
2019
$m
Non-current
assets
2018
$m
1.1
44.9
146.6
213.6
1,404.1
2.1
46.8
–
73.7
83.5
154.3
4,082.4
–
–
–
86.7
72.2
171.1
5,171.5
–
–
1,682.6
1,859.2
4,393.9
5,501.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
679.2
1,000.2
1,131.2
631.9
1,679.4
1,763.1
11.3
133.3
144.6
61.5
12.3
169.7
182.0
63.8
Total revenue/non-current assets
1,682.6
1,859.2
6,279.3
7,511.4
Non-current assets excludes derivative financial instruments and deferred tax assets.
110
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019
Note 2. Total revenue
Sales revenue (excluding tariff income)
Oil and gas revenue from the sale of goods
Loss on realisation of cash flow hedges
Tariff income
Total sales revenue
Other operating income – lost production insurance proceeds
Total revenue
Notes
2019
$m
2018
$m
19
6
1,736.8
(53.4)
1,683.4
(0.8)
1,682.6
42.7
1,943.0
(86.8)
1,856.2
3.0
1,859.2
188.4
1,725.3
2,047.6
Finance revenue has been presented as part of net financing costs (refer to note 5).
Note 3. Staff costs
The average annual 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
2019
Number
2018
Number
491
498
989
501
530
1,031
2019
$m
168.6
17.3
13.7
199.6
2018
Restated 1
$m
179.6
16.5
10.7
206.8
1. Staff costs in 2018 have been restated reflecting a calculation error identified during the preparation of the 2019 financial statements and increased by
$17 million. This error related to this note only and has no impact on the rest of the financial statements.
Average staff costs remained in line with prior year, with a decrease in overall expense due to decrease in average head count.
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 $67.3 million (2018: $66.0 million).
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 $13.7 million
(2018: $10.7 million). As at 31 December 2019, there was a liability of $1.3 million (2018: $0.3 million) for contributions payable
included in other payables.
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.
Tullow Oil plc 2019 Annual Report and Accounts
111
FINANCIAL STATEMENTS Note 4. Other costs
Operating loss is stated after charging/(deducting):
Operating costs
Depletion and amortisation of oil and gas and leased assets1
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 assets1
Relocation costs associated with restructuring
Other 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
2019
$m
2018
$m
11
24
24
11
351.3
696.1
(137.3)
2.6
54.0
966.7
22.2
28.5
–
60.8
111.5
3.8
0.4
1.8
2.2
0.4
–
0.1
0.5
2.7
327.0
567.7
40.7
1.0
29.6
966.0
22.8
16.4
(1.3)
52.4
90.3
3.4
0.4
1.8
2.2
0.4
0.1
0.1
0.6
2.8
1. Depreciation expense on leased assets of $85.9 million as per note 11 includes a charge of $9.9 million on leased administrative assets, which is presented within
administrative expenses in the income statement. The remaining balance of $76.0 million relates to other leased assets and is included within cost of sales.
Fees payable to Deloitte LLP and its 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.
Other services include ad hoc assurance services in relation to the Group’s JV agreements. The per cent of non-audit services
to audit services during the year was 23 per cent.
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 48 to 53. No services were provided pursuant to contingent fee arrangements.
Note 5. Net financing costs
Interest on bank overdrafts and borrowings
Interest on obligations under leases
Total borrowing costs
Less amounts included in the cost of qualifying assets
Finance and arrangement fees
Other interest expense
Unwinding of discount on decommissioning provisions
Total finance costs
Interest income on amounts due from Joint Venture Partners for leases
Other finance revenue
Total finance revenue
Net financing costs
Notes
10
21
2019
$m
216.0
103.5
319.5
(16.3)
303.2
0.7
2.1
16.3
322.3
(50.0)
(5.5)
(55.5)
2018
$m
276.0
101.5
377.5
(65.3)
312.2
(0.6)
2.7
14.4
328.7
(52.7)
(5.7)
(58.4)
266.8
270.3
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 7.0 per cent (2018: 6.9 per cent) to cumulative expenditure on such assets.
112
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019
Note 6. Insurance proceeds
During 2019 the Group continued to issue insurance claims in respect of the Jubilee Turret Remediation Project. Insurance
proceeds of $123.8 million were recorded in the year ended 31 December 2019 (2018: $310.8 million). Proceeds related to lost
production under the Business Interruption insurance policy of $42.7 million (2018: $188.4 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 $4.2 million
(2018: $45.6 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 $76.9 million (2018: $76.9 million) were recorded within
additions to property, plant and equipment (see note 11). Coverage related to the Turret Remediation Project under the Business
Interruption insurance policy ended in August 2019 and full and final settlement for the Hull and Machinery claim was reached
in December 2019.
Note 7. Taxation on (loss)/profit on continuing activities
Analysis of expense 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 income tax expense
Notes
2019
$m
2018
$m
(31.8)
197.2
165.4
–
(37.3)
171.7
134.4
–
165.4
134.4
91.7
(218.7)
(127.0)
2.3
22
(124.7)
33.9
(11.3)
22.6
18.1
40.7
40.7
175.1
Factors affecting tax credit for the year
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 income tax expense/(credit) shown above and the
amount calculated by applying the standard rate of UK corporation tax applicable to UK profits of 19 per cent (2018: 19 per cent)
to the (loss)/profit before tax is as follows:
(Loss)/profit from continuing activities before tax
2019
$m
(1,653.4)
Tax on (loss)/profit from continuing activities at the standard UK corporation tax rate of 19% (2018: 19%)
(314.1)
Effects of:
Non-deductible exploration expenditure
Net tax on fair value movements on derivatives
Other non-deductible expenses
Derecognition of deferred tax previously recognised
Utilisation of tax losses not previously recognised
Net losses not recognised
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
Other income not subject to corporation tax
208.7
(1.3)
18.8
12.4
(0.8)
73.7
49.4
–
–
11.3
(17.2)
(0.2)
2018
$m
260.5
49.5
20.8
32.0
12.8
37.3
(10.6)
7.7
1.0
(2.1)
(10.0)
52.4
(8.8)
(6.9)
Total income tax expense for the year
40.7
175.1
Tullow Oil plc 2019 Annual Report and Accounts
113
FINANCIAL STATEMENTS Note 7. Taxation on (loss)/profit on continuing activities continued
Factors affecting tax credit for the year continued
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 per cent from 1 April 2017 and 17 per cent 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 per cent), Gabon (50 per cent) and Equatorial Guinea (35 per cent). 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 $5,120.3 million (2018: $5,347.1 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 losses of $4,102.7 million
(2018: $3,581.3 million) as they may not be used to offset taxable profits due to uncertainty of recovery.
The Group has recognised deferred tax assets of $348.8 million (2018: $527.5 million) in relation to tax losses only to the extent
of anticipated future taxable income or gains in relevant jurisdictions.
A deferred tax liability of $8.8 million (2018: $7.8 million) is not recognised on temporary differences of 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 2019 $nil (2018: $nil) of tax has been recognised through other comprehensive income.
Current tax assets
As at 31 December 2019, current tax assets were $42.9 million (2018: $60.5 million) of which all relates to the UK (2018: $58.7 million).
Note 8. Earnings/ (loss) per ordinary share
Basic earnings/(loss) per ordinary share amounts are calculated by dividing net profit/(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 earnings/(loss) per ordinary share amounts are calculated by dividing net profit/(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 dilutive ordinary shares that would be issued if employee and other share options or the convertible bonds
were converted into ordinary shares.
(Loss)/profit for the year
Net (loss)/profit attributable to equity shareholders
Effect of dilutive potential ordinary shares
Diluted net (loss)/profit attributable to equity shareholders
Number of shares
Basic weighted average number of shares
Dilutive potential ordinary shares
Diluted weighted average number of shares
2019
$m
(1,694.1)
–
(1,694.1)
2019
Number
2018
$m
84.8
–
84.8
2018
Number
1,402,186,891 1,391,103,880
42,690,148
47,493,251
1,444,877,039 1,438,597,131
Note 9. Disposals
On 10 November 2017,Tullow completed the sale of its remaining Dutch assets to Hague and London Oil plc (HALO). Under the
terms of the agreement, a contingent deferred consideration is to be recognised over the course of four years following the sale,
subject to certain criteria being met. During 2019, the Group recognised a gain on disposal of $9.5 million equivalent to the
entire proceeds relating to this transaction.
114
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 10. Intangible exploration and evaluation assets
At 1 January
Additions
Disposals
Amounts written off
Net transfer from assets held for sale
Currency translation adjustments
At 31 December
Notes
2019
$m
2018
$m
1
16
1,898.6
279.3
(0.4)
(1,253.4)
840.2
0.1
1,933.4
230.4
(4.0)
(295.2)
32.2
1.8
1,764.4
1,898.6
Included within 2019 additions is $16.3 million (note 5) of capitalised interest (2018: $65.3 million). The Group only capitalises
interest in respect of intangible exploration and evaluation assets where it is considered that development is ongoing.
The below table provides a summary of the exploration costs written off on a pre and post-tax basis by country.
Country
Mauritania
Namibia
Jamaica
Uganda
Guyana
Guyana
Guyana
Kenya
Kenya
New Ventures
Total write-off
CGU
Block C-3
PEL 37
Walton Morant
Exploration areas 1,1A, 2 and 3A
Jethro well
Joe well
Carapa-1 well
Blocks 10BB and 13T
Blocks 12A, 12B and 10BA
Various
Rationale for
2019
write-off
2019
Pre-tax
write-off
$m
2019
Post-tax
write-off
$m
2019
Remaining
recoverable
amount
$m
b
b
b
d
a
a
a
d
b
c
28.4
26.7
35.8
535.2
30.7
12.5
18.1
419.0
118.0
29.0
28.4
26.7
35.8
535.2
30.7
12.5
18.1
419.0
118.0
29.0
–
–
–
960.0
–
–
–
667.0
–
–
1,253.4
1,253.4
–
a. Current year unsuccessful exploration results.
b. Licence relinquishments, expiry or planned exit.
c. New Ventures expenditure is written off as incurred.
d. Following VIU assessment as a result of reduction in long term oil price assumption, using a pre-tax discount rate of 14%.
Oil prices stated in note 11 are benchmark prices to which an individual field price differential is applied. Exploration write-offs for
the Kenya and Uganda development area assessments are prepared on a value-in-use basis using discounted future cash flows
based on 2C resource profiles. A reduction or increase in the long-term price assumptions of $15/bbl, based on the range seen
in external oil price market forecasts, are considered to be a reasonably possible change for the purposes of sensitivity analysis.
Decreases to oil prices would increase the exploration write-off charge by $1,108.0 million, whilst increases to oil prices specified
above would result in a credit to the exploration write-offs of $831.0 million. A 1 per cent increase in the pre-tax discount rate
would increase the exploration write-off by $268.0 million. A 1 per cent decrease in the pre-tax discount rate would decrease the
exploration write-off by $266.0 million. The Group believes a 1 per cent 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’ discount rates.
Tullow Oil plc 2019 Annual Report and Accounts
115
FINANCIAL STATEMENTS Note 11. Property, plant and equipment
2019
Oil and gas
assets
$m
2019
Other fixed
assets
$m
2019
Leased
assets
$m
Notes
2019
Total
$m
2018
Oil and gas
assets
$m
2018
Other fixed
assets
$m
2018
Total
$m
Cost
At 1 January
Adjustment on adoption of
IFRS 16 Leases
Additions
Disposals
Currency translation adjustments
11,794.0
271.0
–
12,065.0
11,592.6
279.7
11,872.3
28
1,6
(907.7)
357.1
–
36.2
–
21.0
(0.3)
7.0
907.7
150.3
(20.6)
1.1
–
528.4
(20.9)
44.3
–
261.5
–
(60.1)
–
6.6
(0.7)
(14.6)
–
268.1
(0.7)
(74.7)
At 31 December
11,279.6
298.7
1,038.5
12,616.8
11,794.0
271.0
12,065.0
Depreciation, depletion and
amortisation
At 1 January
Adjustment on adoption of
IFRS 16 Leases
Charge for the year
Impairment loss
Reversal of impairment loss
Capitalised depreciation
Disposal
Currency translation adjustments
(6,951.1)
(197.5)
–
(7,148.6)
(6,425.3)
(192.3)
(6,617.6)
28
4
151.5
(620.1)
(737.4)
–
–
–
(37.5)
–
(18.6)
(43.8)
–
–
0.3
(6.2)
(151.5)
(85.9)
–
–
(29.0)
1.8
(0.1)
–
(724.6)
(781.2)
–
(29.0)
2.1
(43.8)
–
(567.7)
(55.8)
37.6
–
–
60.1
–
(16.4)
–
–
–
0.7
10.5
–
(584.1)
(55.8)
37.6
–
0.7
70.6
At 31 December
(8,194.6)
(265.8)
(264.7)
(8,725.1)
(6,951.1)
(197.5)
(7,148.6)
Net book value at 31 December
3,085.0
32.9
773.8
3,891.7
4,842.9
73.5
4,916.4
The currency translation adjustments arose due to the movement against the Group’s presentational currency, USD, of the
Group’s UK assets, which have a functional currency of GBP.
Limande and Turnix CGU (Gabon)
Echira, Niungo, and Igongo CGU (Gabon)
Oba and Middle Oba CGU (Gabon)
Ceiba and Okume (Equatorial Guinea)
Mauritania
Espoir (Côte d’Ivoire)
TEN (Ghana)
UK ‘CGU’d
SAP (UK)
Impairment
a. Decrease to long term price assumptions.
b. Change to decommissioning estimate.
c. Revision of value based on revisions to reserves.
Trigger for
2019
impairment/
(reversal)
2019
Impairment/
(reversal)
$m
Pre-tax
discount rate
assumption
a,c
a,c
a,c
a,c
b
a,c
a,c
b
e
(4.1)
(2.4)
3.8
(6.5)
(1.4)
12.5
712.8
22.7
43.8
781.2
13%
15%
15%
10%
n/a
10%
10%
n/a
n/a
2019
Remaining
recoverable
amount
$m
28.1
11.4
13.0
78.1
–
73.6
1,801.6
–
–
d. The fields in the UK are grouped into one CGU as all fields within those countries share critical gas infrastructure.
e. Reassessment of useful life.
During 2019 and 2018 the Group applied the following nominal oil price assumptions for impairment assessments:
Year 1
Year 2
2019
2018
Forward curve* Forward curve*
Forward curve*
Forward curve*
Year 3
$60/bbl
$66/bbl
Year 4
Year 5
Year 6 onwards
$63/bbl
$68/bbl
$65/bbl
$65/bbl inflated at 2%
$75/bbl
$75/bbl inflated at 2%
* Forward curve as at 31 December.
116
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 11. Property, plant and equipment continued
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 $15/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 $801.5 million, whilst increases to oil prices specified above
would result in a credit to the impairment charge of $668.9 million. A 1 per cent increase in the pre-tax discount rate would
increase the impairment by $56.8 million. A 1 per cent decrease in the pre-tax discount rate would decrease the impairment by
$56.8 million. The Group believes a 1 per cent 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. 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
Other current assets mainly relate to receivables from the insurers, which were collected during the year.
Note 13. Inventories
Warehouse stock and materials
Oil stock
2019
$m
2018
$m
576.6
33.5
13.1
623.2
711.8
97.8
69.5
4.9
44.7
928.7
2019
$m
64.9
126.6
191.5
614.9
33.1
48.4
696.4
670.8
22.9
73.4
3.8
198.1
969.0
2018
$m
54.6
80.2
134.8
Inventories include a provision of $15.3 million (2018: $20.9 million) for warehouse stock and materials where it is considered
that the net realisable value is lower than the original cost.
Note 14. Trade receivables
Trade receivables comprise amounts due for the sale of oil and gas. They are generally due for settlement within 30–60 days and
are therefore all classified as current. The Group holds the trade receivables with the objective of collecting the contractual cash
flows and therefore measures them subsequently at amortised cost using the effective interest method.
Impairment of trade receivables
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on
shared credit risk characteristics and days past due.
The expected loss rates are based on the payment profiles of sales over the historical period and the corresponding historical
credit losses experienced within this period. These rates are then applied to the gross carrying amount of the receivable
to arrive at the loss allowance for the period. Based on historical data the expected credit loss of trade receivables as at
31 December 2019 would be immaterial; therefore, in line with IFRS 9, no further assessment has been performed and
no impairment was recognised (2018: $nil).
In order to minimise the risk of default, credit risk is managed on a Group basis (note 19).
Tullow Oil plc 2019 Annual Report and Accounts
117
FINANCIAL STATEMENTS Note 15. Cash and cash equivalents
Cash at bank
Short-term deposits
Notes
19
2019
$m
288.8
–
288.8
2018
$m
175.5
4.3
179.8
Cash and cash equivalents includes an amount of $183.0 million (2018: $78.0 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 $nil (2018: $14.1 million) held
in restricted bank accounts.
Note 16. 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 agreed to transfer 21.57 per cent of its 33.33 per cent Uganda interests for a total consideration of $900 million.
As a result, the portion of the Ugandan assets being disposed were classified as assets held for sale. In August 2019 the Sale
and Purchase Agreements lapsed as a result of being unable to agree all aspects of the tax treatment of the transaction with
the Government of Uganda which was a condition to completing the SPAs. Following expiry of the SPA, the Uganda assets have
been reclassified from assets held for sale to intangible assets.
The major classes of assets and liabilities comprising the assets classified as held for sale as at 31 December 2019 were as follows:
Intangible exploration and evaluation assets
Total assets classified as held for sale
Net assets of disposal groups
Note 17. Trade and other payables
Current liabilities
Trade payables
Other payables1
Overlifts
Accruals
VAT and other similar taxes
Current portion of leases
Uganda
2019
$m
–
–
–
Total
2019
$m
–
–
–
Notes
20
Uganda
2018
$m
840.2
840.2
840.2
2019
$m
95.4
95.7
–
636.1
16.2
284.2
Total
2018
$m
840.2
840.2
840.2
2018
$m
97.1
105.1
16.6
747.8
16.5
221.2
1,127.6
1,204.3
1. Other payables include accrued interest of $43.2 million (2018:$40.0 million).
Payables related to operated Joint Ventures (primarily in Ghana and Kenya) are recorded gross with the amount representing
the partners’ share recognised in amounts due from Joint Venture Partners (note 12). The change in trade payables and in other
payables predominantly represents timing differences and levels of work activity, and implementation of IFRS 9.
Non-current liabilities
Other non-current liabilities
Non-current portion of leases
Trade and other payables are non-interest bearing except for leases (note 20).
Notes
20
2019
$m
2018
$m
72.0
1,140.9
91.3
1,191.0
1,212.9
1,282.3
118
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 18. Borrowings
Non-current
Bank borrowings – after two years but within five years
Reserves Based Lending credit facility
6.25% Senior Notes due 2022 ($650 million)
6.625% Convertible Bonds due 2021 ($300 million)
Bank borrowings – more than five years
Reserves Based Lending credit facility
7.0% Senior Notes due 2025 ($800 million)
Carrying value of total borrowings
2019
$m
2018
$m
1,357.4
645.5
278.2
–
790.6
568.0
644.4
267.0
950.0
789.7
3,071.7
3,219.1
3,071.7
3,219.1
The Group has provided security in respect of certain borrowings in the form of share pledges, as well as fixed and floating
charges over certain assets of the Group.
During the year, the Group continued to have access to a Reserves Based Lending (RBL) facility which was split between a
commercial bank facility and an International Finance Corporation (IFC) facility. Commitments under the commercial bank
facility remained at $2,400 million throughout the year. As at 31 October 2019, commitments under the IFC facility were fully
amortised in line with the agreement. 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 aggregate commitments over the period to the final
maturity date of 21 November 2024, with an initial three-year grace period relating to the $2,400 million commercial bank
facility, or such time as is determined by reference to the remaining reserves of the assets, whichever is earlier.
At 31 December 2019, available headroom under the RBL amounted to $1,055 million (2018: $974 million).
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 2019 except for the decision to suspend the
dividend payment following the announcement made in December 2019 by the Executive Chair. The Group monitors capital
on the basis of the gearing, being net debt divided by adjusted EBITDAX, and maintains a policy target of between 1x and 2x.
A summary of the gearing calculation and a reconciliation of the metric to IFRS measures can be found in the Finance Review
on page 22 and viability summary on pages 36 and 37.
Tullow Oil plc 2019 Annual Report and Accounts
119
FINANCIAL STATEMENTS Note 19. 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 reviews its exposure on a regular basis and will undertake hedging if deemed appropriate. The Group
holds a portfolio of commodity derivative contracts, with various counterparties. A portfolio of interest rate derivatives was held
and matured during 2018. The mix between the fixed and floating rate borrowings was considered appropriate during the year
and therefore the Group did not enter into new 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.
Financial assets
Financial assets at amortised cost
Trade receivables
Amounts due from Joint Venture partners
Cash and cash equivalents
Derivative financial instruments
Used for hedging
Financial liabilities
Liabilities at amortised cost
Trade payables
Borrowings
Lease liabilities
Derivative financial instruments
Used for hedging
2019
$m
2018
$m
38.7
1,288.4
288.8
159.4
1,285.7
179.8
3.8
130.9
1,619.7
1,755.8
167.4
3,071.7
188.4
3,219.1
1,425.1
1,412.2
(16.0)
(2.7)
4,648.2
4,817.0
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 2019, was $1,269.6 million (2018: $1,373.0 million) compared to the carrying value of $1,436.0 million
(2018: $1,434.2 million).
The fair value of the convertible bonds, as determined using market values as at 31 December 2019, was $281.9 million
(2018: $326.9 million) compared to the carrying value of $278.3 million (2018: $267.0 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.
120
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 19. Financial instruments continued
Fair values of derivative instruments continued
The Group’s derivative carrying and fair values were as follows:
Assets/liabilities
Cash flow hedges
Oil derivatives
Deferred premium
Oil derivatives
Total assets
Total liabilities
2019
Less than
1 year
$m
35.3
35.3
(49.4)
(49.4)
0.7
2019
1–3
years
$m
26.0
26.0
(24.1)
(24.1)
3.1
2019
Total
$m
61.3
61.3
(73.5)
(73.5)
3.8
2018
Less than
1 year
$m
137.9
137.9
(61.0)
(61.0)
79.7
2018
1–3
years
$m
78.6
78.6
(27.4)
(27.4)
51.2
2018
Total
$m
216.5
216.5
(88.4)
(88.4)
130.9
(14.8)
(1.2)
(16.0)
(2.7)
–
(2.7)
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 (2018: 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.
Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the Group balance sheet when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and
settle the liability simultaneously. No material enforceable master netting agreements were identified.
The Group has entered into ISDA Master Agreements with derivative counterparties. The following table shows the amounts
recognised for financial assets and liabilities which are subject to offsetting arrangements on a gross basis, and the amounts
offset in the Group balance sheet.
31 December 2019
Derivative assets
Derivative liabilities
31 December 2018
Derivative assets
Derivative liabilities
Gross
amounts
offset
in Group
balance
sheet
$m
Net amounts
presented
in Group
balance
sheet
$m
Gross
amounts
recognised
$m
10.2
(22.4)
(6.5)
6.5
3.7
(15.9)
Gross
amounts
offset
in Group
balance
sheet
$m
(78.6)
(9.9)
Net amounts
presented
in Group
balance
sheet
$m
130.9
(2.7)
Gross
amounts
recognised
$m
209.6
7.0
Tullow Oil plc 2019 Annual Report and Accounts
121
FINANCIAL STATEMENTS Note 19. Financial instruments continued
Commodity price risk
The Group uses a number of derivatives to mitigate the commodity price risk associated with its underlying oil revenue.
Such commodity derivatives tend to be priced using benchmarks, such as Dated Brent, which correlate as far as possible
to the underlying oil revenue. There is an economic relationship between the hedged items and the hedging instruments due
to a common underlying, i.e. Dated Brent, between them. Forecast oil sales, which are based on Dated Brent, are hedged with
options which have Dated Brent as reference price. An increase in Dated Brent will cause the value of the hedged item and
hedging instrument to move in opposite directions. The Group has established a hedge ratio of 1:1 for the hedging relationships
as the underlying risk of the commodity derivatives are identical to the hedged risk components. To test the hedge effectiveness,
the Group uses the hypothetical derivative method and compares the changes in the fair value of the hedging instruments
against the changes in fair value of the hedged items attributable to the hedged risks. The Group hedges its estimated oil
revenues on a portfolio basis, aggregating its oil revenues from substantially all of its African oil interests.
As at 31 December 2019 and 31 December 2018, all of the Group’s oil derivatives have been designated as cash flow hedges.
The Group’s oil hedges have been assessed to be highly effective.
The Group adopted a risk component hedging strategy from 2019. This results from designating the variability in all the cash
flows attributable to the change in the benchmark price per the oil sales contracts where the critical terms of the hedged item
and hedging instrument match. There is, however, the potential for a degree of ineffectiveness inherent in the Group’s pre-2019
hedge designation for open hedge relationship. This is due to the differential on the Group’s underlying African crudes relative to
Dated Brent and the timing of oil liftings relative to the hedges. The ineffectiveness recognised in the Group income statement
was a loss of $1.5 million (2018: $2.4 million gain). Ineffectiveness is expected to reduce as the pre-2019 hedges phases out.
Floor protection is placed around current market levels and layered in over the course of the year, using a combination of
derivatives which protects downside prices and provides some exposure to upside.
The following table demonstrates the timing, volumes and average floor price protected for the Group’s commodity hedges:
Hedging position as at 31 December 2019
Oil volume (bopd)
Average floor price protected ($/bbl)
Hedging position as at 31 December 2018
Oil volume (bopd)
Average floor price protected ($/bbl)
The following table demonstrates the hedge position as at 31 December 2019:
2020 hedge position at 31 December 2019
Hedge structure
Collars
Three-way collars (call spread)
Total/weighted average
2021 hedge position at 31 December 2019
Hedge structure
Collars
Three-way collars (call spread)
Total/weighted average
2020
2021
44,997
57.28
22,000
52.80
2019
2020
55,732
56.25
24,997
59.31
Bopd
Bought put
(floor)
Sold call
Bought
call
32,997
12,000
$57.60
$56.42
$79.21
$77.82
–
$87.68
44,997
$57.28
$78.84
$87.68
Bopd
Bought put
(floor)
Sold call
Bought
call
21,500
500
$52.85
$50.00
$75.59
$70.50
–
$80.50
22,000
$52.78
$75.48
$80.50
The following table demonstrates the sensitivity of the Group’s derivative financial instruments to reasonably possible
movements in Dated Brent oil prices:
Brent oil price
Brent oil price
Effect on equity
Market
movement
as at
31 Dec 2019
25%
(25%)
2019
$m
(43.9)
237.2
2018
$m
14.2
486.9
The following assumptions have been used in calculating the sensitivity in movement of the oil price: 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 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 hedge valuations.
122
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 19. Financial instruments continued
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 cash flow hedge reserve by intrinsic and time value, net of tax effects:
Cash flow hedge reserve
Oil derivatives – intrinsic
Oil derivatives – time value
2019
$m
4.6
(17.5)
2018
$m
130.8
(4.9)
The deferred gains and losses in the hedge reserve are subsequently transferred to the income statement at maturity of derivative
contracts. The tables below show the impact on the hedge reserve and on sales revenue during the year:
Deferred amounts in the hedge reserve – intrinsic
At 1 January
Reclassification adjustments for items included in the income statement on realisation:
Oil derivatives – transferred to sales revenue
Interest rate derivatives – transferred to finance costs
Subtotal
Revaluation (losses)/gains arising in the year
Movement in current and deferred tax
At 31 December
Deferred amounts in the hedge reserve – time value
At 1 January
Reclassification adjustments for items included in the income statement on realisation:
Oil derivatives – transferred to sales revenue
Revaluation (losses)/gains arising in the year
At 31 December
Reconciliation to sales revenue
Oil derivatives – transferred to sales revenue
Deferred premium paid
Net (gains)/losses from commodity derivatives in sales revenue (note 2)
2019
$m
130.8
(7.6)
–
(7.6)
(118.6)
–
(126.2)
4.6
2019
$m
(4.9)
61.0
(73.6)
(17.5)
2019
$m
7.6
(61.0)
(53.4)
2018
$m
(2.6)
34.4
(1.7)
32.7
100.7
–
133.4
130.8
2018
$m
(73.8)
52.7
16.2
(4.9)
2018
$m
34.4
52.4
86.8
Cash flow and interest rate risk
Subject to parameters set by management, the Group seeks to minimise interest costs by using a mixture of fixed and floating
debt. Floating rate debt comprises bank borrowings at interest rates fixed in advance from overnight to three months at rates
determined by reference to US dollar LIBOR.
Tullow Oil plc 2019 Annual Report and Accounts
123
FINANCIAL STATEMENTS Note 19. Financial instruments continued
Interest Rate Benchmark Reform
The replacement of benchmark interest rates such as LIBOR and other IBORs is a priority for global regulators. The Group has
closely monitored the market and the output from the various industry working groups managing the transition to new benchmark
interest rates. This includes announcements made by LIBOR regulators (including the Financial Conduct Authority (FCA) and the
US Commodity Futures Trading Commission) regarding the transition away from LIBOR (including GBP LIBOR and USD LIBOR)
to alternative Risk-Free Rates (RFR) by the end of 2021.
The Group’s current IBOR linked contracts do not include adequate and robust fall-back provisions for a cessation of the
referenced benchmark interest rate. Different working groups in the industry are working on fall-back language for different
instruments and different IBORs, which the Group is monitoring closely and will look to implement these when appropriate.
Fixed rate debt comprises Senior Notes and convertible bonds.
The interest rate profile of the Group’s financial assets and liabilities, excluding trade and other receivables and trade and other
payables, at 31 December 2019 and 2018, was as follows:
US$
Euro
Sterling
Other
2019
Cash at bank
$m
2019
Fixed rate
debt
$m
2019
Floating rate
debt
$m
2019
Total
$m
2018
Cash at bank
$m
259.9
0.5
16.3
12.1
(1,750.0)
–
–
–
(1,344.3)
–
–
–
(2,834.4)
0.5
16.3
12.1
288.8
(1,750.0)
(1,344.3)
(2,805.5)
149.7
0.4
10.9
18.8
179.8
2018
Fixed rate
debt
$m
2018
Floating rate
debt
$m
(1,750.0)
–
–
–
(1,490.0)
–
–
–
2018
Total
$m
(3,090.3)
0.4
10.9
18.8
(1,750.0)
(1,490.0)
(3,060.2)
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.
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
2019
$m
(13.4)
3.4
2018
$m
(14.9)
3.7
2019
$m
(13.4)
3.4
2018
$m
(14.9)
3.7
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 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 rating, such as letters of credit, guarantees and credit insurance, are obtained to mitigate the risks.
The Group generally enters into derivative agreements with banks which are Lenders under the Reserves Based Lending 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, and receivables from joint venture partners, as at 31 December 2019 was $1,619.7 million (2018: $1,569.6 million).
Foreign currency risk
The Group conducts and manages its business predominantly 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 2019 (2018: 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 2019, the only material monetary assets or liabilities of the Group that were not denominated in the
functional currency of the respective subsidiaries involved were $28.9 million in non-US dollar-denominated cash and cash
equivalents (2018: $30.1 million).
124
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 19. Financial instruments continued
Foreign currency risk continued
The following table demonstrates the sensitivity of the Group’s financial instruments to reasonably possible movements in
US dollar exchange rates:
US$/foreign currency exchange rates
US$/foreign currency exchange rates
Market movement
20%
(20%)
Effect on profit before tax
Effect on equity
2019
$m
(4.8)
7.3
2018
$m
(4.8)
7.3
2019
$m
(4.8)
7.3
2018
$m
(4.8)
7.3
Liquidity risk
The Group manages its liquidity risk using both short-term and long-term cash flow projections, supplemented by debt financing
plans and active portfolio management across the Group. 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 potential has
been identified across the Group to deliver material proceeds to reduce debt and enhance the financial capability and flexibility
of the Group. The Group had $1.2 billion (2018: $1.0 billion) of total facility headroom and free cash as at 31 December 2019.
The following tables detail the Group’s remaining contractual maturities 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
Less than
1 month
$m
1–3
months
$m
3 months
to 1 year
$m
1–5
years
$m
31 December 2019
Non-interest bearing
Lease liabilities
Fixed interest rate instruments
Principal repayments
Interest charge
Variable interest rate instruments
Principal repayments
Interest charge
n/a
7.1%
7.8%
5.8%
92.0
20.1
–
9.9
–
5.9
36.1
69.3
–
28.0
–
11.8
5+
years
$m
72.0
29.9
Total
$m
279.3
1,425.1
71.8
194.8
7.4
1,111.0
–
78.6
–
53.1
950.0
304.8
800.0
28.0
1,750.0
449.3
1,345.0
308.2
–
–
1,345.0
379.0
31 December 2018
Non-interest bearing
Finance lease liabilities
Fixed interest rate instruments
Principal repayments
Interest charge
Variable interest rate instruments
Principal repayments
Interest charge
127.9
145.2
398.3
4,026.4
929.9
5,627.7
Weighted
average
effective
interest rate
Less than
1 month
$m
1–3
months
$m
3 months
to 1 year
$m
n/a
7.1%
7.8%
5.5%
96.2
18.3
136.9
41.6
2.2
162.6
–
9.9
–
7.8
–
28.0
–
15.5
–
78.6
–
69.9
1–5
years
$m
–
861.3
950.0
385.4
568.0
357.8
5+
years
$m
Total
$m
91.3
714.9
326.6
1,798.7
800.0
84.0
922.0
40.0
1,750.0
585.9
1,490.0
491.0
132.2
222.0
313.3
3,122.5
2,652.2
6,442.2
In November 2018, a portfolio of interest rate swaps that fixed $300.0 million of variable interest rate risk matured. The impact
of these derivatives on the classification of fixed and variable rate instruments has been excluded from the above tables.
Tullow Oil plc 2019 Annual Report and Accounts
125
FINANCIAL STATEMENTS
Note 20. Leases
This note provides information for leases where the Group is a lessee. The Group did not enter into any contracts acting as a lessor.
i) Amounts recognised in the balance sheet
The balance sheet shows the following amounts relating to leases:
Right-of-use assets (included within Property, plant and equipment)
Property leases
Oil and gas production and support equipment leases
Transportation equipment leases
Other equipment
Total
31 December
2019
$m
1 January
2019 1
$m
57.4
710.0
6.4
–
773.8
60.5
809.2
12.7
0.1
882.5
1.
In the previous year, the Group only recognised lease assets and lease liabilities in relation to leases that were classified as ‘finance leases’ under IAS 17 Leases.
For adjustments recognised on adoption of IFRS 16 on 1 January 2019, please refer to note 28.
Additions to the right-of-use asset during the 2019 financial year were $150.3 million. These include the impact of IFRS 16,
amounts capitalised during the year and the treatment of previous finance lease balances.
Lease liabilities
Property leases
Oil and gas production and support equipment leases
Transportation equipment leases
Other equipment
Total
Current
Non-current
Total
31 December
2019
$m
1 January
2019 1
$m
60.6
1,351.0
13.5
–
63.6
1,517.4
26.2
0.1
1,425.1
1,607.3
284.2
1,140.9
293.0
1,314.3
1,425.1
1,607.3
1.
In the previous year, the Group only recognised lease assets and lease liabilities in relation to leases that were classified as ‘finance leases’ under IAS 17 Leases.
For adjustments recognised on adoption of IFRS 16 on 1 January 2019, please refer to note 28.
The Group’s leases balance includes TEN FPSO and Espoir FPSO, classified as Oil and gas production and support equipment.
Prior to 1 January 2019 both vessels were recognised as finance leases under IAS 17 Leases.
As at 31 December 2019, the present value of TEN FPSO and Espoir FPSO right-of-use asset was $675.6 million (1 January 2019:
$746.9 million) and $6.7 million (1 January 2019: 9.3 million), respectively. The present value of TEN FPSO and Espoir FPSO
lease liability was $1,269.6 million (1 January 2019: $1,389.6 million) and $20.1 million (1 January 2019: 22.6 million), respectively.
A receivable from Joint Venture Partners of $600.2 million (1 January 2019: $656.9 million) was recognised in other assets
(note 12) 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.
ii) Amounts recognised in the statement of profit or loss
Right-of-use assets (included within Property, plant and equipment)
Depreciation charge of right-of-use assets
Property leases
Oil and gas production and support equipment leases
Transportation equipment leases
Other equipment
Total
Interest expense on lease liabilities (included in finance cost)
Interest income on amounts due from Joint Venture Partners
Expense relating to low-value leases
Total
The total cash outflow for leases in 2019 was $172.1 million.
126
Tullow Oil plc 2019 Annual Report and Accounts
31 December
2019
$m
1 January
2019 1
$m
11.9
73.9
–
–
85.8
103.5
(50.0)
4.5
143.8
–
–
–
–
–
–
–
–
–
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 21. Provisions
Decommissioning
2019
$m
Notes
Other
provisions
2019
$m
Total
2019
$m
Decommissioning
2018
$m
At 1 January
New provisions and changes in estimates
Disposals
Payments
Unwinding of discount
Currency translation adjustment
5
At 31 December
Current provisions
Non-current provisions
794.0
109.0
–
(75.1)
16.3
5.9
850.1
102.6
747.5
81.5
15.5
(0.3)
(20.4)
–
–
875.5
124.5
(0.3)
(95.5)
16.3
5.9
76.3
926.4
70.2
6.1
172.8
753.6
897.4
(5.8)
–
(99.1)
14.4
(12.9)
794.0
121.6
672.4
Other
provisions
2018
$m
135.0
155.1
–
(208.6)
–
–
81.5
76.9
4.6
Total
2018
$m
1,032.4
149.3
–
(307.7)
14.4
(12.9)
875.5
198.5
677.0
The decommissioning provision represents the present value of decommissioning costs relating to the European and African oil
and gas interests.
Côte d’Ivoire
Equatorial Guinea
Gabon
Ghana
Mauritania
UK
Note 22. Deferred taxation
At 1 January 2018
Credit/(charge) to
income statement
Exchange differences
At 1 January 2019
Credit/(charge) to
income statement
Transfer to current
tax liability
Exchange differences
Inflation
assumption
Discount rate
assumption
Cessation of
production
assumption
2%
2%
2%
2%
n/a
n/a
2033
2%
2% 2030–2032
2–2.5% 2022–2037
2–2.5% 2032–2036
2018
2018
n/a
n/a
2019
$m
55.6
116.1
56.7
365.6
82.6
173.5
850.1
2018
$m
47.1
100.8
50.1
292.1
94.8
209.1
794.0
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
(1,138.3)
180.6
(0.1)
530.0
(24.1)
44.7
30.5
(376.7)
37.3
(0.2)
(1,101.2)
(47.7)
(5.2)
127.7
363.1
(21.1)
–
–
–
1.7
–
–
–
–
–
0.1
–
(0.8)
(1.7)
(1.0)
0.2
527.5
(24.9)
(10.5)
(0.8)
33.4
(18.1)
(0.8)
11.6
(40.7)
(8.5)
(425.9)
(177.8)
(26.0)
(11.5)
(2.0)
124.7
–
(0.4)
349.3
24.2
(0.1)
(26.8)
–
(0.2)
21.7
–
0.1
9.7
2019
$m
24.2
1.1
(275.9)
2018
$m
(793.4)
517.5
(1,075.3)
649.4
(275.9)
(425.9)
At 31 December 2019
(738.1)
108.3
Deferred tax liabilities
Deferred tax assets
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.
Tullow Oil plc 2019 Annual Report and Accounts
127
FINANCIAL STATEMENTS Note 23. Called-up equity share capital and share premium account
Allotted equity share capital and share premium
Ordinary shares of 10p each
At 1 January 2018
Issued during the year
Exercise of share options
At 1 January 2019
Issued during the year
Exercise of share options
At 31 December 2019
The Company does not have a maximum authorised share capital.
Note 24. Share-based payments
Analysis of share-based payment charge
Tullow Incentive Plan
2005 Performance Share Plan
Employee Share Award Plan
2010 Share Option Plan and 2000 Executive Share Option Scheme
UK and Irish Share Incentive
Total share-based payment charge
Capitalised to intangible and tangible assets
Expensed to operating costs
Expensed as exploration costs written off
Expensed as administrative cost
Total share-based payment charge
Equity share capital
allotted and fully paid
Share premium
Number
$m
$m
1,386,567,336
208.2
1,326.8
6,872,380
0.9
17.4
1,393,439,716
209.1
1,344.2
14,458,235
1.8
35.8
1,407,897,951
210.9
1,380.0
Notes
4
4
2019
$m
15.8
–
11.9
–
–
27.7
1.9
2.6
1.0
22.2
27.7
2018
$m
11.8
–
14.3
0.1
–
26.2
1.3
1.0
1.1
22.8
26.2
Tullow Incentive Plan (TIP)
Under the TIP, Senior Management can be granted nil exercise price options, normally exercisable from three years (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, it has been agreed for
the 2018 and 2019 TIP awards that 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 58 to 79.
The weighted average remaining contractual life for TIP awards outstanding at 31 December 2019 was 5.5 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 2019 was 0.2 years.
128
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 24. Share-based payments continued
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. No dividends are paid over the vesting period; however, it
has been agreed for the 2018 and 2019 ESAP awards that an amount equivalent to the dividends that would have been paid on
the ESAP shares during the vesting period if they were ‘real’ shares will also be payable on exercise of the award.
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 2019 was 7.0 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 per cent 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 2019 had exercise prices of 900p to 1,294p (2018: 601p to 1,294p) and remaining
contractual lives between 71 days and 3.6 years. The weighted average remaining contractual life is 2.1 years.
UK and 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).
Tullow Oil plc 2019 Annual Report and Accounts
129
FINANCIAL STATEMENTS Note 24. Share-based payments continued
UK and 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.
2019 TIP –
2019 TIP –
2018 TIP –
2018 TIP –
2019 PSP –
2019 PSP –
2018 PSP –
2018 PSP –
2019 DSBP –
2019 DSBP –
2018 DSBP –
2018 DSBP –
2019 ESAP –
2019 ESAP –
2018 ESAP –
2018 ESAP –
number of shares
average weighted
share price at grant
number of shares
average weighted
share price at grant
number of shares
average weighted
share price at grant
number of shares
average weighted
share price at grant
number of shares
average weighted
share price at grant
number of shares
average weighted
share price at grant
number of shares
average weighted
share price at grant
number of shares
average weighted
share price at grant
2019 SOP/ESOS – number of shares
2019 SOP/ESOS – WAEP
2018 SOP/ESOS – number of shares
2018 SOP/ESOS – WAEP
2019 phantoms – number of
phantom shares
2019 phantoms – WAEP
2018 phantoms – number of
phantom shares
2018 phantoms – WAEP
Outstanding
as at
1 January
20,295,802
208.1
16,753,447
249.2
408,605
868.2
571,911
868.9
224,102
1,260.5
224,102
1,260.5
26,513,311
221.5
26,689,114
252.2
8,122,372
1,079.1
9,876,367
1,047.6
1,280,230
1,086.7
1,429,868
1,086.5
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
6,010,697 (5,350,737)
231.2
226.3
(1,152,629) 19,803,133
203.6
273.4
2,966,380
213.8
5,453,170 (1,539,418)
524.3
181.1
(371,397) 20,295,802
208.1
356.4
1,616,059
530.1
–
–
–
–
–
–
–
–
(363,521)
872.6
(40,203)
778.0
4,881
1,281.0
4,881
1,281.0
(163,306)
870.8
(224,102)
1,260.5
–
–
–
–
–
–
–
–
408,605
868.2
408,605
868.2
–
–
–
–
224,102
1,260.5
224,102
1,260.5
5,611,909 (8,630,213)
219.0
226.3
(1,238,892) 22,256,115
223.6
223.3
7,750,966
258.9
5,907,717 (4,848,390)
348.9
181.1
(1,235,130) 26,513,311
221.5
192.0
7,027,121
362.3
–
–
–
–
–
–
–
–
– (1,689,231) 6,433,141
1,125.6
–
901.9
6,433,141
1,125.6
– (1,753,995) 8,122,372
1,079.1
–
901.9
8,122,372
1,079.1
–
–
–
–
(162,835) 1,117,395
1,117,395
1,085.5
1,086.9
1,086.9
(149,638) 1,280,230
1,280,230
1,085.0
1,086.7
1,086.7
The options granted during the year were valued using a proprietary binomial valuation.
130
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 24. Share-based payments continued
UK and 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.
2019 TIP
2019 ESAP
2018 TIP
2018 ESAP
Weighted average fair value of awards granted
Weighted average share price at exercise for awards exercised
226.30
186.88
226.30
217.53
181.1p
213.0p
Principal inputs to options valuations model:
Weighted average share price at grant
Weighted average exercise price
Risk-free interest rate per annum1
Expected volatility per annum1, 2
Expected award life (years)1, 3
Dividend yield per annum4
Employee turnover before vesting per annum1
226.3
0.0p
0.7%/0.8%
53%/55%
3.0/5.0
n/a
5%/0%
226.3
181.1p
0.0p
0.0p
0.7% 0.9%/1.2%
53% 62%/52%
3.0/5.0
n/a
5%/0%
3.0
n/a
5%
181.1p
212.9p
181.1p
0.0p
0.9%
62%
3.0
n/a
5%
1. Shows the assumption for TIP awards made to Senior Management/Executives and Directors respectively.
2. 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.
3. 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.
4. No dividend yield assumption is needed for the fair value calculations for the 2019 TIP and 2019 ESAP awards as a dividend equivalent will be payable on the
exercise of these awards.
Weighted average share price
at exercise for awards exercised
Note 25. Commitments and contingencies
Capital commitments
Contingent liabilities
Performance guarantees
Other contingent liabilities
2019
PSP
2018
PSP
2019
DSBP
2018
DSBP
2019
SOP/ESOS
2018
SOP/ESOS
157.7p
234.8p
148.8p
204.1p
n/a
n/a
2019
$m
2018
$m
230.4
233.9
82.6
104.3
186.9
60.8
66.0
126.8
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.
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 and five years.
Tullow Oil plc 2019 Annual Report and Accounts
131
FINANCIAL STATEMENTS Note 26. 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
2019
$m
3.1
0.5
–
3.2
6.8
2018
$m
5.7
0.5
3.0
2.2
11.4
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 Payment.
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 58 to 79.
Note 27. Events since 31 December 2019
In February 2020 ,Tullow concluded its Business Review – which included a review of organisation structure and resources.
Subject to the outcome of the consultation, this will most likely result in a 35 per cent reduction in headcount, with an associated
cost of the restructuring. It is anticipated that the reorganisation will generate savings over the next three years.
Tullow’s six-monthly redetermination of its Reserves Based Lending (RBL) facility is expected to conclude on schedule at the
end of March. Based on discussions with the syndicate to date, Tullow expects to conclude the process with debt capacity of
c.$1.9 billion. Once approved, the Group will have headroom of c.$0.7 billion which is above the Group’s policy target of no less
than $500 million and is appropriate in light of Tullow’s reduced future capital commitments. In addition, the reduced debt
capacity reduces the Group’s finance fees. On completion of the six-monthly redetermination process, the Group plans to
voluntarily reduce facility commitments by $211 million, effectively accelerating the October 2020 amortisation. The next
amortisation of commitments will not be until April 2021.
On 6 March 2020, OPEC and non-OPEC allies (OPEC+) met to discuss the need to cut oil supply to balance oil markets in
the wake of the COVID-19 outbreak which has had a material impact on oil demand. The group failed to reach agreement and
on 7 March 2020, Saudi Aramco unilaterally and aggressively cut its Official Selling Prices (OSP) in an attempt to prioritise
market share rather than price stability and effectively started a price war. As a result, on 9 March 2020, oil prices fell by
around 20 per cent and the forward curve for 2020 and 2021 fell to approximately $38/bbl and $42/bbl respectively. These
recent events will continue to have an impact on oil price volatility. Tullow prudently manages its commodity risk and is
well hedged with 60 per cent of 2020 production hedged at an average floor price of $57/bbl and c.40 per cent hedged at an
average floor price of $52/bbl for 2021. Realised oil prices for January and February 2020 are expected to average over $60/bbl.
132
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 28. New International Financial Reporting Standards adopted
IFRS 16 Leases
The Group adopted IFRS 16 Leases, for the year commencing 1 January 2019. On adoption of IFRS 16, the Group has recognised
lease liabilities in relation to leases which were previously classified as ‘operating leases’ under the principles of IAS 17 Leases.
These liabilities have been measured at the present value of the remaining lease payments, discounted using the interest rate
implicit in the lease (if available), or the incremental borrowing rate as of 1 January 2019, which was 6.9 per cent. The determination
of whether there is an interest rate implicit in the lease, the calculation of the Group’s incremental borrowing rate, and whether
any adjustments to this rate are required for certain portfolios of leases involves some judgement and is subject to change over time.
In accordance with the transition provisions in IFRS 16, the modified retrospective approach has been adopted, with the cumulative
effect of initially applying the new standard recognised on 1 January 2019. Comparatives for the 2018 financial year have not be
restated. The financial impact of transition to IFRS 16 for the financial year 2019 has been summarised within this note.
Lease liabilities related to operated Joint Ventures are disclosed gross with the debit representing the partner’s share disclosed
in amounts due from Joint Venture Partners.
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard on transition:
- applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
- accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term
leases; and
- to not separate non-lease components from all leases with a right-of-use asset less than $2 million.
The Group has identified lease portfolios for property, oil and gas production and support equipment, transportation equipment,
and other equipment.
Lease liabilities – gross value on transition
Lease portfolio
Examples
Property leases
Oil and gas production and support equipment leases
Transportation equipment leases
Other equipment
Offices, staff rental property, warehouses, airport space
Drilling rigs, support vessels
Cars and aircraft
Non-material equipment such as IS equipment
Total
Initial measurement of lease liabilities
Operating lease commitments disclosed as at 31 December 2018
Discounted using the lessee’s incremental borrowing rate of at the date of initial application (6.9%)
Finance lease liabilities recognised as at 31 December 2018
Low-value leases not recognised as a liability
Contracts reassessed as lease contracts
Lease liability recognised as at 1 January 2019
$m
63.6
105.2
26.2
0.1
195.1
$m
120.2
100.9
1,412.2
(4.5)
98.7
1,607.3
Tullow Oil plc 2019 Annual Report and Accounts
133
FINANCIAL STATEMENTS Note 28. New International Financial Reporting Standards adopted continued
Financial impact of the transition
Balance Sheet
The impact of the transition has resulted in higher property, plant and equipment, current and non-current other assets and
current and non-current lease liabilities.
For short-term leases (lease term less than 12 months) and leases of low-value assets the Group has opted to recognise a
lease expense on a straight-line basis as permitted by IFRS 16. Depending on the nature of the lease, this is either recognised
as additions to property, plant and equipment, operating costs or administrative costs.
Property, plant and equipment
Non–current
Total IFRS 16 transition
Other assets
Current
Non-current
Total IFRS 16 transition
Lease liabilities
Current
Non–current
Total IFRS 16 transition
31 December
2019
$m
91.5
91.5
31 December
2019
$m
29.2
11.4
40.6
31 December
2019
$m
(62.3)
(73.0)
(135.3)
Income statement
The Group impact of the transition resulted in a small net decrease in administrative expenses, along with a $10.0 million
increase in finance costs, partly offset by interest on amounts due from Joint Venture Partners of $3.7 million. The Group
has recognised depreciation on right-of-use assets for 2019 of $39.2 million, of which $29.0 million has subsequently been
capitalised through the Group’s normal operations in accordance with relevant accounting policy.
Administrative expenses
Operating profit
Finance revenue
Finance costs
Profit/loss
Deferred tax credit
31 December
2019
$m
1.0
1.0
3.7
(10.6)
(5.9)
1.5
Cash flow statement
Lease payments are currently split between financing cash flows and operating cash flows in the cash flow statement.
Financing cash flows represent repayment of principal, and operating cash flow payments of interest. In prior periods,
operating lease payments were all presented as operating cash flows under IAS 17.
Non-IFRS measures
As described above the implementation of IFRS 16 impacts operating costs and capital expenditure. However, Tullow has
adjusted its definition of EBITDAX, cash operating costs and capital investment including expenditure previously recognised
as operating lease costs and associated capital expenditure in the year.
134
Tullow Oil plc 2019 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2019 Note 29. 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 revisions
Finance lease additions
Movement in working capital
Movement in borrowings
Non-current borrowings
Associated cash flows
Debt arrangement fees
Repayment of borrowings
Drawdown of borrowings
Non-cash movements/presented in other cash flow lines
IFRS 9 transition adjustment
Amortisation of arrangement fees and accrued interest
2019
$m
2018
$m
279.3
230.4
(259.4)
(202.1)
(16.3)
(3.6)
2019
$m
(65.3)
37.0
2018
$m
528.4
268.1
(261.5)
(238.4)
(109.0)
(150.3)
(7.6)
(5.8)
(3.8)
(20.1)
2019
$m
2018
$m
2017
$m
2019
Movement
2018
Movement
3,071.7
3,219.1
3,606.4
(147.4)
(387.3)
–
(520.0)
375.0
(15.0)
(1,755.1)
1,240.0
–
(2.4)
110.8
8.2
Note 30. Dividends
In 2019, the Board recommended and paid a final 2018 dividend of 4.8p per share ($67 million) and an interim 2019 dividend of
2.35p per share ($33 million).
As announced in the “Board Changes and 2020 Guidance” press release on 9 December, the Board has decided to suspend the
dividend for 2019.
Tullow Oil plc 2019 Annual Report and Accounts
135
FINANCIAL STATEMENTS Notes
2019
$m
2018
$m
1
4,580.1
5,567.1
4,580.1
5,567.1
3
4
6
5
6
7
7
1,104.6
0.2
1,164.6
5.6
1,104.8
1,170.2
5,684.9
6,737.3
(439.9)
(1.8)
(441.7)
(353.8)
(11.2)
(365.0)
(2,793.5)
–
(2,952.1)
(0.8)
(2,793.5)
(2,952.9)
(3,235.2)
(3,317.9)
2,449.7
3,419.4
210.9
1,380.1
866.1
(7.4)
209.1
1,344.2
866.1
1,000.0
2,449.7
3,419.4
Company balance sheet
As at 31 December 2019
ASSETS
Non-current assets
Investments
Current assets
Other current assets
Cash at bank
Total assets
LIABILITIES
Current liabilities
Trade and other creditors
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 $893.9 million (2018: $145.9 million profit).
Approved by the Board and authorised for issue on 11 March 2020.
Dorothy Thompson
Executive Chair
Les Wood
Chief Financial Officer
136
Tullow Oil plc 2019 Annual Report and Accounts
Company statement of changes in equity
Year ended 31 December 2019
At 1 January 2018
Adjustment on adoption of IFRS 9, net of tax
Profit for the year
Issue of employee share options
Vesting of employee share options
Transfers
Share-based payment charges
At 1 January 2019
Loss for the year
Dividends paid
Vesting of employee share options
Share-based payment charges
Share
capital
$m
208.2
–
–
0.9
–
–
–
209.1
–
–
1.8
–
Share
premium
$m
1,326.8
–
–
17.4
–
–
–
1,344.2
–
–
35.9
–
Other
reserves 1
$m
851.9
–
–
–
–
14.2
–
866.1
–
–
–
–
Retained
earnings
$m
1,306.6
(446.3)
145.9
–
(18.2)
(14.2)
26.2
1,000.0
(893.9)
(100.9)
(37.7)
25.1
Total
equity
$m
3,693.5
(446.3)
145.9
18.3
(18.2)
–
26.2
3,419.4
(893.9)
(100.9)
–
25.1
At 31 December 2019
210.9
1,380.1
866.1
(7.4)
2,449.7
1. Other reserves include the merger reserve.
At 31 December 2019 the Group did not hold any shares in a Tullow Oil Employee Trust to satisfy awards held under the Group’s
share incentive plans.
Tullow Oil plc 2019 Annual Report and Accounts
137
FINANCIAL STATEMENTS Company accounting policies
As at 31 December 2019
(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.
The following exemptions from the requirements of IFRS have
been applied in the preparation of these Financial Statements,
in accordance with FRS 101:
- Paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based
Payment (details of the number and weighted average
exercise prices of share options, and how the fair value
of goods or services received was determined).
- IFRS 7 Financial Instruments: Disclosures.
- Paragraphs 91 to 99 of IFRS 13 Fair Value Measurement
(disclosure of valuation techniques and inputs used for fair
value measurement of assets and liabilities).
- Paragraph 38 of IAS 1 Presentation of Financial Statements
– comparative information requirements in respect of
certain assets.
The following paragraphs of IAS 1 Presentation of
Financial Statements:
- 10(d) (statement of cash flows);
- 111 (cash flow statement information);
- 134–136 (capital management disclosures);
- IAS 7 Statement of Cash Flows;
- paragraphs 30 and 31 of IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors;
- paragraph 17 of IAS 24 Related Party Disclosures
(key management compensation); and
- the requirements in IAS 24 Related Party Disclosures, to
disclose related party transactions entered into between
two or more members of a group. 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.
(c) Going concern
Refer to the Finance Review section of the Directors’ Report.
(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) Financial assets
The Company classifies its financial assets in the following
categories: at fair value through profit or loss; and loans and
receivables. The classification depends on the purpose for
which the financial assets were acquired.
Management determines the classification of its financial
assets at initial recognition. As of 31 December 2019, all
financial assets were classified at amortised cost.
Assets are classified and measured at amortised cost when
the business model of the company is to collect contractual
cash flows and the contractual terms give rise to cash flows
that are solely payments of principal and interest. These assets
are carried at amortised cost using the effective interest
method if the time value of money is significant. Gains and
losses are recognised in profit or loss when the assets are
derecognised, modified or impaired.
(g) Financial liabilities
The measurement of financial liabilities is determined by the
initial classification.
i) Financial liabilities at fair value through profit or loss:
Those balances that meet the definition of being held for
trading are measured at fair value through profit or loss.
Such liabilities are carried on the balance sheet at fair value
with gains or losses recognised in the income statement.
Intercompany derivative liabilities fall under this category
of financial instruments.
ii) Financial liabilities measured at amortised cost:
All financial liabilities not meeting the criteria of being
classified at fair value through profit or loss are classified
as financial liabilities measured at amortised cost. The
instruments are initially recognised at its fair value net of
transaction costs that are directly attributable to the issue of
financial liability. Subsequent to initial recognition, financial
liabilities are measured at amortised cost using the effective
interest method.
During the year the Company made a loss of $893.9 million
(2018: $145.9 million profit).
Borrowings and trade creditors fall under this category
of financial instruments.
138
Tullow Oil plc 2019 Annual Report and Accounts
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.
Amounts due from subsidiary undertakings (note 3):
The Company is required to assess the carrying values of
each of the amounts due from subsidiary undertakings,
considering the requirements established by IFRS 9
Financial Instruments.
The IFRS 9 impairment model requiring the recognition of
‘expected credit losses’, in contrast to the requirement to
recognise ‘incurred credit losses’ under IAS 39. Where
conditions exist for impairment on amounts due from
subsidiary undertakings expected credit losses assume that
repayment of a loan is demanded at the reporting date. If the
subsidiary has sufficient liquid assets to repay the loan if
demanded at the reporting date, the expected credit loss is
likely to be immaterial. However, if the subsidiary could not
demonstrate the ability to repay the loan, if demanded at the
reporting date, the Company calculated an expected credit
loss. This calculation considers the percentage of loss of the
amount due from subsidiary undertakings, which involves
judgement around how amounts would likely be recovered,
and over what time they would be recovered. Despite this
requirement, the Company does not intend to demand
repayment of any amounts due from subsidiary undertakings
in the near future.
(h) Share issue expenses
Costs of share issues are written off against the premium
arising on the issues of share capital.
(i) Finance costs of debt
Finance costs of debt are recognised in the profit and loss
account over the term of the related debt at a constant rate
on the carrying amount.
Interest-bearing borrowings are recorded as the proceeds
received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct
issue costs, are accounted for on an accruals basis in the
income statement using the effective interest method and are
added to the carrying amount of the instrument to the extent
that they are not settled in the period in which they arise.
(j) Taxation
Current and deferred tax, including UK corporation tax and
overseas corporation tax, are provided at amounts expected
to be paid using the tax rates and laws that have been enacted
or substantively enacted by the balance sheet date. Deferred
corporation tax is recognised on all temporary differences that
have originated but not reversed at the balance sheet date
where transactions or events that result in an obligation to
pay more, or right to pay less, tax in the future have occurred
at the balance sheet date. Deferred tax assets are recognised
only to the extent that it is considered more likely than not
that there will be suitable taxable profits from which the
underlying temporary differences can be deducted. Deferred
tax is measured on a non-discounted basis.
Deferred tax is provided on temporary differences arising on
acquisitions that are categorised as business combinations.
Deferred tax is recognised at acquisition as part of the
assessment of the fair value of assets and liabilities acquired.
Any deferred tax is charged or credited in the income statement
as the underlying temporary difference is reversed.
(k) Capital management
The Company defines capital as the total equity of the Company.
Capital is managed in order to provide returns for shareholders
and benefits to stakeholders and to safeguard the Company’s
ability to continue as a going concern. Tullow is not subject to
any externally imposed capital requirements. To maintain or
adjust the capital structure, the Company may adjust the dividend
payment to shareholders, return capital, issue new shares for
cash, repay debt, and put in place new debt facilities.
(l) Critical accounting judgements and key sources
of estimation uncertainty
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.
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.
Tullow Oil plc 2019 Annual Report and Accounts
139
FINANCIAL STATEMENTS Notes to the Company Financial Statements
Year ended 31 December 2019
Note 1. Investments
Shares at cost in subsidiary undertakings
2019
$m
2018
$m
4,580.1
5,567.1
4,580.1
5,567.1
During 2019, the Company decreased its investments in subsidiaries’ undertakings by $987.0 million (2018: $152.8 million
decrease); additional impairment of $1,905.1 million (2018: $202.9 million) was recognised against the Company’s investments
in subsidiaries to fund losses incurred by Group service companies and exploration companies.
The Company’s subsidiary undertakings as at 31 December 2019 are listed on pages 160 to 161. 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 $628.5 million (2018: $526.7 million) that are available indefinitely for offset against future
non-ring-fenced taxable profits in the Company. A deferred tax asset of $nil (2018: $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
2019
$m
8.0
1,096.6
2018
$m
28.9
1,135.7
1,104.6
1,164.6
The amounts due from subsidiary undertakings include $1,067.2 million (2018: $1,067.2 million) that incurs interest at LIBOR
plus 4.5 per cent (2018: LIBOR plus 4.5 per cent). The remaining amounts due from subsidiaries accrue no interest. All amounts
are repayable on demand. At 31 December 2019 a provision of $114.8 million (2018: $291.7 million) was held in respect of the
recoverability of amounts due from subsidiary undertakings.
Note 4. Trade and other creditors
Amounts falling due within one year
Accrued interest
Corporation tax payable
Due to subsidiary undertakings
Note 5. Borrowings
Non-current
Bank borrowings – after two years but within five years
Reserves Based Lending credit facility
6.25% Senior Notes due 2022
Bank borrowings – more than five years
Reserves Based Lending credit facility
7.00% Senior Notes due 2025
Term loans are secured by fixed and floating charges over the oil and gas assets of the Group.
140
Tullow Oil plc 2019 Annual Report and Accounts
2019
$m
33.9
–
406.0
439.9
2018
$m
30.9
9.3
313.6
353.8
2019
$m
2018
$m
1,357.4
645.5
–
790.6
568.0
644.4
950.0
789.7
2,793.5
2,952.1
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 2019 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. 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 Company has an intercompany oil derivative trade with a wholly owned 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
2019
Less than
1 year
$m
2019
1–3 years
$m
(1.8)
–
(1.8)
–
–
–
2019
Total
$m
(1.8)
–
2018
Less than
1 year
$m
(11.2)
–
(1.8)
(11.2)
2018
1–3 years
$m
(0.8)
–
(0.8)
2018
Total
$m
(12.0)
–
(12.0)
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 (2018: 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
2019
$m
7.5
2018
$m
(1.0)
Tullow Oil plc 2019 Annual Report and Accounts
141
FINANCIAL STATEMENTS Notes to the Company Financial Statements continued
Year ended 31 December 2019
Note 6. Financial instruments continued
Cash flow and interest rate risk
The interest rate profile of the Company’s financial assets and liabilities, excluding trade and other receivables and trade and
other payables, at 31 December 2019 and 31 December 2018 was as follows:
US$
Euro
2019
Cash at bank
$m
2019
Fixed rate
debt
$m
2019
Floating rate
debt
$m
2019
Total
$m
2018
Cash at bank
$m
2018
Fixed rate
debt
$m
2018
Floating rate
debt
$m
2018
Total
$m
0.1
0.1
0.2
(1,450.0)
–
(1,344.3)
–
(2,794.4)
0.1
(1,450.0)
(1,344.3)
(2,794.5)
5.5
0.1
5.6
(1,450.0)
–
(1,490.0)
–
(2,934.5)
0.1
(1,450.0)
(1,490.0)
(2,934.4)
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.
Liquidity risk
The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed
repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the
earliest date on which the Company can be required to pay.
31 December 2019
Non-interest bearing
Fixed interest rate instruments
Principal repayments
Interest charge
Variable interest rate instruments
Principal repayments
Interest charge
31 December 2018
Non-interest bearing
Fixed interest rate instruments
Principal repayments
Interest charge
Variable interest rate instruments
Principal repayments
Interest charge
Weighted
average
effective
interest rate
n/a
5.8%
5.8%
Weighted
average
effective
interest rate
n/a
7.8%
5.5%
Less than
1 month
$m
1–3
months
$m
3 months
to 1 year
$m
1–5
years
$m
5+
years
$m
Total
$m
33.9
–
414.0
–
–
447.9
–
–
–
5.9
39.8
–
28.0
–
11.8
39.8
–
68.6
–
53.1
650.0
284.9
800.0
28.0
1,450.0
409.5
1,345.0
308.2
–
–
1,345.0
379.0
535.7
2,588.1
828.0
4,031.4
Less than
1 month
$m
1–3
months
$m
3 months
to 1 year
$m
1–5
years
$m
5+
years
$m
Total
$m
353.8
–
–
–
7.8
361.6
–
–
28.0
–
15.5
43.5
–
–
–
353.8
–
68.6
–
69.9
650.0
325.8
568.0
357.8
800.0
84.0
922.0
40.0
1,450.0
506.4
1,490.0
491.0
138.5
1,901.6
1,846.0
4,291.2
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
Market
movement
25%
(25%)
Impact on profit before tax
2019
$m
–
–
2018
$m
–
(17.5)
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.
142
Tullow Oil plc 2019 Annual Report and Accounts
Note 7. Called-up equity share capital and share premium account
Allotted equity share capital and share premium
At 1 January 2018
Issued during the year
Exercise of share options
At 1 January 2019
Issued during the year
Exercise of share options
At 31 December 2019
Equity share
capital allotted
and fully paid
Number
Share
capital
$m
Share
premium
$m
1,386,567,336
208.2
1,326.8
6,872,380
0.9
17.4
1,393,439,716
209.1
1,344.2
14,458,235
1.8
35.9
1,407,897,951
210.9
1,380.1
The Company does not have an authorised share capital. The par value of the Company’s shares is 10p.
Tullow Oil plc 2019 Annual Report and Accounts
143
FINANCIAL STATEMENTS Five-year financial summary (unaudited)
Group income statement
Sales revenue
Other operating income – lost production insurance proceeds
Cost of sales
Gross profit
Administrative expenses
Gain/(loss) on disposal
Goodwill impairment
Exploration costs written off
Impairment of property, plant and equipment, net
Provision for onerous contracts and restructuring
Operating (loss)/profit
(Loss)/gain on hedging instruments
Finance revenue
Finance costs
(Loss)/profit from continuing activities before tax
Income tax (expense)/credit
2019
$m
2018
$m
2017
Restated
$m
2016
$m
2015
$m
1,682.6
42.7
(966.7)
758.6
(111.5)
6.6
–
(1,253.4)
(781.2)
(4.2)
(1,385.1)
(1.5)
55.5
(322.3)
(1,653.4)
(40.7)
1,859.2
188.4
(966.0)
1,081.6
(90.3)
21.3
–
(295.2)
(18.2)
(170.8)
528.4
2.4
58.4
(328.7)
260.5
(175.1)
1,722.5
162.1
(1,069.3)
1,269.9
90.1
(813.1)
1,606.6
–
(1,015.3)
815.3
(95.3)
(1.6)
–
(143.4)
(539.1)
(13.5)
22.4
1.4
42.0
(351.7)
(285.9)
110.6
546.9
(116.4)
(3.4)
(164.0)
(723.0)
(167.6)
(127.2)
(754.7)
18.2
26.4
(198.2)
(908.3)
311.0
591.3
(193.6)
(56.5)
(53.7)
(748.9)
(406.0)
(226.3)
(1,093.7)
(58.8)
4.2
(149.0)
(1,297.3)
260.4
(Loss)/profit for the year from continuing activities
(1,694.1)
85.4
(175.3)
(597.3)
(1,036.9)
(Loss)/earnings per ordinary share from continuing activities
Basic – ¢
Diluted – ¢
Dividends paid
Group balance sheet
Non-current assets
Net current assets
Total assets less current liabilities
Long-term liabilities
Net assets
Called-up equity share capital
Share premium
Equity component of convertible bonds
Foreign currency translation reserve
Hedge reserve
Hedge reserve – time value
Other reserves
Retained earnings
Equity attributable to equity holders of the Parent
Non-controlling interest
(120.8)
(120.8)
100.9
6,799.9
16.5
6,816.4
(5,832.8)
6.1
5.9
–
(13.7)
(13.7)
–
(55.8)
(55.8)
–
(97.0)
(97.0)
–
8,212.0
934.9
8,704.2
969.8
8,340.1
813.1
9,506.8
259.2
9,146.9
(6,253.7)
9,674.0
(6,957.6)
9,153.2
(6,910.7)
9,766.0
(6,591.3)
983.6
2,893.2
2,716.4
2,242.5
3,174.7
210.9
1,380.0
48.4
(242.1)
4.6
(17.5)
755.2
(1,155.9)
209.1
1,344.2
48.4
(238.6)
130.8
(4.9)
755.2
649.0
983.6
–
2,893.2
–
208.2
1,326.8
48.4
(223.2)
(2.6)
(73.8)
740.9
681.3
2,706.0
10.4
147.5
619.3
48.4
(232.2)
128.2
–
740.9
778.0
2,230.1
12.4
147.2
609.8
–
(249.3)
569.9
–
740.9
1,336.4
3,154.9
19.8
Total equity
983.6
2,893.2
2,716.4
2,242.5
3,174.7
144
Tullow Oil plc 2019 Annual Report and Accounts
Transparency disclosure (unaudited)
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 was an early adopter of the EU Directive and has
published its tax payments to governments in full, in its
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 does not
exceed £86,000, it is 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 2019 tax payments can be found on
page 29.
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 2019 average realised oil price $62.4/bbl.
Income taxes – represent cash tax calculated on the basis of
profits including income or capital gains. Income taxes are
usually reflected in corporate income tax returns. The cash
payment of income taxes occurs in the year in which the tax
has arisen or up to one year later. Income taxes also include
any cash tax rebates received from the government or revenue
authority during the year. Income taxes do not include fines
and penalties.
Royalties – represent cash royalties paid to governments
during the year for the extraction of oil or gas. The terms of
the royalties are described within our PSCs and can vary from
project to project within one country. Royalties paid in kind
have been recognised within the production entitlements
category. The cash payment of royalties occurs in the year
in which the tax has arisen.
Bonus payments – represent any bonus paid to governments
during the year, usually as a result of achieving certain
milestones, such as a signature bonus, POD bonus or a
production bonus.
Licence fees – represent licence fees, rental fees, entry fees
and other consideration for licences and/or concessions paid
for access to an area during the year (with the exception of
signature bonuses which are captured within bonus payments).
Infrastructure improvement payments – represent payments
made in respect of infrastructure improvements for projects
that are not directly related to oil and gas activities during the
year. This can be a contractually obligated payment in a PSC
or a discretionary payment for building/improving local
infrastructure such as roads, bridges, ports, schools
and hospitals.
VAT – represents net cash VAT received from/paid to governments
during the year. The amount disclosed is equal to the VAT
return submitted by Tullow to governments with the cash
payment made in the year the charge is borne. It should be
noted the operator of a Joint Venture typically makes VAT
payments in respect of the Joint Venture as a whole and, as
such, where Tullow has a non-operated presence in a country,
limited VAT will be paid.
Stamp duty – includes taxes that are placed on legal documents
usually in the transfer of assets or capital. Usually these taxes
are reflected in stamp duty returns made to governments and
are paid shortly after capital or assets are transferred.
Withholding tax (WHT) – represents 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.
Tullow Oil plc 2019 Annual Report and Accounts
145
SUPPLEMENTARY INFORMATION Transparency disclosure (unaudited) continued
2019
Production
entitlements
Production
entitlements
Income
taxes
Royalties
(cash only)
Dividends
Bonus
payments
Licence/Company level
BBL ’000
$000
$000
$000
$000
$000
Licence
fees
$000
Infrastructure
improvement
payments
$000
European transparency directive disclosure
CI-301
CI-302
CI-518
CI-519
CI-520
CI-521
CI-522
CI-524
C1–26 Special Area "E"
Tullow Côte d'Ivoire Exploration Ltd.
Total Côte d'Ivoire
Ceiba
Okume Complex
Tullow Equatorial Guinea Ltd.
Total Equatorial Guinea
Echira
Ezanga
Limande
M'Oba
Niungo
Oba
Ruche
Simba
Tchatamba Marin
Turnix
Tullow Oil Gabon SA
Tulipe Oil SA
Total Gabon
Deep Water Tano
Jubilee Field Unit Area
TEN Development Area
West Cape Three Points
Tullow Ghana Ltd.
Total Ghana
–
–
–
–
–
–
–
–
–
–
–
125
301
–
426
–
–
–
–
–
–
–
–
–
–
–
–
–
–
614
527
–
–
1,141
–
–
–
–
–
–
–
–
3,275
–
3,275
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
39,970
39,970
–
–
–
–
–
–
–
–
–
–
50,538
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,887
4,979
2,477
263
3,981
1,384
1,472
11,978
10,404
1,527
–
–
50,538
41,352
–
–
–
–
75,000
75,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18
59
78
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
372
17
–
1,203
1,592
146
Tullow Oil plc 2019 Annual Report and Accounts
Voluntary disclosure
Stamp
duty
Withholding
tax
PAYE and
National
Insurance
Carried
interests
Customs
duties
$000
$000
$000
$000
$000
VAT
$000
MGO
taxes
$000
R&D
credit
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
682
682
–
–
–
–
3,564
3,564
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
23
23
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20
20
–
–
–
–
408
408
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57,734
17,862
23,333
57,734
17,862
23,333
5,077
5,077
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,413
9,435
–
–
16,848
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Training
allowances
$000
265
265
265
265
265
265
265
375
–
–
2,230
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
1
–
–
–
–
Total
$000
265
265
265
265
265
265
265
375
3,275
23
5,528
–
–
39,970
39,970
2,887
4,979
2,477
263
3,981
1,384
1,472
11,978
10,404
1,527
50,538
1,111
93,001
–
7,786
9,452
18
250
250
184,081
201,337
Total
BBL ’000
–
–
–
–
–
–
–
–
–
–
–
125
301
–
426
–
–
–
–
–
–
–
–
–
–
–
–
–
–
614
527
–
–
1,141
Tullow Oil plc 2019 Annual Report and Accounts
147
SUPPLEMENTARY INFORMATION Transparency disclosure (unaudited) continued
2019
Production
entitlements
Production
entitlements
Income
taxes
Royalties
(cash only)
Dividends
Bonus
payments
Licence/Company level
BBL ’000
$000
$000
$000
$000
$000
Licence
fees
$000
Infrastructure
improvement
payments
$000
European transparency directive disclosure
PSC B (Chinguetti EEA)
Block C-3
Tullow Mauritania Ltd.
Total Mauritania
Block 10BA
Block 10BB
Block 13T
Tullow Kenya B.V.
Total Kenya
Tullow South Africa Pty Ltd.
Total South Africa
PEL 37
Tullow Namibia Ltd.
Total Namibia
Tullow Uganda Ltd
Tullow Uganda Operations pty
Total Uganda
Block MLO 114
Block MLO 119
Block MLO 122
Total Argentina
South Omo
Total Ethiopia
Tullow Zambia B.V.
Total Zambia
Tullow Uruguay Ltd.
Total Uruguay
Tullow Peru Limited
Total Peru
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35
22
–
57
347
93
19
–
459
–
–
151
–
151
–
158
158
6
5
4
15
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
148
Tullow Oil plc 2019 Annual Report and Accounts
Voluntary disclosure
Stamp
duty
Withholding
tax
PAYE and
National
Insurance
Carried
interests
Customs
duties
$000
$000
$000
$000
$000
MGO
taxes
$000
R&D
credit
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
8
–
–
–
1,704
1,704
–
–
–
12
12
2
418
420
67
51
–
118
–
–
2
2
–
–
–
–
–
–
94
94
–
–
–
5,748
5,748
2,547
2,547
–
4
4
–
2,331
2,331
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
82
82
–
–
–
–
–
–
2
2
–
–
–
–
227
227
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Training
allowances
$000
–
350
–
350
–
–
–
678
678
–
–
–
38
38
–
50
50
–
–
–
–
–
–
–
–
21
21
34
34
Total
$000
35
372
101
509
347
93
19
8,215
8,673
2,210
2,210
151
891
1,042
2
2,959
2,961
73
56
4
133
227
227
4
4
21
21
34
34
Total
BBL ’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
VAT
$000
–
–
–
–
–
–
–
3
3
(337)
(337)
–
837
837
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Tullow Oil plc 2019 Annual Report and Accounts
149
SUPPLEMENTARY INFORMATION Transparency disclosure (unaudited) continued
2019
Production
entitlements
Production
entitlements
Income
taxes
Royalties
(cash only)
Dividends
Bonus
payments
Licence/Company level
BBL ’000
$000
$000
$000
$000
$000
Licence
fees
$000
Infrastructure
improvement
payments
$000
European transparency directive disclosure
Orinduik
Tullow Guyana B.V.
Total Guyana
Tullow Suriname B.V.
Total Suriname
Walton Morant
Tullow Jamaica Ltd.
Total Jamaica
Katy
Kelvin
P039
P060
P852
CMS III Unit
Tullow Group Services Limited
Tullow Oil SPE Limited
Tullow Oil SK Ltd
Total UK
Tullow Oil Norge AS
Total Norway
Tullow Oil Limited
Total Ireland
TOTAL
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(25,705)
(24,257)
(49,962)
(38,414)
(38,414)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,567
3,275
77,134
41,352
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40
–
40
–
–
128
–
128
(1)
2
54
22
91
1
–
–
–
169
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,254
1,593
150
Tullow Oil plc 2019 Annual Report and Accounts
Voluntary disclosure
Stamp
duty
Withholding
tax
PAYE and
National
Insurance
Carried
interests
Customs
duties
$000
$000
$000
$000
$000
VAT
$000
MGO
taxes
$000
R&D
credit
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(13,723)
–
–
(13,723)
–
–
(911)
(911)
(9,884)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
63,880
–
–
63,880
–
–
4,490
4,490
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,684)
(2,684)
Training
allowances
$000
–
25
25
193
193
–
109
109
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$000
40
25
65
193
193
128
109
237
(1)
2
54
22
91
1
50,157
(25,705)
(24,257)
364
(38,414)
(38,414)
895
895
Total
BBL ’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
60,018
97,388
23,333
5,387
16,848
(2,684)
3,977
318,991
1,567
Payments in kind in $000
94,317
Total
413,308
Tullow Oil plc 2019 Annual Report and Accounts
151
SUPPLEMENTARY INFORMATION Sustainability data (unaudited)
Environmental performance summary*
2015
2016
2017
2018
2019
Emissions
Total air emissions (tonnes of CO2e)1
Scope 1 total air emissions (tonnes of CO2e)
Scope 2 total air emissions (tonnes of CO2e)
Scope 3 total air emissions (tonnes of CO2e)2
Total air emissions by production (tonnes of CO2e)
per 1,000 tonnes hydrocarbon produced
CO2 emissions (tonnes)
CH4 emissions (tonnes)
N2O emissions (tonnes)
CO2 emissions (tonnes)/1,000 tonnes of HC produced
CH4 emissions (tonnes)/1,000 tonnes of HC produced
N2O emissions (tonnes)/1,000 tonnes of HC produced
Flaring
758,790
752,539
4,631
1,620
772,110
1,619,055
1,235,349
1,279,971
754,338
1,603,384
1,218,010
1,263,258
4,763
13,010
2,928
12,743
2,996
1,688
14,343
15,026
122
142
185
139
134
656,932
653,813
1,306,254
998,141
1,032,601
2,073
2,741
13,315
9,686
10,231
30
106
0.33
—
22
122
0.51
—
63
150
1.52
0.01
61
112
1.09
0.01
129
108
1.07
0.01
Total hydrocarbon flared (tonnes)
110,638
149,217
290,797
142,259
128,375
Total hydrocarbon flared by production (tonnes/1,000 tonnes
hydrocarbon produced)
17.84
27.93
33.29
16.03
13.48
Water usage
Metered water (m3)
Seawater (m3)
Ground water (m3)
Fresh water (m3)
Other water (m3)
70,466
56,728
89,366
96,215
95,111
8,004,940
9,080,888
12,567,127
13,412,811 13,709,711
113,847
46,322
60,998
58,401
33,397
—
10
—
—
—
1,537
—
—
3,622
5,501
Total water usage (m3) – all operational sites
8,189,262
9,183,938
12,719,027
13,571,049 13,843,720
Recycled water (m3)
Total water from sustainable sources (m3)
Waste
Total waste disposed (tonnes)
Waste recycled/reused/treated (%)
Waste recycled/reused/treated (tonnes)
Hazardous waste disposed (tonnes)
Hazardous waste recycled/reused/treated (%)
Non-hazardous waste disposed (tonnes)
Non-hazardous waste recycled/reused/treated (%)
Uncontrolled releases
Oil and chemical spills (#)
Oil and chemical spills (tonnes)
Energy use
5,451
5,451
72,380
70.93
50,979
50,487
99.49
21,893
3.44
7
24.71
4,722
4,722
58,554
27.95
14,071
8,903
74.36
49,651
15.01
2
4.85
2,308
2,308
554
554
2,282
2,282
39,407
64,026
80,475
5.00
1,129
1,137
31.00
18.00
10,983
11,165
97.00
27.00
21,419
21,483
97.00
38,270
52,861
58,993
2.00
3
6.44
—
—
—
1.00
1
344
Total indirect and direct energy use (GJ)
5,158,200
7,318,373
8,036,831
9,744,373 10,304,896
Total indirect and direct energy use by production
(GJ/1,000 tonnes hydrocarbon produced)
Fines and sanctions
832
—
1,370
—
920
—
1,098
1,082
—
—
* All environmental data is third-party assured.
1. Fugitive emissions are not currently captured in our total air emissions.
2. Tullow currently only measures air travel as part of its Scope 3 emissions and not all air travel is captured.
152
Tullow Oil plc 2019 Annual Report and Accounts
2016
9.20
2017
10.89
2018
10.53
2019
10.79
Health and safety performance summary*
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 injury rate (LTIR)
OGP LTIR Δ
Total recordable injuries (TRI)
Total recordable injury rate (TRIR)
OGP TRIF Δ
High potential incidents (HiPos)
High potential incident frequency (HiPoF)
Malaria frequency rate Δ
Kilometres driven ('000,000)
Vehicle accident frequency rate (VAFR)
2015
13.29
—
—
—
4.00
0.30
0.29
12.00
0.90
1.21
15.00
1.13
0.30
6.45
0.47
—
—
—
—
—
0.27
9.00
0.98
1.03
8.00
0.87
—
5.44
0.55
—
—
1
4.00
0.37
0.27
8.00
0.73
0.96
7.00
0.64
—
5.19
0.77
* All data in the health and safety performance summary table is third-party assured with the exception of the indicators marked Δ.
Local content
Local supplier spend ($ million)
By country
Ethiopia
Ghana
Kenya
Mauritania
Uganda
Total
—
—
1
3.00
0.28
0.26
6.00
0.57
0.99
6.00
0.57
—
5.40
0.18
2018
283.4
2018
–
251.3
30.5
–
1.6
—
—
1
1.00
0.09
N/A
6.00
0.56
N/A
15.00
1.39
0.09
6.74
0.30
2019
336.2
2019
–
298.8
35.4
–
2.0
2015
2016
308.9
336.6
2015
–
226.0
75.0
–
7.9
2016
–
297.0
28.0
–
11.6
2017
234.6
2017
–
194.2
37.0
–
3.4
308.9
336.6
234.6
283.4
336.2
Tullow Oil plc 2019 Annual Report and Accounts
153
SUPPLEMENTARY INFORMATION Sustainability data (unaudited) continued
Compliance*
Corruption
Fraud
Workplace compliance
Supply chain
Total speaking up cases
* All data in the compliance table is third-party assured.
Employees*
Number of employees
Number of contractors
Number of expatriates in the workforce
Number of people on local contract terms
Total employees
Number of females
Number of Africans
Percentage of females
Percentage of Africans
Number of managers
Percentage of female managers
Number of senior managers
Percentage of female senior managers
Percentage of African senior managers
Number of Board members
Percentage of female Board members
Percentage of African Board members
* All data in the compliance table is third-party assured.
2015
2016
2017
2018
2019
17
22
47
17
103
2015
1,156
247
268
1,135
1,403
396
565
34%
49%
338
22%
115
12%
13%
12
17%
8%
5
19
46
21
91
2016
1,023
129
173
979
2
8
38
12
60
2017
922
108
144
886
1,152
1,030
583
533
33%
52%
297
22%
68
13%
16%
11
18%
9%
582
485
34%
53%
274
22%
65
15%
11%
9
11%
11%
8
11
37
10
66
2018
893
97
144
846
990
511
470
34%
53%
271
24%
68
21%
13%
8
13%
13%
10
18
30
29
87
2019
879
72
135
816
951
305
487
35%
55%
249
26%
61
20%
18%
8
38%
25%
154
Tullow Oil plc 2019 Annual Report and Accounts
Shareholder information
Financial calendar
2019 full-year results announced
12 March 2020
Annual General Meeting
AGM trading update
23 April 2020
23 April 2020
Trading statement and operational update
15 July 2020
2020 half-year results announced
9 September 2020
November trading update
11 November 2020
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
Tullow Oil plc 2019 Annual Report and Accounts
155
SUPPLEMENTARY INFORMATION Licence interests
Current exploration, development and production interests
West Africa
Licence/Unit area
Fields
Côte d’Ivoire1
CI-26 Special Area “E” Espoir
Equatorial Guinea
Ceiba
Okume Complex
Ceiba
Okume, Oveng, Ebano, Elon,
Akom North
Area
sq km
Tullow
interest Operator
Other partners
235
21.33% CNR
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
Ruche
Simba
Tchatamba Marin
Tchatamba South
Tchatamba West
Turnix
Ghana
Avouma, South Tchibala
Ebouri
Echira
Etame, North Tchibala
Gwedidi
Igongo
Limande
Mabounda
Maroc
Maroc Nord
Mbigou
M'Oba
Niembi
Niungo
Oba
Omko
Onal
Tortue
Simba
Tchatamba Marin
Tchatamba South
Tchatamba West
Turnix
Jubilee, Wawa, Tweneboa,
Deepwater Tano
TEN Development Area2 Enyenra, Ntomme
West Cape Three Points Jubilee
Jubilee Field Unit Area3,4Jubilee, Mahogany, Teak
Notes:
52
15
76
49
5,626
5
117
54
6
17
17
5
57
4
96
44
16
46
850
315
30
40
25
18
619
150
Addax (Sinopec), Sasol, PetroEnergy
Addax (Sinopec), Sasol, PetroEnergy
Gabon Oil Company
Addax (Sinopec), Sasol, PetroEnergy
7.50% Vaalco
7.50% Vaalco
40.00% Perenco
7.50% Vaalco
8.57% Maurel & Prom
7.50% Maurel & Prom Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
7.50% Maurel & Prom Gabon Oil Company
7.50% Maurel & Prom Gabon Oil Company
7.50% Maurel & Prom Gabon Oil Company
7.50% Maurel & Prom Gabon Oil Company
Gabon Oil Company
7.50% Maurel & Prom Gabon Oil Company
36.00% Perenco
40.00% Perenco
24.31% Perenco
40.00% Perenco
Gabon Oil Company
10.00% Perenco
Gabon Oil Company
7.50% Maurel & Prom Gabon Oil Company
7.50% Maurel & Prom Gabon Oil Company
10.00% BW Energy
57.50% Perenco
25.00% Perenco
25.00% Perenco
25.00% Perenco
Panoro, Gabon Oil Company
ONE-Dyas BV
ONE-Dyas BV
ONE_Dyas BV
27.50% Perenco
Gabon Oil Company
49.95% Tullow
47.18% 2
25.66% Tullow
35.48% Tullow
Kosmos, Anadarko, GNPC, Petro SA
Kosmos, Anadarko, GNPC, Petro SA
Kosmos, Anadarko, GNPC, Petro SA
1. Exploration licences in Côte d’Ivoire are managed by the New Ventures Business Team – refer to this section for details.
2. GNPC has exercised its right to acquire an additional 5 per cent in TEN. Tullow’s interest is 47.175 per cent.
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 and 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.
156
Tullow Oil plc 2019 Annual Report and Accounts
Europe5
Licence/Unit area
Blocks
Fields
Area
sq km
Tullow
interest
Operator
Other partners
Gawain7, 9
69
50.00%
Perenco
Thames7, Yare7, Bure7,
Wensum7
Thurne7, Deben7
Gawain7
90
66.67%
Perenco
Spirit Energy
86.96%
50.00%
Tullow
Perenco
Spirit Energy
United Kingdom5, 6
Thames Area
P007
P037
Gawain Unit8
49/24aF1
(Gawain)
49/28a
49/28b
49/28a (part)
49/24F1 (Gawain)
49/29a (part)
East Africa
Licence
Fields
Kenya
Block 10BA
Block 10BB
Block 12B
Block 13T
Uganda
Exploration Area 1
Exploration Area 1A
Production Licence 1/12
Tilenga Project11
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:
Amosing, Ngamia
Twiga
Jobi East, Mpyo
Lyec
Kingfisher
Kasamene – Wahrindi
Kigogole – Ngara
Nsoga
Ngege
Mputa – Nzizi – Waraga
Ngiri
Jobi – Rii
Gunya
Area
sq km
Tullow
interest
Operator
Other partners
15,811
6,172
6,200
4,719
50.00%
50.00%
100.00%
50.00%
Tullow
Tullow
Tullow
Tullow
Africa Oil, Total
Africa Oil, Total
Africa Oil, Total
372
85
344
20
92
60
57
86
50
121
55
33.33% 10
33.33% 10
33.33% 10 CNOOC
Total
Total
33.33% 10 Tullow10
Tullow10
33.33% 10
Tullow10
33.33% 10
Tullow10
33.33% 10
Tullow10
33.33% 10
33.33% 10
Total
33.33% 10
Total
33.33% 10 Total
CNOOC
CNOOC
Total
CNOOC, Total
CNOOC, Total
CNOOC, Total
CNOOC, Total
CNOOC, Total
CNOOC
CNOOC
CNOOC
5. Operations in the UK are dealt with by the West African Business Team despite falling outside this geographic region.
6. Production from the CMS Area has now ceased. Decommissioning works across this area are ongoing.
7. These fields are no longer producing. Decommissioning works are ongoing.
8. 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.
9. Refer to Gawain Unit for field interest.
10. In August 2019, Tullow announced that its farm-down to Total and CNOOC was terminated, following the expiry of the Sale and Purchase Agreements (SPAs).
Tullow has now initiated a new sales process to reduce its 33.33 per cent operated stake in the Lake Albert project.
11. The Tilenga Project involves the development of fields located in Production Licences 01/16, 02/16, 03/16, 04/16, 05/16, 06/16, 07/16 and 08/16.
Tullow Oil plc 2019 Annual Report and Accounts
157
SUPPLEMENTARY INFORMATION
Licence interests continued
Current exploration, development and production interests
New Ventures
Licence/Unit area
Blocks
Fields
Area
sq km
5,942
4,546
4,420
5,368
5,952
4,743
1,495
1,412
1,250
887
1,059
1,280
1,229
551
5,165
1,776
Tullow
interest
40.00%
40.00%
100.00%
35.00%
35.00%
35.00%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
90.00%
Operator
Other partners
Tullow
Tullow
Tullow
Tullow
Tullow
Tullow
Tullow
Tullow
Tullow
Tullow
Tullow
Tullow
Tullow
Tullow
Pluspetrol, Wintershall
Pluspetrol, Wintershall
Bahari Res, Discovery Expl
Bahari Res, Discovery Expl
Bahari Res, Discovery Expl
Cairn Energy, Petroci
Cairn Energy, Petroci
Cairn Energy, Petroci
Cairn Energy, Petroci
Cairn Energy, Petroci
Cairn Energy, Petroci
Cairn Energy, Petroci
Petroci
37.50%
60.00%
Repsol
Tullow
Total
Total, Eco Atlantic O&G
32,065
80.00%
Tullow
United Oil & Gas
2012B, 2112A,
2113B
2813B
17,295
35.00%
Tullow
5,433
56.00%
Tullow
Pancontinental, ONGC Videsh,
Paragon
Trago Energy, Harmattan Energy,
NAMCOR
4,875
542
5,162
5,616
5,884
6,002
2,369
8,480
4,061
Pitkin
35.00% Karoon
100.00% Tullow
100.00% Tullow
100.00% Tullow
100.00% Tullow
100.00% Tullow
50.00% Tullow
50.00% Tullow
80.00% Tullow
Pluspetrol, Ratio Exploration
Equinor
Pluspetrol
Argentina
Block MLO-114
Block MLO-119
Block MLO-122
The Comoros
Block 35
Block 36
Block 37
Côte d’Ivoire
CI-301
CI-302
CI-518
CI-519
CI-520
CI-521
CI-522
CI-524
Guyana
Kanuku
Orinduik
Jamaica
Walton Morant
Namibia
PEL 0037
PEL 0090
Peru
Block Z-38
Block Z-64
Block Z-6512
Block Z-6612
Block Z-6712
Block Z-6812
Suriname
Block 47
Block 54
Block 62
Notes:
12. Award of this licence to Tullow is subject to issue of government decree.
158
Tullow Oil plc 2019 Annual Report and Accounts
Commercial reserves and contingent resources summary
(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
236.2
12.9
(30.5)
259.9
(110.6)
(2.6)
218.6
146.7
–
–
–
–
–
–
–
–
137.3
–
141.3
278.6
436.0
–
336.8
772.8
656.7
–
(18.8)
637.9
42.7
–
11.7
54.4
–
–
–
–
–
47.4
–
47.4
–
–
–
–
–
–
–
–
236.2
12.9
(30.5)
259.9
(110.6)
(2.6)
279.5
(5.5)
(31.0)
218.6
146.7
243.0
794.0
47.4
122.5
963.9
478.7
–
348.5
873.6
47.4
180.6
827.2
1,101.6
Commercial reserves
1 January 2019
Revisions
Production
31 December 2019
Contingent resources
1 January 2019
Additions
Revisions
31 December 2019
Total
31 December 2019
497.2
919.5
637.9
54.4
47.4
–
1,182.5
973.9
1,344.6
Notes:
1. Proven and Probable Commercial Reserves are as audited and reported 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 per cent of the Group’s reserves.
2. Proven and Probable Contingent Resources are as audited and reported 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 revision to reserves relates mainly to increases at the Jubilee Field and in some of the non-operated assets, offset by a reduction at the Enyenra Field.
4. The additional contingent resources relate to oil discoveries in Guyana.
5. The revision to the contingent resources relate mainly to increases at the TEN and Jubilee Fields.
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 225.1 mmboe at 31 December 2019
(31 December 2018: 264.9 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.
Tullow Oil plc 2019 Annual Report and Accounts
159
SUPPLEMENTARY INFORMATION Tullow Oil plc subsidiaries
As at 11 March 2020
Each undertaking listed below is a subsidiary by virtue of Tullow Oil plc holding, directly or indirectly, a majority of voting rights
in the undertaking. The ownership percentages are equal to the effective equity owned by the Group. Unless otherwise noted,
the share capital of each undertaking comprises ordinary shares or the local equivalent thereof.
The percentage of equity owned by the Group is 100 per cent unless otherwise noted. The results of all undertakings listed
below are fully consolidated in the Group’s Financial Statements.
Company name
Country of incorporation
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 Ltda1
Australia
Australia
Australia
Australia
Australia
Australia
Brazil
Direct or
indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Tullow (EA) Holdings Limited
British Virgin Islands Indirect
Planet Oil International Limited
England and Wales
Indirect
Tullow Argentina Limited
England and Wales
Indirect
Tullow Comoros Limited (new 2018)
England and Wales
Indirect
Tullow Côte d’Ivoire Onshore Limited
England and Wales
Indirect
Tullow EG Exploration Limited
England and Wales
Indirect
Tullow Gambia Limited
England and Wales
Indirect
Tullow Group Services Limited
England and Wales
Direct
Tullow Jamaica Limited
England and Wales
Indirect
Tullow New Ventures Limited
England and Wales
Indirect
Tullow Mozambique Limited
England and Wales
Indirect
Tullow Oil 100 Limited
England and Wales
Direct
Tullow Oil 101 Limited
England and Wales
Direct
Tullow Oil Finance Limited
England and Wales
Direct
Tullow Oil SK Limited
England and Wales
Direct
Tullow Oil SNS Limited
England and Wales
Direct
Tullow Oil SPE Limited
England and Wales
Direct
Tullow Peru Limited
England and Wales
Indirect
Tullow Senegal Exploration Limited
England and Wales
Indirect
Tullow Technologies Limited
England and Wales
Indirect
Tullow Uganda Midstream Limited
England and Wales
Indirect
Tullow Uruguay Limited
England and Wales
Indirect
Hardman Petroleum France SAS
France
Indirect
160
Tullow Oil plc 2019 Annual Report and Accounts
Address of registered office
Level 9, 1 William Street, Perth WA 6000, Australia
Level 9, 1 William Street, Perth WA 6000, Australia
Level 9, 1 William Street, Perth WA 6000, Australia
Level 9, 1 William Street, Perth WA 6000, Australia
Level 9, 1 William Street, Perth WA 6000, Australia
Level 9, 1 William Street, Perth WA 6000, Australia
Avenida Rio Branco 311, suite 509 – part, Centro,
CEP: 20040–903, Rio de Janeiro, Brazil
Ritter House, Wickhams Cay, Tortola, VG1110,
British Virgin Islands
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
Parc d’Activite – c/o Soprim Degrad des Cannes
97354 Remire Montjoly, French Guiana
Company name
Country of incorporation
Tulipe Oil SA
Tullow Oil Gabon SA
Tullow Ghana Exploration and
Production Limited
Tullow Oil (Mauritania) Ltd
Gabon
Gabon
Ghana
Guernsey
Tullow Oil Holdings (Guernsey) Ltd
Guernsey
Tullow Oil Limited
Ireland
Tullow Congo Limited
Isle of Man
Tullow Equatorial Guinea Limited
Isle of Man
Tullow Gabon Holdings Limited2
Isle of Man
Tullow Gabon Limited
Isle of Man
Tullow Mauritania Limited
Isle of Man
Tullow Namibia Limited
Tullow Uganda Limited
Tullow Côte d’Ivoire Exploration Limited
Tullow Côte d’Ivoire Limited
Tullow Ghana Limited
Tullow India Operations Limited
Tullow Oil (Jersey) Limited
Tullow Oil International Limited
Tullow Ethiopia BV
Isle of Man
Isle of Man
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Netherlands
Direct or
indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Tullow Guyana BV
Netherlands
Indirect
Tullow Hardman Holdings BV
Netherlands
Indirect
Tullow Kenya BV
Netherlands
Indirect
Tullow Netherlands Holding
Cooperatief BA
Tullow Overseas Holdings BV
Netherlands
Indirect
Netherlands
Direct
Tullow Suriname BV
Netherlands
Indirect
Tullow Uganda Holdings BV
Netherlands
Indirect
Tullow Zambia BV
Netherlands
Indirect
Tullow Oil Norge AS
Energy Africa Bredasdorp (Pty) Ltd
Norway
South Africa
Tullow South Africa (Pty) Limited
South Africa
T.U. S.A.
Notes:
1. 1 per cent held directly by Tullow Oil plc.
2. 50 per cent held directly by Tullow Oil plc.
Uruguay
Indirect
Indirect
Indirect
Indirect
Address of registered office
Rue Louise Charon B.P. 9773, Libreville
Rue Louise Charon B.P. 9773, Libreville
Plot No. 70, George Walker Bush Highway,
North Dzorwulu, Accra, Ghana
P.O. Box 119, Martello Court, Admiral Park, St.
Peter Port GY1 3HB, Guernsey
P.O. Box 119, Martello Court, Admiral Park, St.
Peter Port GY1 3HB, Guernsey
Number 1, Central Park, Leopardstown,
Dublin 18, Ireland
First Names House, Victoria Road, Douglas
IM2 4DF, Isle of Man
First Names House, Victoria Road, Douglas
IM2 4DF, Isle of Man
First Names House, Victoria Road, Douglas
IM2 4DF, Isle of Man
First Names House, Victoria Road, Douglas
IM2 4DF, Isle of Man
First Names House, Victoria Road, Douglas
IM2 4DF, Isle of Man
First Names House, Victoria Road, Douglas
IM2 4DF, Isle of Man
First Names House, Victoria Road, Douglas
IM2 4DF, Isle of Man
44 Esplanade St Helier JE4 9WG, Jersey
44 Esplanade St Helier JE4 9WG, Jersey
44 Esplanade St Helier JE4 9WG, Jersey
44 Esplanade St Helier JE4 9WG, Jersey
44 Esplanade St Helier JE4 9WG, Jersey
44 Esplanade St Helier JE4 9WG, Jersey
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
Prinses Margrietplantsoen 33, 2595AM
‘s-Gravenhage, The Netherlands
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
Prinses Margrietplantsoen 33, 2595AM
’s-Gravenhage, The Netherlands
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
Prinses Margrietplantsoen 33, 2595AM
’s-Gravenhage, The Netherlands
Prinses Margrietplantsoen 33, 2595AM
’s-Gravenhage, The Netherlands
9 Chiswick Park, 566 Chiswick High Road,
London W4 5XT, United Kingdom
Tordenskioldsgate 6B, 0160 Oslo, Norway
11th Floor, Convention Tower, Heerengracht Street,
Foreshore, Cape Town 8001, South Africa
11th Floor, Convention Tower, Heerengracht Street,
Foreshore, Cape Town 8001, South Africa
Colonia 810, Of. 403, Montevideo, Uruguay
Tullow Oil plc 2019 Annual Report and Accounts
161
SUPPLEMENTARY INFORMATION Glossary
£m
AFS
AGM
ASOC
bbl
bbo
bcf
boe
boepd
bopd
¢
Capex
CISP
CMS
CMS III
CNOOC
CSA
CSO
CtO
D&O
DD&A
DoA
DPO
DSBP
E&A
E&P
EBITDA
EBITDAX
EHS
EITI
EOPS
EPS
EuroStoxx
ESIA
ESOS
EWT
FEED
FID
FFD
Pound sterling million
Available for sale
Annual General Meeting
Advanced security operations centre
Barrel
Billion barrels of oil
Billion cubic feet
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
Delegation of authority
Data protection officer
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
Front-end engineering and design
Final Investment Decision
Full field development
162
Tullow Oil plc 2019 Annual Report and Accounts
FPSO
FRC
FRS
FTSE 250
FVTPL
G&A
G&H
GDPR
GHG
GJFFD
GNPC
HIPO
HMRC
IAS
IASB
IFC
IFRS
IIA
IMF
IMS
IOC
IPIECA
IR
ITLOS
JDA
JV
kboepd
km
KPI
LAPSSET
LIBOR
LTI
LTIR
M&A
mmbo
mmboe
mmscfd
MoU
MTM
MVC
MVCF
MW
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
General data protection regulation
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 Finance Corporation
International Financial Reporting Standards
Invest in Africa
International Monetary Fund
Integrated Management System
International oil company
International Petroleum Industry Environmental Conservation Association
Investor relations
International Tribunal for the Law of the Sea
Joint Development Agreement
Joint Venture
Thousand barrels of oil equipment per day
Kilometres
Key performance indicator
Lamu Port-South Sudan-Ethiopia-Transport Corridor project
London Interbank Offered Rate
Lost time injury
Lost time injury rate (Frequency rate measured in LTIs per million hours worked)
Mergers and acquisitions
Million barrels of oil
Million barrels of oil equivalent
Million standard cubic feet per day
Memorandum of Understanding
Mark to market
Motor vehicle collision
Motor vehicle collision frequency
Megawatt
Tullow Oil plc 2019 Annual Report and Accounts
163
SUPPLEMENTARY INFORMATION Glossary continued
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
Sq m
SRI
SSEA
TEN
TIP
TRP
TSR
TRIR
Non-governmental organisation
Organisation of Petroleum Exporting Countries
Operating expenses
Organisation, strategy and 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
Square metres
Socially responsible investment
Safety, sustainability and external affairs
Tweneboa – Enyenra – Ntomme
Tullow Incentive Plan
Turret Remediation Project
Total Shareholder Return
Total recordable injury rate
UK GAAP
UK Generally Accepted Accounting Practice
VAT
VP
VPSHR
WAEP
WACC
WHO
Wildcat
Value added tax
Vice President
Voluntary Principles on Security and Human Rights
Weighted average exercise price
Weighted average cost of capital
World Health Organization
Exploratory well drilled in land not known to be an oil field
164
Tullow Oil plc 2019 Annual Report and Accounts
Stay up to date
www.tullowoil.com
Our main corporate website has key information about our business,
operations, investors, media, sustainability, careers and suppliers.
RESULTS, REPORTS AND 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 software requirement other than the software which
is available on the Group’s website.
For every shareholder who signs up for electronic
communications, a donation is made to the eTree initiative
run by Woodland Trust. You can register for email
communication at: www.etree.com/tullowoilplc.
COMPANY SECRETARY AND REGISTERED OFFICE
Adam Holland
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.
CBP002490
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
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
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