Tullow Oil plc
2022 Annual Report
and Accounts
T
u
l
l
o
w
O
i
l
p
l
c
2
0
2
2
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
Building a better future
through responsible
oil and gas development
Our purpose
Tullow’s purpose is to build a better future through responsible oil and gas
development. Our sustainable approach is a critical element of our business
strategy. We believe the oil and gas industry can, and should be, an engine of
economic development for emerging African economies. We contribute to our
host nation's sustainable growth by unlocking value from their resources,
through reliable, safe, cost-effective and carbon-efficient operations.
Africa
South America
Europe
Gabon
Kenya
Guyana
UK
Key:
Exploration
Development
Production
Decommissioning
Ghana
Côte d’Ivoire
Mauritania
Argentina
Note: countries are not to scale
Production
Development
Exploration
We pursue infrastructure-led
exploration opportunities in and
around our production and development
assets. In addition, we have legacy
positions in emerging basins where
we seek to unlock value through
prospect identification and
selective exploration.
We create economic value for our host
nations through tax, royalties and
revenue sharing from the extraction and
sale of hydrocarbons. We also create
social value through job creation,
supplier development and community
support through our Shared Prosperity
activities. Tullow has a proven track
record of managing production
operations with high standards of
safety, environmental stewardship
and community engagement.
We also have extensive experience
in successfully decommissioning
production sites in a responsible
manner when production ceases.
We create value by developing
discovered resources that have been
confirmed to be commercially viable.
The development plans include
technical and commercial
considerations based on extensive
stakeholder engagement on economic,
operational, social and environmental
matters. These plans are subject to
approval by our host governments
and regulators. The development
phase can be highly capital intensive,
with investment in new infrastructure,
local job creation and supplier
development; all progressed with our
Shared Prosperity ambitions in mind.
Development projects are currently
underway or being planned in Kenya,
Ghana, Gabon and Côte d’Ivoire.
Our people:
Building a better future
Gabrielle's story
p.16
2022 in numbers
Group working interest production
61,100 boepd
2021: 59,200 boepd
Contents
Strategic report
Our purpose
2022 key metrics
Our strategy
Our business model
Chair's statement
Chief Executive Officer's statement 8
Markets
A balanced scorecard
Gabrielle's story
Operations review
11
14
16
18
Chief Financial Officer's statement 21
TCFD scenario analysis
Finance review
Elijah's story
Sustainability
Kwame's story
23
24
28
30
38
Governance and risk management 40
Section 172(1) statement
Viability statement
Non-financial reporting
47
50
52
Corporate governance
IFC
Directors’ report
1
2
4
6
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
Alternative performance
measures
Shareholder information
Commercial reserves
and contingent resources
summary (unaudited)
working interest basis
Operating cash flow
$972m
2021: $711m
Adjusted EBITDAX
$1.5bn
2021: $1.0bn
Profit/(loss) after tax
$49m
2021: $(81)m
Capital investment
$354m
2021: $263m
Free cash flow
$267m
2021: $245m
Net debt
$1.8bn
2021: $2.1bn
Gearing
1.3 times
2021: 2.2 times
54
60
62
63
69
71
73
98
102
103
115
164
173
175
176
Tullow Oil plc
2022 Annual Report and Accounts
Tullow Oil plc
2022 Annual Report and Accounts
1
1
Financial statementsSupplementary informationStrategic ReportGovernance Report Our strategy
A differentiated business strategy
At Tullow, we believe that reliable and
adequate energy supplies are critical for
sustaining human progress and ensuring
political stability. We also believe that fossil
fuels will remain a necessary part of the
energy mix for some time, as migration to
alternative energy sources will require
substantial investment in new technologies
and infrastructures over many years to
come. In the meantime, Africa continues
to suffer from extreme energy poverty,
hindering economic growth and social
advancement. If African nations are to
prosper, they must benefit from their vast
pool of natural resources. For this reason,
our focus at Tullow is to help deliver
prosperity in Africa and our other host
nations through managing the exploration,
development and production of oil and gas
resources safely, efficiently, collaboratively
and transparently. Our differentiated
business strategy is informed by our
long history of asset development in
Africa, our passion to build a better
future for our host nations and
our environmental consciousness.
A better future
Shared prosperity
Differentiated business strategy
Our focus
Business growth
Capital efficiency
Operational excellence
Our way
Trusted partner
Committed contributor
Attractive employer
Our values
Do the right thing
Collaborate
Take responsibility
Make it count
2
Tullow Oil plc
2022 Annual Report and Accounts
Our business strategy is built on the following themes:
Our focus
Business growth: Developing discovered resources, near field and infrastructure-led exploration and M&A
Our business is underpinned by a deep and rich portfolio of discovered resources. For example, our Jubilee and TEN fields in
Ghana provide significant opportunities for infill drilling, facilities expansion and new production from currently undeveloped
parts of the fields as well as near field exploration. In Gabon and Côte d’Ivoire, we have identified a number of low-risk investment
projects. In these areas we are leveraging our deep geoscience expertise to explore around our producing assets, where the
proximity to existing infrastructure supports fast commercialisation of any discovered resources, resulting in high returns and
rapid payback. We are also working to realise further growth through our discovered resources in Kenya.
Our industry is going through a structural shift as many larger companies de-emphasise their oil and gas business, particularly in
Africa. With a credible presence across Africa and a proven track record across exploration, development and production
operations, we are well placed to deliver value through mergers and/or acquisitions.
Capital efficiency: Managing cost and capital to deliver a robust balance sheet
At Tullow every barrel matters and every dollar counts. We operate within a strict cost framework and have capital controls to deliver
returns for our investors and to fuel our growth plans. At the same time, we continue to strengthen our balance sheet, reducing net
debt through the generation of material free cash flow. In 2022, our cash gearing (net debt to EBITDAX) reduced to 1.3 times, a
material acceleration of our deleveraging trajectory which brings confidence that our investments in high-return opportunities,
along with cost and capital efficiency focus, are delivering positive results.
Operational excellence: Maximising asset performance, reliability and safety
We focus on operational excellence in all aspects of our activities. We maximise the performance of our assets, leveraging our
engineering, technical and subsurface geoscience expertise to design efficient systems and processes while ensuring timely
equipment replacement and maintenance to deliver safe, reliable and environmentally responsible production performance.
We continuously monitor our workforce requirements to ensure we have the right levels of staff and provide training to ensure
that we have the right skills in place to operate our assets dependably.
Our way
Trusted partner: Operating to uncompromising standards of ethical conduct
Tullow’s success depends on one thing: trust. Trust in Tullow allows us to partner with governments to help alleviate
energy poverty in Africa, maintain positive relations with regulators and inspire confidence in financing institutions to ensure
continued access to capital. For Tullow, being a trusted and trustworthy organisation includes maintaining high standards
of ethics and compliance in all that we do, zero tolerance for corruption, responsible tax management and tax transparency
as strategic imperatives.
Committed contributor: Improving the everyday lives of people in our host nations
When our business succeeds, our host nations benefit. This goes beyond augmenting national revenues from oil and gas; it means
engaging, community by community, to understand local needs and support social advancement in meaningful ways. We encourage
our communities to speak openly with us on matters of importance to them, while investing in social development in multiple
ways. Equally, we operate with environmental consciousness to minimise the impact of our activities on climate change and the
natural environment. Tullow benefits through a collaborative and capable supply chain and employees who enjoy positive
relationships and a respected standing in our communities.
Attractive employer: Nurturing a collaborative, caring and open work environment
Tullow fosters an open team culture in an empowering workplace in which people are confident and comfortable to engage,
contribute and speak openly about any aspect of what we do or how we work. As an inclusive organisation, we promote respect,
diversity, equality and transparency, underpinned by strong human resources management. We invest in training to enable our
people to realise opportunities for professional advancement. Empowering our workforce is a strategic driver of our success.
Tullow Oil plc
2022 Annual Report and Accounts
3
Financial statementsSupplementary informationStrategic ReportGovernance Report Our business model
A value-creating business model
Tullow creates value by investing in the
exploration for, and development and
production of, oil and gas resources. With
an established foothold in our host nations,
we monetise oil and gas from our portfolio of
assets to deliver economic and social benefits
for all stakeholders and contribute to prosperity
in our host nations. Our keen focus on
maximising the performance of our assets
through efficiencies and strict cost management,
alongside our commitment to building positive
relationships and partnerships across our
value chain, has enabled Tullow to mature into
a trusted operator and champion of
sustainable development.
Stakeholders
Inputs
Commitments
- Financial resources based on
material free cash flow generated
through our production that fund
business continuity and growth
- Material reserves and resources in
West Africa and significant
resources in Kenya
- Responsible, safe and
reliable operations
- Cost focus and capital discipline to
ensure financial resilience with a
target to reach gearing of less than
1.0 times net debt to EBITDAX on a
sustainable basis
- Positive relationships with
host nation governments and
regulatory bodies
- Conservative financial strategy
supported by hedging to
protect revenues
- Strong reputation as an ethical and
responsible oil and gas operator
- Skilled team including local teams
in Africa with engineering and
subsurface technical expertise
- Shared Prosperity with our host
nations and their populations and
local content investment
- Environmental stewardship
throughout our value chain
- Strong relationships with local
communities supported by
continuous engagement
- Carbon reduction and a target to
reach Net Zero by 2030 (Scope 1
and 2 net equity emissions)
- Network of dependable suppliers,
including local suppliers in Africa,
supporting business continuity
and growth
- Ethical conduct in line with our
Code of Conduct at all times
- Maintaining a positive workplace
and upholding human rights
through our value chain
- Tax responsibility and transparency
Our investors
Our host nations
Our people
4
Tullow Oil plc
2022 Annual Report and Accounts
Strategic Report
Governance Report
Financial statements
Supplementary Information
Commitments
Outputs
Value created
SDG
contribution
- Reliable, low-cost, high-margin
production
- Group 2022 reserves replacement
ratio of c.90%
- High IRRs
- Identified potential for 120kbopd
plateau production rate in Kenya
- Strategic positions in
emerging basins
- Shared Prosperity in education,
local content and enterprise
development in our host nations,
reaching thousands of suppliers
and entrepreneurs
- Attractive workplace nurturing a
skilled workforce with leading-
edge knowledge in the oil and
gas sector
- Mitigation of our climate
change impacts
- Strong cash flow generation and further
investment in responsible oil and gas
development and production
- Deleveraging whilst maintaining asset value of
the Company, accreting value to our shareholders
- Contribution to economic growth and sustainable
development in our host nations through thriving
and responsible oil and gas development
and production
- Tangible social benefits in our host nations
through infrastructure developments, STEM
education, high-skill job opportunities and
supplier engagement and development
- Improved resilience and social cohesion in local
communities, especially fishing communities in
areas of our assets
- Job stability, professional growth and career
development for hundreds of Tullow employees
with a focus on localisation of our African
workforce, reducing social inequalities
- Contribution to global efforts to mitigate climate
change and reduce global climate risks
Tullow Oil plc
2022 Annual Report and Accounts
5
Chair’s statement
Positioning the company
well for the future
Phuthuma Nhleko reflects on his first full year as Chair of Tullow and the significant
progress the Group made in 2022.
“At Tullow, we believe that oil
& gas development can be a
major driver for economic
development in Africa, and
therefore we remain
committed to deploying our
expertise and capital to
partner with host
governments to unlock value
from their resources in a
responsible manner. ”
Phuthuma Nhleko
Chair
Phuthuma Nhleko
Chair
I have very much enjoyed my first year as the Chairman of your
company. It has been a year marked by strong operational and
financial performance across the Group, which is a testament to
the hard work and commitment of the entire Tullow team. The
team has continued to build on a culture in which every dollar
counts and every barrel matters. I congratulate them on a good
performance that has delivered strong cash flows and led to a
material improvement in the Group’s balance sheet, positioning
your company well for the future.
I have been particularly impressed by the team's focus on
operational delivery as evidenced by the strong drilling
performance in Ghana, the successful Operations and
Maintenance (O&M) transformation at Jubilee and the top
quartile safety performance. The O&M transformation at the
Jubilee is also key to delivering reductions in the operating cost
base and carbon emissions.
6
Tullow Oil plc
2022 Annual Report and Accounts
Strategy
We have a high quality portfolio. The focus of the team on cost
management, disciplined capital deployment and operating
efficiency enables us to maximise cash flow generation from
these assets. We are therefore able to self-fund a high-return
investment programme to deliver further value, cash flows and
drive down debt. The organic growth potential from our assets
can be determined with confidence.
Tullow’s operational and financial turnaround is widely
acknowledged by both the industry and host governments in
Africa. Tullow's higher credibility will often lead to unique
inorganic opportunities. For instance, last year, our pre-emption
of Kosmos’ acquisition of Occidential Petroleum’s assets in
Ghana was recouped within the year and has helped support our
deleveraging and value creation efforts. The quick turnaround to
secure the necessary approvals also demonstrates the strong
support Tullow enjoys from the Government of Ghana.
Earlier in the year, we were approached by Capricorn Energy
for a potential merger. After considerable deliberation, the Board
decided to recommend the merger to our shareholders. On the
basis of the terms agreed with the Board of Capricorn Energy, we
saw a potential for material value creation for shareholders by
implementing a business plan that accelerated investment in our
key projects, delivered very significant synergies including
a material reduction in debt service costs. However, once
Capricorn Energy were in receipt of a competitive offer, we
decided not to increase our offer that may not ultimately have
advanced shareholder value. Our disciplined approach was
driven by our confidence in our team and assets that underpin
a clear growth strategy and strengthening balance sheet.
The oil & gas industry is in the midst of a structural change as
many companies assess their long-term commitment to oil &
gas. This will create opportunities for inorganic growth,
particularly in Africa. At Tullow, we have built a unique operating
platform that, along with our deep understanding of Africa,
positions us uniquely to secure these opportunities and deliver
further value.
Tullow’s Board
Over the past year, I have greatly appreciated the support of
Tullow’s Board. I am also pleased that we have appointed Richard
Miller as CFO. Richard brings extensive oil & gas and financial
experience to the role having been with Tullow for over 11 years,
including as Interim CFO since April 2022. During that time Richard
led the Tullow Finance team, supporting a number of acquisitions,
disposals and capital markets transactions. He played a significant
role in the continued turnaround of Tullow with the successful
rebasing of Tullow’s cost structure, the resetting of the balance
sheet and the change to a more focused capital allocation.
The Board and I look forward to working closely with Richard.
In February 2023, the Company announced the appointment of
Roald Goethe as an independent Non-executive Director. Roald
is a highly experienced oil & gas executive with extensive
commercial knowledge of the energy industry in Africa including
business development, M&A and in oil markets, specifically
hedging, financing and trading. The Board and I look forward to
working closely with both Richard and Roald.
I was pleased to use the opportunity of the externally facilitated
Board evaluation to focus on the requirements of the Board
to best support the business in its delivery of the strategy.
Further information on the evaluation can be found on page 57.
Tullow and Africa
This is a time of great uncertainty and change in the global
energy markets. Despite all the important work being done on
energy transition, its trajectory and pace remain uncertain. For
now, it is clear that the world will continue to consume significant
quantities of oil & gas. However, the oil & gas industry has
significantly underinvested in new developments needed to
maintain sufficient supply. This investment gap means that we
expect the markets to remain volatile, impacting the energy
trilemma of security, accessibility and affordability.
Society and policy makers should acknowledge the need for
differentiated approaches to the energy transition between the
developed and emerging world and ensure there is a just
transition. This is essential to support economic growth in the
emerging world. We experience this first hand in our African
operations. Importantly, we must bear in mind that the African
continent accounts for less than 3% of the world's energy-related
CO2e emissions to date and has the lowest emissions per capita
of any region. As such it is hard to argue against the right of the
African countries to develop their resources for the benefit of
their people, as has been done for decades in countries in the
developed world. This was underscored clearly by many African
leaders at COP27 in Cairo last year.
At Tullow, we believe that oil & gas development can be a major
driver for economic development in Africa, and therefore we
remain committed to deploying our expertise and capital to
partner with host governments to develop local content capacity,
enhance energy security through the long-term supply of
indigenous gas in Ghana and unlock value from our host nations'
resources in a responsible manner.
Conclusion
Rahul and his team continue to build a track record of consistently
meeting expectations and delivering on the strategy. This has
not yet translated into our share price despite higher commodity
prices through the year. However as the Group continues to
restore trust and confidence after the events of 2019, I am confident
that our investors will be rewarded. Based on a clear and
disciplined growth strategy we will deliver material free cash
flow that will help reduce debt whilst growing the value of our
company. This will drive material value creation for our shareholders
and shared prosperity for our host nations and communities.
With this compelling vision for Tullow over the next few years,
the Board looks to the future with confidence.
Thank you for your support for Tullow.
Phuthuma Nhleko
Chair
7 March 2023
Tullow Oil plc
2022 Annual Report and Accounts
7
Financial statementsSupplementary informationStrategic ReportGovernance Report Chief Executive Officer’s statement
Creating a unique platform for growth
in the oil and gas sector
2022 was a solid year of delivery for Tullow with a strong set of financial results and
excellent operational performance. Rahul Dhir, Chief Executive Officer, discusses the
progress Company has made and why he has the conviction that Tullow will continue
unlock its true value.
“We have a strong and diverse
leadership team with a highly
energised organisation
characterised by deep
commitment to delivering
on our business plan. ”
Rahul Dhir
Chief Executive Officer
Rahul Dhir
Chief Executive Officer
I joined Tullow in 2020, because I had conviction in the quality of
the asset base and the belief that with focus and discipline we
would turn the business around and unlock its underlying value.
The strong operational and financial performance of the business
since then validates that conviction. Tullow is now creating value
and generating free cash flow. Our balance sheet is stronger with
significant liquidity headroom and leverage of less than 1.5 times.
At the same time, we have created a unique platform for
growth within the oil and gas sector. Today we have a strong
and diverse leadership team with a highly energised organisation
characterised by deep commitment to delivering on our business
plan. There is a real willingness to go “beyond the call of duty”
in delivering excellence. This is evidenced by the successful
transition of the operation and maintenance of the Jubilee FPSO,
the top quartile drilling performance, and the ongoing delivery of
the Jubilee South East Project that remains on time and on budget.
2022 performance
Our strong business performance in 2022 builds on the foundations
we laid in 2021, and clearly, there are many things to celebrate.
Starting with safety, 2022 was the second successive year of
industry top quartile safety performance with no recordable
incidents in the year and no Tier 1 process safety events.
The team has done a great job in managing inflationary
pressures on both G&A and Opex, demonstrating that “every
dollar counts” at Tullow. Through a focus on continuous
improvement, we are seeing initiatives – big and small – to help
unlock value and save costs. Despite sector-wide inflation, our
operating expenditure has remained in line with expectations
and we held our G&A costs flat.
On production operations, the team has done a stellar job in
delivering high production efficiency and maximising production
– demonstrating that “every barrel matters” at Tullow.
We also successfully transferred the operation and maintenance
of the FPSO at the Jubilee field – our most prized asset – from an
external contractor to our operating team. This is a major step in
supporting our vision of becoming a leading low-cost operator
and we have immediately seen the beneficial impact of that
decision with increased uptime and c. 30% lower operating costs
in the second half of the year compared to the first. In addition,
what is most energising is the change in morale, attitude and
ownership of the operating team, which has resulted in visible
improvements in control of work, housekeeping, orderliness and
general positivity on the FPSO.
Capital discipline remains at the heart of what we do and I am
pleased to report that we delivered our capital investment
programme within budget. The drilling team has delivered the
8
Tullow Oil plc
2022 Annual Report and Accounts
well programme faster than planned, obviating the need to hire a
second rig. This resulted in further cost savings against our long
term plan and accelerated production growth.
At Jubilee, the development of the South East area is progressing
in line with plans and budget, and once the new wells come
onstream in 2023 we expect total production from the field will
exceed 100 kbopd. First oil from the Jubilee South East project
will be a significant milestone, bringing previously undeveloped
reserves to production, and highlighting Tullow’s project
management strengths and ability to integrate deliverables
across a global multidisciplinary team.
At TEN, the focus in 2022 was on reservoir management, and we
have been able to reduce annual decline rates to less than half
compared to 2021. The year was not without challenges at TEN.
We were disappointed by the results of the two Ntomme riser
base wells, but did deliver a technically challenging well in
Enyenra North that helped stabilise production rates. Our team
continues to persevere in their efforts to deliver value from TEN,
and while no new wells are planned this year, the focus will
remain on reservoir management and importantly on delivering
a new plan of development to the Government of Ghana,
encompassing infill drilling, phased development of new areas
near existing infrastructure, development of the significant gas
resource and drilling of prospective resources.
We also invested $126 million to pre-empt the sale of assets in
Ghana by Occidental Petroleum to Kosmos Energy, and this
investment, which has boosted net production and added to our
net 2P reserves, has already paid back.
In addition to maximising oil production from our two fields in
Ghana we are also focused on commercialising the material gas
resources. The war between Russia and Ukraine is having a
profound and long-term impact on LNG flows, as Europe looks to
replace Russian gas with imported LNG. This has created an
imperative in Ghana to develop indigenous gas to provide energy
security and support economic development. Tullow, along with
our JV partners, is committed to working with the Government of
Ghana to provide long-term gas supplies. As part of this process,
we signed an Interim Gas Sales Agreement, representing the first
commercialisation of gas from the Jubilee field. This agreement
is an important step towards a long-term agreement which will
transform the vast resources across Jubilee and TEN into
another revenue stream for Tullow whilst providing a long-term
source of energy for Ghana.
Our non-operated asset portfolio performed broadly in line with
expectations, despite some unplanned downtime at the Espoir
field in Côte d’Ivoire and natural decline in some of the more
mature fields in Gabon. This part of our asset base will remain a
material contributor to production and cash flow, with ongoing
investment to optimise our equity positions and replace
maturing production with moderate capital spend.
Our exploration strategy is largely focused around our producing
assets in West Africa, where we have a deep understanding of
the geoscience and access to infrastructure enables rapid
development of discoveries. To this end, we have expanded our
strategic position in the Tano Basin by securing a new offshore
exploration licence in Côte d’Ivoire, in an area adjacent to our
producing fields in Ghana. In addition, we also retain material
legacy positions in the emerging basins of Guyana and Argentina,
where we continue to seek opportunities to unlock value.
Higher oil prices have also brought contingent payments from
previous disposals into focus. In Uganda, at plateau production
Tullow would receive a share of revenue. At $70/bbl, this is
estimated to be c.$15 million per annum and increases to
c.$47 million per annum at $100/bbl. The upside exposure is
uncapped and for the full duration of the licence. In Gabon
and Equatorial Guinea, there is potential for receipts of up
to $40 million over the next five years.
Kenya
In March 2023, the Kenya Joint Venture partners submitted the
final Field Development Plan (FDP) for approval to the Ministry
of Energy & Petroleum (MoEP) and the Energy and Petroleum
Regulatory Authority (EPRA). The FDP is based on a life of field
resource of 585mn bbls gross, initial plateau production of
120 kbopd and capital investment of c$3.4 billion to first oil.
The FDP approval process, including ratification by parliament,
is expected to conclude later this year. In parallel, we continue
to progress a farm-down to a strategic partner in a joint process
with our partners.
Proposed merger
In June 2022, Tullow’s Board proposed a merger of equals
with Capricorn Energy in an all-share, nil premium offer.
This opportunistic transaction could have resulted in accelerated
investment across Tullow’s portfolio, however, our Board did not
believe that an improved offer in line with the demands of some
of Capricorn Energy’s key shareholders would have represented
good value for Tullow’s shareholders. This decision was supported
by our Board’s strong confidence in Tullow’s business plan that
we outlined at the beginning of the year, and which continues to
deliver value.
Board
Throughout the year I have benefited greatly from the wise
counsel and experience of our Chairman, Phuthuma Nhleko.
He brings a deep understanding of the African business and
political landscape along with strategic thinking and a real
focus on value creation.
Richard Miller was confirmed as our permanent CFO in December
2022. Richard has a strong financial background, with a focus on
cost and capital discipline and he knows the business really well.
In his role of Interim CFO in 2022, Richard has been a real thought
partner as we have continued Tullow’s transformation, rebasing
our cost structure, improving our balance sheet and bringing a
much clearer focus on capital allocation. I am delighted with his
appointment. I’m also looking forward to working with the
newest member of the Board, Roald Goethe, who was appointed
as an independent non-executive Director in February 2023.
Roald brings a unique commercial and entrepreneurial
perspective which will be help pursue our long-term strategy.
Tullow Oil plc
2022 Annual Report and Accounts
9
Financial statementsSupplementary informationStrategic ReportGovernance Report Outlook
Strong operational delivery, rigorous focus on costs and capital
discipline, increased equity in our key operated fields in Ghana
and higher oil prices drove material, expectation-beating free
cash flow generation in 2022. This accelerated the Group’s
deleveraging with a net debt to EBITDAX ratio of 1.3 times by the
end of the year. This performance demonstrated the underlying
cash generation potential of the business.
2023 will be an exciting year as we continue to deliver on our
Business Plan, with capital investment, in particular in Ghana,
expected to support production growth through to 2025 and
material free cash flow generation. At an oil price of $80 per
barrel, we expect to deliver $800–$900 million in free cash flow
in the three years 2023-2025. In addition, we are working on
several notable milestones that will deliver material value.
These include: completion of the Jubilee South East Project
which is key to delivering over 100 kbopd from Jubilee, the Plan
of Development for TEN which will set out a clear pathway for
creating value, commercialisation of gas in Ghana to deliver
secure gas supplies for the nation, and progress on Kenya FDP
and strategic partner induction that will help transform the value
of this major resource.
The Tullow team has worked exceptionally hard in 2022 to deliver
the business plan and I thank them for their commitment and
delivery. We are also grateful to our host nations and communities
for their continued support and our shareholders and debt
investors for their confidence in us.
We have created a platform of assets and set of capabilities
which are unique within our sector and that gives me great
confidence in Tullow’s ability to deliver growth and value for
all our stakeholders.
Rahul Dhir
Chief Executive Officer
7 March 2023
Chief Executive Officer’s statement continued
Unlocking value for our Host Nations and
Shared Prosperity
Our Purpose is to “build a better future through responsible oil &
gas development”. We recognise that the successful delivery of
our business plan is also integral to the economic prosperity and
development of our host nations. For instance, in 2022 our
operations in Ghana delivered over $1.5 billion in value for Ghana
through taxes, royalties, GNPC’s participating share in the
licences and discounted supply of gas and condensate. Further,
a long-term supply agreement of indigenous gas will enhance
energy security and facilitate industrial development in Ghana.
We actively invest in social programmes across our host nations
with the aim of making a meaningful impact working with the
communities where we operate, with a focus on accelerating
progress through partnerships. In 2022, we enabled more than
9,000 students to access education and we continued to support
local entrepreneurship through the Fisherman’s Anchor project,
a micro credit scheme, that provided financial assistance to over
1,300 beneficiaries. Building local content capacity is
fundamental to the success of our business, and our goal is to
increase the local participation in our supply chain through open
dialogue, providing business tools, and connecting local
companies with a future ready workforce. In Ghana, our Advisory
Board continues to provide us with great insights and advice,
helping us improve our understanding of the domestic context
and enhancing our local relationships.
The symbiotic linkage between Tullow and our host nations is
underpinned by strong relationships with our key stakeholders.
Our host nations recognise the criticality of our operations and
investments to their economic development and energy security.
Therefore they want Tullow to keep investing in their countries to
ensure that they benefit from their natural resources in the same
way that many other nations, particularly in the developed world,
have already.
Climate
Our shareholders will recall that Tullow made a commitment to
being Net Zero on our Scope 1 and 2 net equity emissions by
2030. Work towards this target is well underway with increased
gas handling capacity at Jubilee and process modifications
ongoing at TEN. Further progress is expected during a planned
maintenance shutdown of the TEN FPSO in 2023. These
developments will enable us to eliminate routine flaring in Ghana
by 2025. At the same time, we are making good progress on a
nature-based carbon off-set project in Ghana with the signing a
Letter of Intent (LoI) with the Ghana Forestry Commission (FC) in
December 2022.
A fundamental redesign of the Kenya FEED has resulted in
reduction of the carbon intensity of the project by c.40%.
This was achieved by limiting GHG emissions in the design,
reinjecting excess gas into reservoirs for reuse at a later stage
and committing to zero routine flaring from the outset. The use
of solar power for pipeline operations and nature based offset
projects offer the opportunity to abate residual emissions.
To further sustain responsible operations, we are considering
an Environmental Stewardship Fund and a Shared Prosperity
Fund to deliver a net positive impact to local communities.
10
Tullow Oil plc
2022 Annual Report and Accounts
Markets
A volatile market
during political and
economic uncertainty
Russia's invasion of Ukraine as well as
recession concerns have caused energy prices
to fluctuate throughout the year and has
highlighted the importance of energy security.
1 Geopolitics
The conflict in Ukraine, elevated inflationary
pressures and a slowdown in global growth
were among the key political and economic
events of 2022.
Following a post-pandemic rebound in the global economy in
2021, 2022 saw numerous pressure points emerge amid
heightened political and economic uncertainty.
Russia’s full-scale invasion of Ukraine on 24 February 2022 was,
and continues to be, one of the most significant conflicts in
Europe since 1945. While the Russo-Ukrainian War acted to
exacerbate cross-asset volatility, energy prices in particular
were driven higher, feeding expectations of a global energy
crisis. The pressures within Europe were particularly exacerbated
given the relatively high dependence on Russian energy exports,
with the inflationary pressures further intensified by Russia’s
decision to cut natural gas supplies to Europe in September.
Consumer price indices printed at record levels across major
economies fuelled by the aforementioned war in Ukraine, surging
energy prices and supply-side factors. Monetary and fiscal
conditions imposed during the COVID-19 pandemic compounded
the pressures, leading central banks to exhibit an increasingly
hawkish tilt before ultimately undertaking several rounds of monetary
policy tightening in an effort to stem the pricing pressures.
Oil price volatility was another major characteristic in 2022, with
prices initially rising in the first half of the year on constricted
supply dynamics onset by the war. Brent crude reached an
intra-year high of $130/bbl during March in the early aftermath of
the invasion, the highest price demanded for the commodity
since 2008. The environment triggered record corporate profits
within the energy sector and amid a mounting cost of living crisis
domestically, the UK Government announced a temporary 25%
windfall tax on the profits of North Sea oil and gas operators –
the Energy Profits Levy – in May. The tax rate was subsequently
increased to 35%, with the levy set to fall away in March 2028.
Oil markets cooled rapidly in the second half of the year,
with Brent dipping below $80/bbl in early December following
numerous rounds of monetary policy tightening by central banks
and on a particularly weak Chinese demand outlook.
Outside the oil and gas sphere, wider commodities also performed
well in 2022. Coal gained amid record high demand, with the trend
anticipated to extend into 2023. Agricultural markets also saw
large gains, with grain and palm oil eclipsing all-time highs in March
on a culmination of poor weather conditions and pandemic-related
supply disruptions. Combined, the rapidly rising commodity prices
fuelled concerns of an accelerated route to a recession in Europe,
with the higher energy prices a key contributor to elevated
inflation levels.
As pricing pressures became entrenched, central banks
undertook several rounds of monetary policy tightening as
policymakers weighed the benefits of tightening monetary policy
conditions against stagflation, growing unemployment and
economic ‘hard landing’ risks. Ultimately, the Bank of England,
Federal Reserve and European Central Bank undertook 325bps,
425bps and 250bps of tightening respectively across 2022.
UK political news flow was also in focus, with newly elected
Prime Minister Liz Truss announcing a £150 billion energy plan
support package to ease cost pressures on domestic households.
The announcement was soon followed by a ‘mini-budget’ from
Chancellor Kwasi Kwarteng, with the “biggest package in
generations” of unfunded tax cuts undermining market
confidence and driving a sharp broad-based sell-off across both
domestic equity and debt markets. The yield on the closely
watched UK 10Y Gilt surged by as much as c.130bps through
September as a result, the greatest monthly gain on record for
the asset, whilst also facilitating unprecedented Sterling
weakness, with GBP trending towards parity against USD in late
September. Much of this reversed, however, as new Chancellor
Jeremy Hunt and Prime Minister Rishi Sunak quickly unwound
most of the mini-budget and aimed to stabilise the economy.
Further inhibiting growth in 2022 were Chinese coronavirus
headlines, with the country’s strict adherence to zero-COVID
policies acting as a headwind to global output growth.
Towards the year end, the country moved to loosen a range
of the zero-COVID measures, including removing the need for
inbound travellers to quarantine and permitting Chinese citizens
to resume outbound travel. However, fears surrounding rising
case levels across the country remained in focus as initial
reopening optimism was overshadowed by a resurgent outbreak
in the world’s second largest economy.
Tullow Oil plc
2022 Annual Report and Accounts
11
Financial statementsSupplementary informationStrategic ReportGovernance Report
Markets continued
2 Oil price
Oil markets in 2022 were characterised by
significant volatility, with prices spiking
following Russia’s invasion of Ukraine,
before tapering off later in the year due
to recession concerns amid central bank
monetary policy tightening. ICE Brent
prices traded in a wide range, between
$75-$130/bbl, with an average daily price
during 2022 of ~$98/bbl.
January prices started the year on the front foot due to the
worsening geopolitical situation in Eastern Europe. Those fears
created upward momentum that carried gains through February
when the invasion of Ukraine was finally laid bare, and prices
climbed 9.1% month on month (m/m) touching a high of $98/bbl
just as the month ended. In March, the upward trend continued
despite efforts by the US to absorb some of the price shock,
announcing plans to release 180 million barrels from their
national reserves starting from May. Despite a temporary pause
to the crude rally, the move ultimately had limited effect with the
average monthly price during March gaining 19.6% m/m to reach
an intra-year high of ~$130/bbl. However, by April, the imminent
release of US crude stocks was beginning to act as a headwind
to oil markets, and the average monthly ICE Brent first month
contract fell by 5.7% m/m and those prices in March would end
up being the highest seen all year.
In May, ICE Brent largely reversed April’s move, posting a 5.5% m/m
gain and reaching $118/bbl after China announced a June
resumption of manufacturing from its key commercial hub of
Shanghai and commentators thought this might signal a change in
China’s COVID-19 policy. Supply-side dynamics in Europe were
also price supportive as the EU began a wide-ranging discussion on
the ban of all Russian energy imports and a price cap. In June, oil
prices trended 4.3% higher m/m but this was short lived after
OPEC+ announced it would materially increase production in July
and August and downward pressure was applied to prices during the
rest of the month. The supply dynamics from all this additional oil,
alongside weakening US and EU macro data, acted to fan demand
concerns. In July, ICE Brent prices continued their downward
move, with prices losing 10.7% m/m to hit a low of $99/bbl amid
bearish macro sentiment and a worsening demand outlook. These
factors continued to weigh on prices over August, with the monthly
average price softening by a further 6.5% m/m as the progressive
increases in interest rates weighed demand forecasts and stunted
future growth expectations across the globe.
In September the expected softening of Chinese COVID-19
lockdowns failed to materialise, and the regime reiterated its
support for its “zero-COVID” policy despite local protests and
the obvious impacts to the China economy. These headwinds
hindered prices and average ICE Brent prices fell by 7.1% m/m,
dipping to $83/bbl for the first time since before the war. October
saw a slight improvement to sentiment as a decision by OPEC+
to reverse its earlier boost to output and actually cut production
guided the prompt ICE Brent contract back towards $100/bbl
before ultimately falling short. The end of the year saw a further
decline in market confidence despite the reversal of China’s
“zero-COVID” policy as growth concerns instead focused on
what this policy change would mean in the short term – mainly
a burgeoning COVID-19 outbreak and loss of demand/output.
As such, average ICE Brent prices during November were 2.6%
lower m/m whilst during early December, ICE Brent reached
its 2022 nadir, touching $77/bbl. However, the latter half of
December saw oil regain some ground, slightly boosted by the
introduction of the EU’s Russian oil import ban and price cap
which partially came into effect on 5 December. Despite the late
rally, prices during December remained 10.3% lower m/m at
~$81/bbl and prices averaged the year at $98/bbl. Thus, while
prices ended the year lower than they started, 2022 saw the
highest average price since 2014.
12
Tullow Oil plc
2022 Annual Report and Accounts
African leaders echoed these goals, speaking of the importance
of equity, fairness, and responsibility: ‘Climate change is a global
emergency, and Ghana calls on all parties to act with equity and a
sense of responsibility’, said the President of the Republic of
Ghana, Nana Addo Dankwa Akufo-Addo.
COP27 did in fact serve to highlight the importance of collaborative,
inclusive and meaningful dialogue with a wide spectrum of
stakeholders, the complexity of transforming global energy
systems and the need for differentiated approaches to managing
the energy transition, north vs south, both trajectory and speed,
whilst also ensuring a just transition, for workforces, communities
and consumers, aiming for reliable, affordable and secure clean
energy resources, in eradicating energy poverty and supporting
economic growth.
COP27 delivered a breakthrough agreement, set out in the
‘Sharm el-Sheikh Implementation Plan’, that includes the creation
of a ‘Loss and Damage Fund' for vulnerable countries hit hard by
climate disasters and consistent with the overall theme of justice
and fairness.
Climate change, the energy transition and just transition will
continue to be topics of considerable national and international
debate in 2023, played out against a difficult geopolitical backdrop
that has underscored the importance of energy security as
an essential driver for economic growth and development.
Research shows that energy demand continues to increase and,
as widely accepted, oil & gas will continue to be a crucial part of
the global energy mix for decades to come. As we continue to
‘build a better a future through the responsible development of oil
and gas”, we will ensure these considerations continue to inform
our business strategy.
3
Climate change policy:
managing the ‘transitions’
Sharm el-Sheikh Climate Change Conference
(COP27): ‘All of Africa’ COP, focused on
implementation and delivering an
agreement on establishing a Loss and
Damage Fund.
The United Nations Environment Programme (UNEP) Emissions
Gap Report 2022: The Closing Window – Climate crisis calls for
rapid transformation of societies, published in October 2022,
stated that since COP26 (Glasgow, 2021), new and updated
nationally determined contributions (NDCs) have ‘barely
impacted the temperatures we can expect to see at the end
of this century’ and that unconditional NDCs point to a 2.6°C
increase in temperatures by 2100, far beyond the goals of the
Paris Agreement. To get on track to limiting global warming to
1.5°C, a 45% reduction in current greenhouse gas emissions
by 2030 will be required. For 2°C, a cut of 30% would be required.
As a consequence, a stepwise approach is no longer an option;
what is needed is a system-wide transformation.
The importance of COP27 could not be understated.
The Egyptian COP27 Presidency defined the summit's four key
goals as: Mitigation: all parties, especially those in a position to
“lead by example”, are urged to take “bold and immediate actions”
and to reduce emissions to limit global warming well below 2°C;
Adaptation: ensure that COP27 makes the “crucially needed
progress” towards enhancing climate change resilience and
assisting the world’s most vulnerable communities; Finance: make
significant progress on climate finance, including the delivery of
the promised $100 billion per year to assist developing countries;
and Collaboration: as the UN negotiations are consensus based,
reaching agreement will require “inclusive and active participation
from all stakeholders”.
Tullow Oil plc
2022 Annual Report and Accounts
13
Financial statementsSupplementary informationStrategic ReportGovernance Report A balanced scorecard
Measuring our
performance
5.6/7.5%
2.6/5.0%
6.3/10.0%
4.8/10.0%
1.9/5.0%
5.6/7.5%
0/50.0%
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.
2022 scorecard
1. Safety
2. Financial performance
3. Production
3.2/5.0%
4. Business Plan implementation
5. Sustainability
6. Unlocking value
7. Leadership effectiveness
8. Total Shareholder Return
Remuneration Report pages 73 to 97
5.6/7.5%
1.9/5.0%
6.3/10.0%
5.6/7.5%
2.6/5.0%
4.8/10.0%
3.2/5.0%
0/50.0%
KPI
1. Safety
Performance
No recordable injuries in 2022, maximum score achieved
No LOPCs at Tier 1. One Tier 2 LOPC
2. Financial performance
Normalised operating cash flow (OCF) at $557 million
3. Production
Group oil production normalised for pre-emption at 57.4 kbopd
Jubilee production efficiency at 97%; TEN production efficiency at 98%
4. Business Plan implementation
95% of the 2022 capex work programme completed at spend totalling $362 million
5. Sustainability
Implementing plan to eliminate our routine flaring by 2025 and being Net Zero on our Scope 1 and 2 net equity
emissions by 2030
6. Unlocking value
Delivery of a number of critical actions to unlock value in 2022 and drive future growth
7. Leadership effectiveness
In 2022, the leadership team has continued to work collaboratively and together with a highly energised workforce,
delivered strong performance across the core business activities and made solid progress in the critical areas identified
to unlock value. Together with strong support from the Board in the year, the leadership team continued to position the
company for sustainable success
8. Total Shareholder Return1
TSR position is bottom quartile
The safe and responsible operation of our assets is always our
first priority and through the implementation of safety
improvement plans, contractor engagement, active leadership
interventions and a strong reporting culture we have maintained
our strong EHS performance in 2022. There have been no
recordable injuries in 2022 and no Tier 1 incidents for loss of
primary containment (LOPC). Strong operational delivery was
also evident in our production efficiency with TEN and Jubilee
achieving at least 97%. Actual production once normalised to
remove benefit from pre-emption was close to matching our
scorecard target.
Actual operating cash flow of $972 million was significantly
higher than Budget thanks to the higher oil prices in 2022 but
for the scorecard KPI we normalised back to our Budget price
assumption. This means the KPI focused on cost and working
capital management. As a result, our normalised OCF was
$557 million resulting in meeting our scorecard target.
The Business Plan implementation KPI tracks our delivery of
the capital investment in the Budget (what percentage of the
work programme have we delivered?) and whether we have
delivered it on cost (have we adhered to the Budget costs?).
We delivered 95% of the Budget work programme for a spend
of $362 million. An additional $38 million of capital spend was
for additional projects approved post the Budget, e.g. the extra
wells drilled on Jubilee because we were ahead of schedule.
The sustainability KPI was measured against a series of
milestones which tracked our delivery against several key
themes, shared prosperity, local content, employee engagement,
corporate governance, and progress of our Net Zero plans.
The unlocking value KPI was based around delivery of six
critical actions. Highlights include completing the pre-emption
of the sale by Occidental Petroleum to Kosmos of its interests
in the Jubilee and TEN fields in early 2022, together with the
successful takeover of operatorship of the Jubilee FPSO in
mid 2022.
14
Tullow Oil plc
2022 Annual Report and Accounts
10.0%
7.5%
5.0%
5.0%
7.5%
10.0%
5.0%
50.0%
2023 scorecard
1. Safety
2. Financial performance
3. Production
4. Business Plan implementation
5. Embedding sustainability
6. Unlocking value
7. Leadership effectiveness
8. Total Shareholder Return
Remuneration Report pages 73 to 97
7.5%
5.0%
10.0%
7.5%
5.0%
10.0%
5.0%
50.0%
KPI
1. Safety
Performance
Total recordable incident rate (TRIR) of between 0.77 and 0.48; loss of primary containment (LOPC) Tier 1 and 2 as per
IOGP definition of 1 or less at Tier 2 and 0 at Tier 1
2. Financial performance
Group underlying operating cash flow (OCF) of $726 million to $888 million at a Brent price of $80/bbl
3. Production
58–64 kbopd produced; Jubilee production efficiency of 94–98%; TEN production efficiency of 95–99%
4. Business Plan implementation
Achieve 100% agreed work programme for $423 million agreed budget
5. Embedding sustainability
Delivery of key actions in progressing our Net Zero Plan, socio-economic contribution, employee engagement
and embedding strong governance
6. Unlocking value
Focus on unlocking value through a number of critical actions discussed below
7. Leadership effectiveness
Organisation is positioned for sustainable success
8. Total Shareholder Return1
Creating shareholder value
Finally, the Board made a judgement on the effectiveness
of the Senior Leadership Team over the year. It considered
several factors, including the strength and cohesiveness of
the leadership team, a clear strategy being set and understood
across the organisation, the engagement of the workforce and
the successful delivery of business activities in 2022. The Board
concluded that the strong performance in 2022 has been
driven by the unrelenting focus on business performance
and the hard work and dedication of the entire Tullow team,
resulting in a score of 3.2%.
1.
TSR is only applicable to CEO and CFO remuneration.
Remuneration for the wider workforce is based on all
other KPIs.
The 2023 scorecard remains largely the same as the 2022
scorecard as it reflects a focus on performance with clear
output KPIs at the Group level balanced with a series of input
targets across all other levels of the business. It ensures safety
is prioritised alongside operational targets, and balances
short-term production targets with longer-term business
value, Business Plan implementation and leadership to stabilise
and then grow our business, whilst delivering a robust
response to sustainability.
With input from the Extended Leadership Team and the
Remuneration Committee, we have updated the critical actions
for the 2023 unlocking value section whereby operations and
maintenance (O&M) transformation and Ghana pre-emption
are replaced by delivering enhancement in TEN value and
deleveraging/positioning for future refinancing.
Tullow Oil plc
2022 Annual Report and Accounts
15
Financial statementsSupplementary informationStrategic ReportGovernance Report Strategy in action
“We look for every opportunity to
improve our production rates from
our well stock; producing safely
and sustainably while minimising
losses is key to achieving
operational excellence. ”
Gabrielle Acquah
Senior Petroleum Engineer
Operational excellence:
Maximising asset
performance, reliability
and safety
16
Tullow Oil plc
2022 Annual Report and Accounts
Q&A
Gabrielle's story
Gabrielle Acquah
Senior Petroleum Engineer
What are the key responsibilities of your role?
I oversee surveillance and production optimisation of the TEN field, offshore Ghana. Surveillance
requires nearly round-the clock monitoring of both producer and injector wells using high
frequency real-time data to ensure performance is in line with expectations and within safe
operating limits. My team, which consists of production technology, reservoir engineering, facilities
engineering, and production chemistry optimise oil production by actively seeking and modelling
opportunities both upstream and downstream of the wells. This is done in collaboration with the
offshore team, with the aim of increasing field production and injection. We also carry out
investigations to find causes of any anomalous behaviours when they occur and try to find ways to
resolve them. Another key area is production loss management which identifies the major causes
of production losses thereby presenting an opportunity to address them when possible and
ultimately improve performance.
How does your role contribute to achieving operational excellence?
The TEN field accounts for 18 % of Tullow’s net production. Therefore, ensuring that the field is
producing the most that it can daily in a safe and sustainable manner impacts the company’s
bottom line. We look for every opportunity to improve our production rates from our well stock;
producing safely and sustainably while minimising losses is key to achieving operational excellence.
It is important to note that this does not happen without having a high facility uptime on the FPSO
which the offshore team strives to achieve every day.
How has your career developed at Tullow?
I joined the Tullow Production Technology team in December 2011 after working with MODEC
on contract. I worked on the Jubilee Field in the production space up until 2016 and moved into an
operations reservoir engineer role for the TEN field. In 2018, I moved to London on a two-year assignment
continuing in my role as a TEN reservoir engineer, however, with a new focus on future opportunities.
I did a lot of the initial modelling work for the Enyenra South Project. Following that I had a brief stint
working on the Kenya Early Oil Pilot Scheme (EOPS). In mid-2020, I came back to Ghana and joined
the Well, Reservoir and Facilities Management team looking after TEN operations.
What achievements are you most proud of in 2022?
The TEN field was on a steep decline entering 2022. There was an obvious concern on how we were
going to mitigate this without any new wells being drilled early in the year. Despite the challenges
the team carried out some significant optimisations which resulted in production gains and slowed
down the decline ahead of the new well, En21-P that came online in September 2022. I was honoured
to be nominated for the CEO Star Award for one of these opportunities that were carried out.
Tullow Oil plc
2022 Annual Report and Accounts
17
Financial statementsSupplementary informationStrategic ReportGovernance Report Operations review
A review of our operations
Ghana
Jubilee
Production from the Jubilee field increased from an average
of 74.9 kbopd (26.6 kbopd net) in 2021 to 83.6 kbopd (31.9 kbopd
net) in 2022. Continued excellent operational efficiency of c.97%
(2021: c.98%) was achieved and production was supported by
four new wells (one producer and three water injectors) coming
online ahead of schedule due to outstanding drilling and
completions performance.
Two wells were drilled in the Jubilee South East area in the
second half of 2022 and a third well in January 2023. Primary
target reservoir results are in line with expectations, but with
upside from deeper appraisal target reservoirs that encountered
oil resources for future development. These wells will commence
production in the second half of the year after the installation and
tie-in to the Jubilee South East Project subsea infrastructure, in
line with the initial project schedule. The completion of the
Jubilee South East Project will mark the end of the current major
infrastructure spend in the Jubilee area with the majority of
near-term capex expected to be focused on drilling and
completing new wells.
First oil from the Jubilee South East project will be a significant
milestone, bringing previously undeveloped reserves to production
and helping define future growth opportunities in the Jubilee area.
This project, which was delivered through a multi-national
supply chain effort, is being delivered on budget despite the
inflationary environment and challenges associated with
COVID-19 during 2020-22, highlighting Tullow’s project
management strengths and ability to integrate deliverables
across a global team.
In 2023, Jubilee oil production is expected to average c.95 kbopd
(c.37 kbopd net), with five wells expected to come online, starting
in the middle of the year. Gross oil production from the Jubilee
field is expected to exceed 100 kbopd once all these wells have
been brought online. This rate increase is also enabled by the
successful execution of expansion work on the Jubilee FPSO,
increasing water and gas handling capacity to support the
additional well stock coming online. The focus on operational
excellence in production, drilling and major project delivery in
recent years has yielded appreciable value and will continue to
be an area of leverage for Tullow.
Production, reserves and resources
In 2022, Group working interest production averaged 61.1 kboepd,
in line with guidance following pre-emption of the Deep Water
Tano component of the Kosmos Energy/Occidental Petroleum
Ghana transaction.
Group working interest production guidance for 2023 is 58-64
kboepd, excluding 19 bcf of gas sold under the Interim Gas Sales
Agreement and any additional volumes of gas sold during the
course of the year. The main driver of production growth in 2023
is expected to be the Jubilee South East development which is
due onstream in the second half of the year. The near-term focus
on TEN is to sustain the strong operational uptime and improve
gas handling on the FPSO this year, which will facilitate a
reduction in flaring and increased gas injection to support oil
production. Improvements on the gas processing facilities will
be implemented during a planned maintenance shutdown,
scheduled for the third quarter of the year. A two week FPSO
maintenance shut-down will impact production from TEN.
Production from the non-operated portfolio will be supported by
new wells planned at Tchatamba, Ezanga and Etame.
Group average working interest production
Ghana
Jubilee
TEN
Non-operated portfolio
Gabon
Côte d’Ivoire
Group
FY 2022
(kboepd)
44.4
31.9
12.5
16.7
14.9
1.8
61.1
FY 2023
range
(kboepd)
48
37
11
14
13
1
58–64
The Group’s audited 2P reserves are 229 mmboe at the end
of 2022 (2021: 231 mmboe). Group reserves replacement was
c.90% as a result of the additional equity acquired through the
pre-emptive transaction in Ghana and other positive revisions
including transfers from contingent resources, offset by
reduction in TEN due to greater than expected base decline
in Enyenra and the two Notmme riser base area well results.
As at 31 December 2022, the audited 2P NPV10 was $3,895 million
(2021: $3,633 million).
The Group’s audited 2C resources reduced to 605mmboe at
the end of 2022 (2021: 625mmboe). This was principally due
to the evaluation of several projects in the TEN development
area, some of which have been upgraded from contingent
resources to reserves.
18
Tullow Oil plc
2022 Annual Report and Accounts
Gas Commercialisation
In December 2022, an Interim Gas Sales Agreement for 19 bcf
gross of Jubilee gas was executed, utilising the price for TEN
associated gas referenced in the 2017 TEN Gas Sales Agreement
which was $50c/mmbtu. The 19 bcf is expected to have been
supplied by the middle of the year at an anticipated export rate in
excess of 100 mmscfpd, adding c.7 kboepd net production during
the first half of the year. Further gas export will be contingent on
reaching agreement on acceptable commercial terms for
future volumes.
Tax exposure
As announced on 14 February 2023, throughout 2021 and 2022,
Tullow has received revised and new tax assessments from
the Ghana Revenue Authority (GRA). Tullow believes these
assessments are without merit and filed requests for arbitration
with the International Chamber of Commerce in London, in
accordance with the dispute resolution process set out in the
Petroleum Agreements which govern Tullow Ghana Limited's
(TGL's) activities in Ghana. Notwithstanding this formal step,
Tullow intends to continue to engage with the Government of
Ghana, including the GRA, with the aim of resolving these
disputes on a mutually acceptable basis.
TEN
Production from the TEN fields averaged 23.6 kbopd (12.5 kbopd
net) in 2022. Continued excellent operational efficiency of c.98%
(2021: c.97%) was achieved with overall production at the lower
end of guidance.
Ntomme gross production averaged 16.8 kbopd for the full year.
No new wells were brought online during the year at Ntomme,
but pressure support from existing gas and water injection wells
resulted in steady production. Enyenra gross production
averaged 6.8 kbopd for the full year, supported strongly in the
fourth quarter by a new production well, which was brought
online in September 2022. Currently producing 3 kbopd, this well
and a new water injector brought online in December 2022, will
contribute to supporting production in 2023.
Two wells drilled in the Ntomme riser base area did not
encounter economically developable resources and will not be
completed in 2023 as originally intended, removing c.2.5 kbopd
net from previously expected 2023 production.
The longer term plan for TEN is to monetise its significant
remaining resources through infill drilling, phased development
of new areas near existing infrastructure, development of the
significant gas resources and drilling of prospective resources.
A restructuring of the FPSO cost base is under evaluation to
enable sustained cost efficiency in production operations.
Tullow expects to submit a plan of development to the
Government of Ghana later this year.
In 2023, TEN production is expected to average c.20 kbopd
(c.11 kbopd net), including the planned two-week maintenance
shutdown. No new wells are planned to be added in TEN in 2023.
Jubilee operations and maintenance transformation
The transition of operatorship to Tullow on the Jubilee FPSO took
place in July 2022. This is a major step in Tullow's transformation
to a leading low-cost deep-water operator, and is expected to
deliver sustainable improvements in safety, reliability and cost.
Following the transition, which is supported by a comprehensive
multi-year transformation plan, FPSO uptime averaged c.99% in
the second half of 2022, compared to c.95% in the first half.
Operations and maintenance (O&M) costs were c.30% lower in
the second half of the year compared to the first, and 2023 full
year O&M costs are expected to be c.23% lower than in 2021,
demonstrating the sustainability of the structural changes
delivered through the transformation, helping mitigate the
impact of inflation through the supply chain, and allowing for
sustained prioritisation of FPSO upkeep activities which are
important for maintaining the FPSO's top-tier performance for
the long-term.
Tullow Oil plc
2022 Annual Report and Accounts
19
Financial statementsSupplementary informationStrategic ReportGovernance Report Operations review continued
Non-operated portfolio
Production from Tullow’s non-operated portfolio in Gabon and
Côte d’Ivoire averaged 16.7 kboepd net in 2022 (2021: 17.2 kboepd
net), supported by new wells brought online in Tchatamba,
Ezanga and Etame. Capital expenditure in Gabon and Côte
d’Ivoire in 2022 was c.$43 million net, with approximately 60%
allocated to infrastructure projects, including the tie-back of the
Wamba discovery for a long-term production test.
In Côte d’Ivoire, remediation work on the Espoir FPSO will
continue through 2023. A 4D seismic survey will be acquired over
the licence to support the upcoming infill development drilling
campaign and mature other future investment projects.
Net production from the non-operated portfolio is expected to
average c.14 kboepd in 2023, which includes production from the
Wamba discovery long-term production test which will continue
throughout 2023. Total capital expenditure is expected to be
c.$60 million net, of which c.75% will be allocated to infrastructure
projects to support future developments and production. The
remaining investment will be in new wells at the Ezanga Complex
and workovers across the portfolio to sustain production levels.
Decommissioning
In the UK and Mauritania, decommissioning expenditure was
c.$72 million in 2022 and is expected to be c.$90 million in 2023,
which is the last year of significant decommissioning spend.
At the end of 2023, it is expected that less than $30 million of
decommissioning liabilities will remain for the two countries.
In 2022, UK decommissioning activity included the removal
of four platforms (three at the Murdoch Hub and the Ketch
platform). Removal of the Ketch pipeline commenced in 2022
and is expected to complete in the second half of 2023. Eleven
Schooner wells were successfully plugged and abandoned.
Plugging and abandonment work has also begun at the Boulton
field, as part of an eight well campaign in the CMS area. In Mauritania,
the Tullow operated Banda and Tiof decommissioning campaign
commenced in December 2022 and is expected to complete by
the middle of the year.
Starting in 2023, c.$20 million will be required to be paid annually
into escrow for future decommissioning of currently producing
assets in Ghana and parts of the non-operated portfolio.
Kenya
Engagements to secure a strategic partner for the development
project in Kenya are ongoing.
In March 2023, Tullow and its JV Partners submitted an updated
Field Development Plan to the Ministry of Energy and Petroleum
and the Energy and Petroleum Regulatory Commission Authority,
for their approval. This is currently under review by the
relevant authorities.
Kenya continues to remain an important asset in Tullow’s
development portfolio, with the potential to add material
resources and create value for shareholders.
Exploration
Capital expenditure on exploration and appraisal activities was
c.$45 million in 2022 and is expected to be c.$30 million in 2023.
In Guyana, the operator of the Kanuku licence (Tullow 37.5%), Repsol,
drilled the Beebei-Potaro prospect which encountered water
bearing reservoirs, and the well was plugged and abandoned.
In Gabon, Tullow, together with JV partner Perenco, is focused on
maturing the prospective resource base within the Simba
licence, where several low-risk and compelling investment
options adjacent to infrastructure have been high-graded for
near-term drilling programmes.
In Côte d’Ivoire, Tullow, together with its JV Partner PetroCi,
has elected to proceed into the second exploration phase in
Block CI-524 and is maturing a number of drilling candidates.
Tullow has enhanced its strategic position in the Tano Basin,
where it has a differentiated subsurface understanding, with
a 90% interest in a new offshore exploration licence (CI-803),
which is adjacent to Block CI-524 and also to Tullow’s producing
fields in Ghana.
In the emerging basins of Argentina and Guyana, Tullow continues
to purse activities to unlock value from its significant prospective
resource base. A two year extension has been secured in Block
MLO-122 in Argentina.
Proposed Merger
On 1 June 2022, Tullow entered into an agreement for a proposed
all-share merger with Capricorn Energy PLC ("Capricorn").
The aim of the proposed merger was to create a leading
African energy company, and it would have enabled Tullow to
accelerate its deleveraging trajectory and investment in growth.
On 29 September 2022, Tullow noted the announcement released
by Capricorn in connection with its proposed combination with
NewMed Energy Limited Partnership. Tullow’s Board decided
that it would not increase the value of Tullow's offer for Capricorn
or to elect to implement its offer by way of a contractual offer,
and later confirmed that it will no longer proceed with the
proposed merger.
20
Tullow Oil plc
2022 Annual Report and Accounts
Chief Financial Officer’s statement
Building a capital efficient
and cash-generative business
In 2022 Tullow continued to demonstrate that its core producing assets, alongside a prudent
financial strategy, can deliver solid financial results to reduce debt, strengthen our balance sheet
and set a firm foundation for future growth. Richard Miller was appointed Chief Financial Officer in
December 2022 and is pleased to report on the Group’s ongoing financial strategy and performance.
“Our strong operational and
financial performance has led
to us reaching our gearing
target of below 1.5x three
years ahead of plan. ”
Richard Miller
Chief Financial Officer
Richard Miller
Chief Financial Officer
A new chapter for the CFO team
I am delighted to have been appointed Chief Financial Officer
(CFO) of Tullow Oil at the end of 2022 following a period as Interim
CFO, taking over from Les Wood, who left the Company last year.
I would like to thank Les for his support to me personally during
my career at Tullow and for the hard work he put in to reset the
Company which put Tullow on much firmer financial footing.
I step up to CFO after 11 years of working at Tullow, most recently
leading the Finance team as Financial Controller of the Group.
This tenure has given me a deep knowledge across all areas of
Tullow’s financials and first-hand experience in various milestones
the Company has undertaken such as acquisitions and capital
markets transactions as well as major internal changes to rebase
our cost structure. I have worked closely with the leaders and
members of my broader CFO team for several years, and I am
confident we have the right skills, motivation and culture to make
a material contribution to Tullow’s continued turn-around and
return to growth. I am ambitious to drive further cost discipline
and capital efficiency across the Group, but also see clear areas
we can invest responsibly to restore and build value for our
stakeholders, particularly through the delivery of the key catalysts
we list in our scorecard. I look forward to reporting on our
progress throughout 2023 and beyond.
2022 was a volatile year for oil markets with prices starting
the year at $80/bbl, increasing to a peak of $128/bbl in early
March following the invasion of Ukraine, trading as low as $76/bbl
in early December, and ending the year around $85/bbl.
The volatility was driven by a variety of factors including
supportive actions from OPEC+, central bank interest rate
increases contributing to a strong US dollar, and China's
persistent Zero Covid policy until the end of the year which
impacted physical oil demand.
Key 2022 financial results
Tullow generated $1.8 billion revenue (2021: $1.3 billion), resulting
in $972 million of operating cash flow (2021: $711 million).
However, the Company made a profit after tax of $49 million,
primarily driven by impairments.
Following an independent reserves audit of our producing
assets we have reported pre-tax impairments of $391 million.
These were primarily driven by a decrease in TEN 2P reserves
and increased discount rates partially offset by a higher
long-term oil price assumption of $70/bbl.
In terms of deleveraging, Tullow generated $267 million of free
cash flow in 2022. While ahead of year-end expectations, this
figure doesn’t represent the true cash generation of the business
which was more than $450 million before the increased equity
interest in Ghana ($126 million) and the impact of the Norwegian
arbitration payment ($76 million).
Nevertheless, our absolute free cash flow enabled us to reduce
net debt to $1.9 billion and our cash gearing now stands at 1.3x,
surpassing our target of below 1.5x by 2025. We have grown cash
reserves to c.$600 million, which, combined with our $500
million undrawn Revolving Credit Facility (RCF), provides liquidity
headroom of $1.1 billion. Overall we are making great progress
towards our long-term ambition to materially deleverage the
business and have cash gearing of 1x or below, giving us the
financial flexibility to pursue value accretive opportunities or
consider future shareholder returns.
Tullow Oil plc
2022 Annual Report and Accounts
21
Financial statementsSupplementary informationStrategic ReportGovernance Report Chief Financial Officer’s statement continued
Prudent financial strategy
Rigorous capital allocation is now embedded at Tullow as we
focus on high-return and fast-payback investments in our
production assets. Capital expenditure was $ 354 million in
2022, with over 90% of spend allocated to our producing assets,
compared with c.70% on average over 2016–20. During 2022 we
have invested c. $100 million on the Jubilee South East and North
East projects which will commence production in the second half
of 2023 and will be the key area of investment to bring the Jubilee
field back to its potential to deliver c.100 kbopd. We also invested
inorganically, with the pre-emption of Oxy’s interests in Ghana
which increased Tullow’s equity interests to 38.9% in the Jubilee
field and 54.8% in the TEN fields. This $126 million investment
has paid back within nine months and demonstrates the focus
on short-return, value accretive opportunities.
Commodity hedging remains a key component of our financial
risk management. In 2021, as required under the terms of the
refinancing, we built up a portfolio which protects 75% of our
production entitlements for a period of 24 months from completing
our debt refinancing in May 2021, and 50% of our production
entitlements for another 12 months beyond that. Due to lower oil
prices at the time of executing these hedges our portfolio had
average sold calls of c.$78/bbl in 2022, giving rise to a $319
million payout in the higher price environment which was
materially driven by the invasion of Ukraine. From the start of
2023 through to May 2024 we have a portfolio with collars of
c.$55-75/bbl for c.50% of our forecast net entitlement production.
As the Company continues to de-lever we will revisit our hedge
policy, which has historically been 60% of production entitlements
in the following 12-month period with a goal to secure maximum
access to the upside while maintaining downside protection.
Continued focus on costs
In 2022, we continued to deliver cost savings across the business
with net G&A down to $51 million (2021: $64 million). Our net
operating costs were also reduced to $267 million (2021: $269
million), primarily due to savings of c.$50 million in Ghana due to
self-operatorship of the O&M contract from 1 July 2022 and as a
result of asset disposals. While our culture is becoming ever
more performance focused, where every barrel matters and
every dollar counts, we faced some cost pressures in 2022.
Despite lower net operating costs, unit operating costs increased
to $11.9/bbl (2021: $12.4/bbl). This was primarily due to lower
production and increased costs related to extended COVID-19
operating procedures, shuttle tanker operations, construction
Support Vessel Campaign and shutdown costs. A normalised unit
operating cost was $11.3/bbl.
Managing tax exposure
Following material investment in Ghana for over a decade
to commence and deliver oil production from the Jubilee
and TEN fields, Tullow built up significant capital allowances.
These allowances have been fully utilised through 2022 and
cash taxes are expected to be in excess of $300 million in 2023
(at $80/bbl), compared to $229 million in 2022. Tax payments
to governments, as defined in our production agreements,
are a key part of Tullow’s licence to operate and we believe they
are a major and positive contribution to the socio-economic
contribution we can make to the countries where we operate.
22
Tullow Oil plc
2022 Annual Report and Accounts
However, throughout 2021 and 2022, Tullow has received revised
and new tax assessments from the Ghana Revenue Authority
(GRA). Tullow believes these assessments are without merit and
filed requests for arbitration with the International Chamber of
Commerce in London, in accordance with the dispute resolution
process set out in the Petroleum Agreements which govern TGL’s
activities in Ghana. Notwithstanding this formal step, Tullow
intends to continue to engage with the Government of Ghana,
including the GRA, with the aim of resolving these disputes on
a mutually acceptable basis.
Refinancing flexibility
During 2022 there has been a continued deterioration in global
debt capital markets, with a significant reduction in emerging
market funds flow. Furthermore the challenging economic
situation in Ghana triggered by the pandemic and Ukraine war
has implications for Tullow. Progress has been made with a staff
level agreement with the IMF and completion of a domestic debt
restructure in February 2023.
While the external market is challenging, as mentioned above
Tullow has $0.6 billion of free cash and $500 million available
under the RCF, leaving the Company with over $1.1 billion
liquidity headroom and no debt maturities until March 2025.
If oil prices stay at around $80/bbl, we expect to deliver around
$800–$900 million of free cash flow in 2023—2025; if oil averages
$100/bbl in the same period, that figure could increase to
c.$1.5 billion. As such, despite the current challenging market
backdrop, Tullow has time, options and flexibility to address
refinancing on an opportunistic basis. Part of my remit as
CFO will be to regularly review options to optimise our capital
structure which may include retiring or purchasing outstanding
debt from time to time through cash purchases or exchanges
in the open market or otherwise.
Demonstrating progress in 2023
Tullow has a clear set of deliverables that can act as catalysts
to restore and build value. These include making development
progress and securing a strategic partner in Kenya, defining the
future for the TEN fields, reducing our debt further, addressing
our capital structure when appropriate and resolving GRA tax
claims. Having such a clear set of tasks allows our team to be
incredibly focused and dedicated to making progress against
all of them, all the while remaining agile for value accretive
opportunities that may arise. It also allows our shareholders,
potential investors and wider stakeholders to measure our
success and I welcome the opportunity to report positively
on our progress in the year ahead.
Richard Miller
Chief Financial Officer
7 March 2023
Insights from the Task Force on Climate-related
Financial Disclosures (TCFD) scenario analysis
We continued to test the resilience of our business this year using scenarios provided by the International Energy Agency (IEA),
a widely used source for the global energy sector. The three IEA scenarios assess the potential impact of the energy transition
across industries and economies, with varying impacts on energy demand and mix across global markets. As an upstream
exploration and production (E&P) company, we consider the IEA scenarios to be well suited for exploring potential pathways for
the energy sector more broadly and the role of the oil and gas industry within it.
While the IEA scenarios assume a reduction in oil demand at different points in the future, oil continues to play an important role
in the global energy system for decades to come. Both the APS and STEPS scenarios project a decline in oil production between
now and 2030 with additional investment required to meet demand, typically through new conventional projects with shorter lead
All text to be supplied
times and quick payback periods including projects to extend production from existing fields. Even under the NZE scenario
continued investment in existing upstream assets is needed to meet demand. This outlook is well aligned with Tullow’s strategy,
which is focused on maximising value from our existing assets and is supported by an infrastructure-led, near-field exploration
strategy to minimise payback periods.
Our scenario analysis reflects the impact of each IEA scenario on the Group’s operating cash flow (OCF) over 1, 5, and 10 years consistent
with our Viability Statement for our existing production portfolio. Using the OCF KPI is an explicit way for us to demonstrate the impact
to cash flows under the different scenarios, to analyse the impact of oil price on our ability as a company to generate the cash we need
to invest in and finance the activities of our business. It is clear from the oil price trajectories in the APS and NZE scenarios that the IEA
predicts a more challenging oil price environment should the assumptions within these scenarios come to pass.
Refer to note 26 for our assessment of climate change risk on the Group’s Financial Statements.
OCF impact
1 year
5 years
10 years
STEPS Stated Policies Scenario
APS
NZE
Announced Pledges Scenario
Net Zero Emissions by 2050 Scenario
IEA scenarios
(Real terms 2021 $/bbl)
Positive impact
Loss of 0–10%
Loss > 10%
2023
2024
2025
2026
2027
2028
2029 2030
2035
2040
2045 2050
STEPS Stated Policies Scenario
APS
NZE
Announced Pledges Scenario
Net Zero Emissions by 2050 scenario
72
68
61
73
67
58
75
67
54
76
66
50
78
66
46
79
65
43
81
65
39
82
64
35
85
63
32
89
62
30
92
61
27
95
60
24
Refer to note 10 for the Group oil price assumptions.
Tullow complies with the TCFD disclosure recommendations fully within this report and more comprehensively in our Climate Risk and Resilience Report; see table
below for information regarding these disclosures. Our Climate Risk and Resilience Report can be found at www.tullowoil.com/sustainability and includes a full TCFD
index for ease of reference.
TCFD disclosures
Governance
Describe the Board’s oversight of climate-related risks and opportunities.
Describe Management’s role in assessing and managing climate-related risks and opportunities.
Strategy
Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term.
Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning.
Page 58–59
Page 59
Risks, Page 44, 50
Opportunities, Page 2–5,
49
Page 158-159 (Note 26)
Page 2-5, 10, 23
Page 158-159 (Note 26)
Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a
2°C or lower scenario.
Page 23
Page 158-159 (Note 26)
Describe the organisation’s processes for identifying and assessing climate-related risks.
Page 40-42, 44, 58-59
Risk
management
Describe the organisation’s processes for managing climate-related risks.
Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s
overall risk management.
Page 34–35, 40-42
Page 42–44, 46, 58-59
Metrics and
targets
Disclose the metrics used by the organisation to assess climate-related risks and opportunities, in line with its strategy and risk
management process.
OCF – Page 23
Emissions Page 34-35
Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.
Page 34–35
Describe the targets used by the organisation to manage climate-related risks, opportunities, and performances against targets.
Page 14–15, 71-73, 80
2022 Annual Report and Accounts 23
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Finance review
2022 financial results
Income Statement (key metrics)
2022
2021
Restated ¹
Revenue ($m)
Sales volumes (boepd)
Realised oil price ($/bbl)
Total revenue
Operating costs ($m)
55,170
55,450
88.0
1,783
63.3
1,285
Underlying cash operating costs²
(267)
(269)
Depreciation, depletion and
amortisation (DDA) of oil and gas
and leased assets
DDA before impairment charges
($/bbl)
Underlift and oil stock movements
Administrative expenses
Gain on bargain purchase
Exploration costs written off
Impairment of property, plant
and impairment
Net financing costs
Profit before tax ($m)
Income tax expense
Profit/(loss) after tax ($m)
Last 12 months adjusted EBITDAX 2
Basic earnings/(loss) per share (cents)
(411)
(361)
(18.4)
(16.7)
(46)
(51)
197
(105)
(391)
(293)
442
(393)
49
1,469
3.4
(20)
(64)
–
(60)
(54)
(312)
215
(296)
(81)
973
(5.7)
1. Refer to Note 6 for details on prior year restatement.
2. Alternative performance measures are reconciled on pages 173 -174.
Revenue
Sales volumes
During the period there were 55,170 boepd (2021: 55,450 boepd)
of liftings. This mainly consisted of 13 liftings in Jubilee of 29,322
boepd and 5 liftings in TEN of 12,270 boepd compared to 10
liftings in Jubilee of 25,987 boepd and 5 liftings in TEN of 13,511
boepd in 2021. The increase in Jubilee liftings was mainly driven
by increased production. Refer to Operations Review on page 18
for further information on working interest production.
Realised oil price ($/bbl)
The Group’s realised oil price after hedging for the period
was $88.0/bbl and before hedging $104.3/bbl (2021: $63.3/bbl
and $70.9/bbl, respectively). The higher oil prices during 2022
resulted in hedge losses, decreasing total revenue by $319 million
(2021: decrease of $153 million). The increase in oil prices was
triggered by Russia's invasion of Ukraine in February 2022. Refer
to Oil Prices in the Market section on page 12 for further information.
24
Tullow Oil plc
2022 Annual Report and Accounts
Cost of sales
Underlying cash operating costs
Underlying cash operating costs amounted to $267 million;
$11.9/boe (2021: $269 million; $12.4/boe). The decrease in
operating costs is due to the disposal of Equatorial Guinea and
the Dussafu asset in Gabon in 2021 and the O&M transformation
project on Jubilee (refer to Operations review on page 19) offset
by the shutdown in Jubilee in Ghana, the Simba expansion
project costs in Gabon and the increased equity interest in Ghana
following pre-emption.
Normalised cash operating costs which exclude COVID-19
operating procedures, shuttle tanker operations, Construction
Support Vessel (CSV) campaign and shutdown costs were
$11.3/boe (2021: $12.1/boe).
Depreciation, depletion and amortisation (DDA)
DD&A charges before impairment of oil and gas and leased
assets amounted to $411 million; $18.4/boe (2021: $361 million:
$16.7/boe). This increase in DD&A per barrel is mainly attributable
to Ghana pre-emption which was effective 1Q22 and downward
revision of TEN 2P reserves partially offset by 2021 impairments.
Underlift and oil stock movements
The underlift in the income statement was mainly due to timings
of the liftings in Ghana as well as increased oil prices and stock
positions in Gabon.
Administrative expenses
Administrative expenses of $51 million (2021: $64 million)
have decreased against the comparative period mainly due to
lower payroll related costs as a result of the reduced headcount
as well as a favourable GBP:USD FX variance in 2022. Tullow
achieved approximately $300 million in net cash savings since
mid-2020 to date thereby delivering in excess of the target set.
Gain on bargain purchase
On 17 March 2022 the Group completed the pre-emption related
to the sale of Occidental Petroleum’s interests in the Jubilee and
TEN fields in Ghana to Kosmos Energy. As a result of this acquisition,
the Group’s interest in the TEN fields increased from 47.18% to
54.84%, and from 35.48% to 39.0% in the Jubilee field. The
difference between the fair value of net assets acquired and
consideration paid was recognised within the income statement
as a gain on bargain purchase of $197 million. Refer to note 15
Business combination.
Exploration costs written off
During 2022, the Group has written off exploration costs of
$105 million (2021: $60 million) which are predominantly
driven by write-offs from Guyana after the completion of
the Beebei-Potaro commitment well which was plugged
and abandoned.
Analysis of adjusted
effective tax rate ($’m)
Ghana
FY 2022
Gabon
FY 2021
FY 2022
FY 2021¹
Equatorial Guinea
FY 2022
FY 2021
Corporate FY 2022
FY 2021
Other non-operated &
exploration FY 2022
Total
FY 2021¹
FY 2022
FY 2021¹
Profit/(loss)
before tax
Tax (expense)
/credit
Effective
tax rate
994.8
450.9
316.1
185.0
—
15.5
(584.5)
(386.0)
15.9
5.1
742.3
270.6
(359.7)
36.2%
(163.3)
(158.9)
(95.2)
—
(5.4)
3.5
36.2%
50.3%
51.5%
—
35.0%
0.6%
(41.8)
(10.8)%
(6.9)
(9.1)
(522.1)
(314.9)
43.5%
178.2%
70.3%
116.4%
1. The prior year has been restated to include the notional tax on the profit oil
within current tax expense in accordance with the terms of the respective
Production Sharing Contracts (PSCs). Refer to Note 6.
Adjusted EBITDAX
Adjusted EBITDAX for the year was $1,469 million (2021: $973 million).
The increase from 2021 was predominantly due to higher revenues.
Profit for the year from continuing activities
and earnings per share
The profit for the year from continuing activities amounted to
$49 million (2021: $81 million loss). Profit after tax has increased
by $130 million driven by higher revenues and lower costs. Basic
earnings per share was 3.4 cents (2021:5.7 cents loss per share).
Impairment of property, plant and equipment
The Group recognised a net impairment charge on producing
assets of $391 million in respect of 2022 (2021: $54 million).
Impairments are mainly due to downward revision of TEN
reserves as well as changes to estimates on the cost of
decommissioning for certain UK and Mauritania assets.
Net financing costs
Net financing costs for the period were $293 million (2021:
$312 million). The decrease in financing costs is mainly due to
$19 million fees incurred in 2021 in relation to the refinancing
of the RBL facility, and a decrease of $7 million in interest on
obligations under finance leases due to a decrease in lease
liability position offset by an increase in interest on borrowings
of $7 million.
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 lease assets. These costs are offset by
interest earned on cash deposits. A reconciliation of net
financing costs is included in note 5.
Taxation
The overall net tax expense of $393 million (2021: $296 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 profit before tax for the year of $442 million
(2021: $215 million), the effective tax rate is 88.9% (2021: 137.6%).
After adjusting for non-recurring amounts related to acquisition
through business combination, exploration write-offs, disposals,
impairments, provisions for onerous service contracts and their
associated deferred tax benefit, the Group’s adjusted tax rate
is 70.3% (2021: 116.4%). The effective tax rate has decreased
primarily due to the release of provisions on the settlement of
tax audits and higher taxes on uncertain treatments in the prior
year, offset by there being no UK tax benefit from net interest
and hedging expenses of $570 million (2021: $417 million).
Non-deductible expenditure in Ghana and Gabon and prior
year adjustments are additional contributing factors.
The Group’s future statutory effective tax rate is sensitive to the
geographic mix in which pre-tax profits arise. There is no UK tax
benefit from net interest and hedging expenses, whereas net
interest income and hedging profits would be taxable in the UK.
Consequently, the Group’s tax charge will continue to vary
according to the jurisdictions in which pre-tax profits occur.
2022 Annual Report and Accounts 25
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report
Hedge position
at 31 December 2022
2023
20241
2025
Hedged Volume (kbopd)
33,095
11,305
Weighted average bought put
(floor) ($/bbl)
$55/bbl
$55/bbl
Weighted average sold
call ($/bbl)
1. Hedges are shown to May 2024.
$75/bbl
$75/bbl
—
—
—
Borrowings
In May 2022, the Group made a mandatory prepayment of
$100 million of the Senior Secured Notes due 2026, which
reduced total drawn debt to $2.5 billion.
Management regularly reviews options for optimising the Group’s
capital structure and may seek to retire or purchase outstanding
debt from time to time through cash purchases or exchanges in
the open market or otherwise.
Credit Ratings
Tullow maintains credit ratings with Standard & Poor’s (S&P) and
Moody’s Investors Service (Moody’s).
On 31 May 2022, S&P’s revised Tullow’s outlook to positive, and
re-affirmed Tullow’s B- corporate credit rating, the B- rating of
the $1.7 billion 2026 Notes, and the CCC+ rating of the $800 million
Senior Notes maturing in 2025. On 18 August 2022, S&P’s revised
Tullow’s outlook to negative following S&P’s downgrade of Ghana’s
foreign and local currency sovereign ratings. Concurrently, S&P’s
affirmed the B- rating of the $1.7 billion 2026 Notes, and the CCC+
rating of the $800 million Senior Notes maturing in 2025.
On 9 June 2022, Moody’s changed Tullow’s outlook to positive
and affirmed the B3 corporate credit rating, the B2 rating of the
$1.7 billion 2026 Notes, and the Caa2 rating of the $800 million
Senior Notes maturing in 2025. On 6 October 2022, Moody’s
placed Tullow’s ratings on review for downgrade, primarily
driven by Moody's downgrade and placing on review for further
downgrade of Ghana’s long-term issuer and senior unsecured
debt ratings to Caa2 from Caa1. On 2 December 2022, Moody’s
downgraded Tullow’s corporate credit rating to Caa1 with
negative outlook, and the rating of the $1.7 billion 2026 Notes to
Caa1. Concurrently, Moody’s confirmed the Caa2 rating of the
$800 million Senior Notes maturing in 2025. The rating action
concluded the review for downgrade initiated by Moody's on
6 October 2022 and reflected Moody's downgrade of Ghana's
long-term issuer rating to Ca from Caa2 and the concurrent
downward revision of Ghana's local currency and foreign
currency country ceilings to Caa1 and Caa2 respectively,
from B2 and B3.
Finance review continued
Balance Sheet and Liquidity
management (key metrics)
Capital investment ($m)1
Derivative financial instruments(net)
($m)
Borrowings
Underlying operating cash flow ($m)1
Free cash flow ($m)1
Net debt ($m)1
Gearing (times)1
2022
354
2021
263
(244)
(180)
(2,473)
(2,569)
972
267
1,864
1.3
711
245
2,131
2.2
1. Alternative performance measures are reconciled on pages 173 -174.
Capital investment
Capital expenditure amounted to $354 million (2021: $263 million)
with $309 million invested in production and development
activities and $45 million invested in exploration and
appraisal activities.
Tullow will continue to maintain capital discipline primarily
directing investment towards maximising value from the Group’s
producing assets. The Group’s 2023 capital expenditure is
expected to comprise Ghana capex of c.$300 million, West
African non-operated capex of c.$60 million, Kenya capex of
c.$10 million and exploration spend of c.$30 million.
Derivative financial instruments
Tullow has a material hedge portfolio in place 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 2022, Tullow’s hedge portfolio provides downside
protection for 64% of forecast production entitlements through
to May 2023 and 40% for a further 12 months to May 2024 with
$55/bbl floors and weighted average sold calls of $75/bbl for the
remainder of 2023 up to May 2024.
All financial instruments that are initially recognised and
subsequently measured at fair value have been classified in
accordance with the hierarchy described in IFRS 13 Fair Value
Measurement. 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 (Level 1). 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 (Level 2).
All of the Group’s derivatives are Level 2 (1H 2021: Level 2).
There were no transfers between fair value levels during the year.
At 31 December 2022, the Group's derivative instruments had
a net negative fair value of $244 million (2021: net negative
$180 million).
26
Tullow Oil plc
2022 Annual Report and Accounts
Free cash flow and underlying operating cash flow
Underlying operating cash flow amounted to $972 million
(2021:$711 million). This is due to an increase in net cash from
operating activities of $291 million (2021: $113 million), an
increase in repayment of obligations under leases of $13 million
(2021:$27 million increase) and an increase in decommissioning
expenditure of $5 million (2021: $5 million increase) as well as
$48 million increase (2021: $2 million increase) in lease
repayment obligations due to the pre-emption in Ghana.
Free Cash Flow (FCF) has increased to $267 million compared to
$245 million in 2021 primarily due to an increase in net cash from
operating activities of $291 million as explained above and no
debt arrangement fees being incurred in 2022 compared to 2021
of $56 million offset by increase in net cash used in investing
activities of $255 million mainly due to the increased equity
interest in Ghana.
Net debt and gearing
Reconciliation of net debt
Year end 2021 net debt
Revenue
Operating costs
Other operating and administrative expenses
Cash flow from operations
Movement in working capital
Tax paid
Purchase of intangible exploration and evaluation
assets and property, plant and equipment
Other investing activities
Other financing activities
Foreign exchange gain/(loss on cash and debt
Year-end 2022 net debt
$m
2,131
(1,783)
267
257
(1,259)
(29)
229
433
(77)
434
2
1,864
Net debt reduced by $267 million during the year to $1,864 at 31
December 2022 (2021: $2,131 million), consisting of $800 million
Senior Notes due 2025 and $1,700 million Senior Secured Notes
due 2026 less cash and cash equivalents. In May 2022, $100
million of the Senior Secured notes due 2026 was prepaid at par.
The Gearing ratio has decreased to 1.3 times (2021: 2.2 times) due
to an increase in Adjusted EBITDAX as explained above primarily
due to higher revenues. This is ahead of guidance at the start of
the year which indicated that gearing should reach less than
1.5 times by year-end 2023.
Liquidity risk management and Going Concern
The Directors consider the going concern assessment period to
be up to 31 March 2024. The Group closely monitors and manages
its liquidity headroom. Cash forecasts are regularly produced,
and sensitivities run for different scenarios including, but not
limited to, changes in commodity prices, different production
rates from the Group’s producing assets and different outcomes
on ongoing disputes or litigation.
Management has applied the following oil price assumptions
for the going concern assessment:
Base Case: $84/bbl for 2023, $79/bbl for 2024; and
Low Case: $70/bbl for 2023, $70/bbl for 2024.
The Low Case includes, amongst other downside assumptions,
a 5% production decrease compared to the Base Case.
At 31 December 2022, the Group had $1.1 billion liquidity headroom
consisting of c.$0.6 billion free cash and $0.5 billion available
under the revolving credit facility.
The Group’s forecasts show that the Group will be able to operate
within its current debt facilities and have sufficient financial
headroom for the going concern assessment period under its
Base Case and Low Case. Based on the analysis above, the
Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Thus, they have adopted the going concern
basis of accounting in preparing the year end result.
Events since 31 December 2022
Non adjusting events
As announced on 14 February 2023, throughout 2021 and 2022,
Tullow has received revised and new tax assessments from the
Ghana Revenue Authority (GRA). Tullow believes these assessments
are without merit and filed requests for arbitration with the
International Chamber of Commerce in London, in accordance
with the dispute resolution process set out in the Petroleum
Agreements which govern Tullow Ghana Limited’s (TGL's) activities in
Ghana. Notwithstanding this formal step, Tullow intends to
continue to engage with the Government of Ghana, including the
GRA, with the aim of resolving these disputes on a mutually
acceptable basis.
In March 2023, Tullow and its JV Partners submitted an updated
Field Development Plan to the Ministry of Energy and Petroleum
and the Energy and Petroleum Regulatory Commission Authority
in Kenya, for their approval. This is currently under review by the
relevant authorities.
In 2023, there were two new appointments:
Richard Miller appointed as Chief Financial Officer (CFO) from
January 2023.
Roald Goethe appointed as independent non-executive Director
from February 2023.
There have not been any other events since 31 December 2022
that have resulted in a material impact on the year end results.
2022 Annual Report and Accounts 27
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Strategy in action
“In helping to build resilient
communities within our
operational areas, our social
performance initiatives have
improved the standard of
living and socioeconomic
development of impacted
communities. ”
Elijah Boye-Ampah
Social Performance Senior Advisor
Committed contributor:
Improving the everyday life of
people in our host nations
28
Tullow Oil plc
2022 Annual Report and Accounts
Q&A
Elijah's story
Elijah Boye-Ampah
Social Performance Senior Advisor
What are your key responsibilities as Social Performance Senior Advisor?
As a Social Performance Senior Advisor, I am responsible for establishing and maintaining good relationships
with our stakeholders, providing guidance and strategic support, and managing operational and community
related grievances to reach amicable resolutions. I also provide technical advice for effective management of all
socio-economic investments and impact mitigation initiatives, ensure compliance of national policy directives
with regards to corporate social responsibilities and impact mitigations, and identify and develop new ways of
improving stakeholder and community participation and partnership for project sustainability.
How does your role contribute to supporting social advancement of local communities?
Guided by statutory and regulatory requirements, as well as Tullow’s operational commitments, I am tasked
with the responsibility of assessing, analysing, conceptualising, implementing, and monitoring all community
development initiatives, and providing technical backstopping for each cycle. In helping to build resilient
communities within our operational areas, our social performance initiatives have improved the standard of
living and socioeconomic development of impacted communities.
My role in grievance management and enforcement of Voluntary Principles Security and Human Rights (VPSHR)
have also contributed to the overall social cohesion and cooperation for sustaining our social license to operate
in Ghana. My continuous interactions with students at the Senior High Schools under the ‘School Engagement
Program’ has contributed immensely to deepening the awareness of oil and gas formation, exploration, and
production in Ghana with students serving as conduits for promoting offshore safety around oil installations.
My engagements with communities have also enhanced stakeholder collaboration and cooperation, which has
evidently supported our project implementation, knowledge sharing, ownership, and sustainability on our
community interventions.
How has your career developed at Tullow?
My career has improved greatly through the introduction of some key policies and training programmes at
Tullow including stakeholder management, benefit sharing and impact management. My continuous engagements
with the community and stakeholders, as well as exposure with other industry players, have greatly enhanced
my communication, project, and grievance management skills and my role as the deputy project lead on social
performance, has indisputably improved my leadership skills.
What achievements are you most proud of in 2022?
There were a number of achievements that I am proud of in 2022. Notably, we supported over 7,000 students
through our various education initiatives such as free Senior High Schools, tertiary scholarships, radio school
programmes and STEM Clubs; awarded a total of 320 scholarships to new beneficiaries under the Scholar’s Aid
Project bringing total beneficiaries to 920; we developed a 10-acre land as part of the next phase of the vegetable
agribusiness project; and we trained 100 volunteers who bought a total of 53,897 kg of plastics under our
rollback plastics campaign.
2022 Annual Report and Accounts 29
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Sustainability
Accelerating progress through partnerships
Tullow takes a strategic approach to embedding the management
of Environment, Social and Governance (ESG) matters throughout
our business, based on our understanding of the needs and
expectations of our stakeholders, combined with a focus on the
topics that reflect our most significant economic, social and
environmental impacts and risks. Recognising the value of
collaboration and in the spirit of generating value for Tullow
and all stakeholders, our overarching aim is to accelerate
progress through partnerships.
Our ESG framework includes 15 sustainability material topics
which are clustered in four pillars and informed by leading
sustainability reporting standards and frameworks, including
the sustainability reporting guidance of IPIECA, GRI Standards
and the SASB Oil & Gas Sector Exploration and Production Standard.
We also considered sustainability trends impacting our industry
and global priorities reflected in the SDGs; Tullow is best placed
to make a significant contribution towards 7 SDGs across our
sustainability focus areas. In 2023, we intend to conduct a new
double materiality assessment to align our sustainability focus
with our updated business strategy and impacts in today’s
business environment.
Safe
operations
p 31
Shared
Prosperity
p 32
Environmental
stewardship
Equality and
transparency
p 34
p 36
Material topics
- Employee health
and safety
- Process safety
- Emergency response
Material topics
- Local content and capacity
Material topics
- Climate change
- Community development
- Biodiversity
- Social investment
- Spills
- Waste
Material topics
- Compliance
- Anti-corruption
- Human rights
- Inclusion and diversity
- Tax transparency
The oversight of our sustainability strategy plans and
performance rests with our Board of Directors. The Safety
and Sustainability Committee engages closely with Tullow’s
Senior Leadership Team to provide guidance on strategy
implementation risks and opportunities, while supporting
the Board of Directors by advising on decisions relating to
sustainability. Within the Senior Leadership Team, reporting
to the CEO, the Director of People and Sustainability oversees
Tullow’s performance and sustainability disclosure supported
by a Group Head of Sustainability and networked teams across
the organisation.
Our comprehensive sustainability disclosures can be found in
Tullow’s 2022 Sustainability Report and supporting documents,
and our 2022 Climate Risk Report which follows the Task Force
on Climate-Related Financial Disclosures (TCFD) framework.
30
Tullow Oil plc
2022 Annual Report and Accounts
Safe operations
2022 highlights
- Zero lost time injuries across our global operations –
a first for Tullow
- Seven High Potential Incidents in 2022, compared to
five incidents in 2021
- Zero Tier 1 and one Tier 2 Loss of Primary Containment
(LOPC) releases
- Completed IOGP Process Safety Fundamentals (PSF)
programme across our operations
- Conducted Process Safety Risk Assessment training
in Ghana
- Completed Human Factors Training for all our workforce
- Average participation in 7.1 wellness events per employee
throughout the year
Tullow invests in creating a safe workplace for all Tullow
employees and contractors working on our sites, wherever they
are. As a core pillar of our sustainability approach and overseen
by the Safety and Sustainability Committee of the Board of
Directors, safe operations are at the forefront of our daily work
and an important element of decision making at every stage of
our operations. We work hand in hand with our contractors to
ensure compliance with laws and regulations governing
safe working.
Occupational health and safety
2022 was a landmark year in safety for Tullow: for the first time in
our history, Tullow achieved a full year of injury-free operations
globally. This strong performance is the result of continuous
reinforcement of our safety leadership, culture and practices
over several years and throughout 2022. However, we
recognise that maintaining this high standard requires ongoing
investment. In 2022, in addition to regular safety training and
communications, we stepped up incident investigation training
with fortnightly meetings with an external safety coach to embed
investigation practices.
Safety performance
Lost Time Injuries Frequency
(LTIF)
Total Recordable Injuries
Frequency (TRIF)
High Potential Incident
Frequency (HiPoF)
Workforce fatalities
2022
0
0
2021
0.21
2020
0.32
0.43
1.27
1.5
1.06
1.74
0
0
0
Process safety
In 2022, we maintained a strong level of process safety
performance and a full schedule of awareness and training
initiatives, including:
- Completed our 12-month campaign to engage front line
workers on our implementation of the Association of Oil and
Gas Producers (IOGP) Process Safety Fundamentals (PSF)
with a review of PSF implementation in practices across
our operations.
- Conducted Process Safety Risk Assessment training in Ghana
using an external expert with focus on detailed aspects of risk
management and safety incident prevention.
- Completed Human Factors Training for all our workforce,
focusing on mitigating human errors at all stages of our
operations to prevent safety incidents.
Process safety events (PSE)
2022
2021
2020
Tier 1
Tier 2
Total
0
1
1
0
0
0
0
4
4
Asset protection and emergency response
We are committed to maintaining and enhancing our ability
to respond rapidly to unforeseen events in order to maintain
business continuity and minimise negative impacts on people,
the environment, our physical and intellectual assets, and our
reputation. Our asset protection related policies, standards and
plans incorporating security, business continuity, and crisis and
emergency management (CEM) provide a strong basis for
Tullow’s ongoing preparedness to respond to any emergency.
In 2022, we continued our emergency response training and
exercises involving credible emergency scenarios. Specifically,
we conducted a major emergency response training with the
Jubilee FPSO, Tullow Ghana Incident Management Team and
the Crisis Management Team in mid-2022.
Employee wellness
Wellness is a year-round priority at Tullow. We maintain a global
wellness programme to support employees in maintaining a
healthy lifestyle and we retain an in-house occupational health
nurse and clinical psychologist to provide support to colleagues
as needed. In 2022, we launched a new wellness intranet site
to make it easier for employees to engage with the wellness
programme, including our Employee Assistance Programme
(EAP) which offers individual counselling on any personal issue
including mental health challenges. In 2022, our Global Wellness
Agenda included a diverse range of activities throughout the
year and specifically our annual global Wellness Fortnight in
November. In May, we provided all employees with a Wellness
Afternoon Off, to give them personal time to rest and re-energise.
Our approach to wellness extends to partners and contractors
working at Tullow sites: in 2022, we held a contractor forum on
the topic of occupational health and wellbeing, attended by
more than 50 representatives of 28 contractor companies.
Tullow Oil plc
2022 Annual Report and Accounts
31
Financial statementsSupplementary informationStrategic ReportGovernance Report Accelerating young people’s education and
skill development
We invest significantly in supporting access to education and
preparing people for jobs with a focus on equipping youth with
transferable skills. Our multiyear educational partnerships and
scholarships cover the full education lifecycle from primary to
tertiary education and ongoing vocational qualifications. In 2022,
our ongoing partnerships in Ghana, Kenya, Guyana and Suriname
enabled over 9,000 students to continue to access education,
and 143 students transitioned to tertiary education in Ghana.
Through our $10 million commitment over five years (2020-2024)
to promote enrolment in Free Senior High Schools in Ghana, we
provided accommodation and classroom facilities for over 3,000
pupils by the end of 2022. The Youth Bridge Foundation, with
Tullow’s support, reached students from 36 junior and senior high
schools with STEM programmes and helped close to 2,000 pupils
to prepare for certificate exams.
Accelerating enterprise development
We continue to support local entrepreneurship and local
economic growth with a focus on agricultural livelihoods.
The Fishermen’s Anchor Project (FAP) is a micro credit scheme
funded by Tullow Ghana and JV Partners and administered by
Opportunities Industrialization Center International. Planned over
a five-year span from 2019, FAP aims to provide critical financial
support to boost income and economic activity in fishing
communities in the coastal districts of Ghana’s Western Region.
In 2022, hundreds of local fishermen received training in business
improvement practices. As at the end of 2022, the economic reach
of FAP includes approximately $300,000 disbursed in small loans
to over 1,300 loan beneficiaries of which 91% were women-owned
businesses and 89% were fish processing businesses.
Sustainability continued
Shared Prosperity
2022 highlights
- Enabled 9,000+ students in Ghana, Kenya, Guyana and
Suriname to access education
- Supported 6,000+ secondary and tertiary students with
Tullow STEM scholarships, bursaries and after school
support
- Provided accommodation and classroom facilities for over
3,000 pupils through our $10 million commitment to
promote enrolment in Free Senior High Schools in Ghana
- Through the Fisherman’s Anchor Project, provided over
$300,000 in small loans to 1,300+ businesses; over 91% of
the businesses owned by women and 89% are fish
processing businesses
- Spent $173 million with local suppliers in 2022, constituting
15% of Tullow’s overall local supplier spend, bringing total
five year spend to $1.2 billion
- Implemented local content initiatives including training,
mentoring and a new reporting tool to enhance
measurement and transparency of supplier social impacts
Our Shared Prosperity strategy reflects our vision to accelerate,
through partnerships, progress towards a better, inclusive,
future in which local communities and economies can flourish.
Through our Shared Prosperity strategy, we contribute to equipping
host communities with social and business capabilities, to
enhance employability and support enterprise development
including local content. Our focus on fostering partnerships is a
core component of accelerating progress towards a future in
which no-one is left behind.
Stakeholder engagement: Our ongoing deep dialogue,
positive relationships and long-standing partnerships with
local governments and communities help us understand the
context, impacts, risks and opportunities associated with our
business activities. In Ghana, we maintained dialogue with 115
communities around our Jubilee and TEN operations including
several regulatory authorities. A key discussion was the transition
of security provided for our offshore platforms from our own
contractors to the Ghana Navy. In Kenya, we conducted
consultations with the National Land Commission and all local
community groups in preparation for our development of
oilfields in the region.
Managing business impacts: We act to advance the positive
and mitigate the negative environmental and social impacts
associated with our business activities as an enabler of our
Shared Prosperity strategy.
32
Tullow Oil plc
2022 Annual Report and Accounts
Optimising local content
We aim to create the conditions for local companies to
participate in our supply chain through open dialogue, business
tools and connecting them with a workforce which is ready for
the future.
As a large operator in our host countries, we leverage our spending
power to benefit local businesses and their participation in
regional and national economies. Tullow's local supplier spend in
2022 was $173 million, which constitutes 15% of Tullow’s overall
local supplier spend. In Ghana multiple supplier initiatives were
run in 2022 and included:
- Four workshops providing our industry expertise to advance
local suppliers as part of the Petroleum Commission of Ghana
(PC) and Tullow Ghana collaboration.
- Tullow Supplier Finance Readiness Programme, in partnership
with Invest in Africa, to equip Tullow Ghana suppliers and other
oil and gas sector businesses to engage with financial
institutions to obtain business funding.
- Tullow Supplier Mentoring and Training Programme, in
partnership with Accenture in Ghana, for 200 suppliers and
service providers in Ghana’s upstream oil and gas sector.
- Our first Tullow Supplier Market Day in Ghana, attended by
131 local companies, which will continue as a quarterly
in-person forum to support direct engagement and support
with local suppliers.
- Ground-breaking, proprietary Local Content Reporting Tool
(LCR Tool) to enhance the transparency of our local content
impacts. The LCR Tool provides a single source of data for
capturing the impacts of our suppliers through their own local
content initiatives incorporated in contracts with Tullow
Ghana. Initially, we commenced with 30 Tier 1 suppliers
with contract values in excess of $5 million.
Tullow Oil plc
2022 Annual Report and Accounts
33
Financial statementsSupplementary informationStrategic ReportGovernance Report
Sustainability continued
Environmental stewardship
2022 highlights
- Progress made on our Net Zero Roadmap at Jubilee and TEN
fields to advance elimination of routine gas flaring
- 73% reduction in Scope 2 GHG emissions achieved over the
last five years
- Completed Feasibility Report, identifying deforestation
drivers and intervention activities and signed Letter of Intent
with the Forestry Commission of Ghana to develop a REDD+ /
ARR program.
- Tripling of capacity of our PV solar array at our offices
completed in Takoradi, Ghana
- Zero waste to landfill achieved over a two-month period at
our Jubilee FPSO
- Decommissioning activities to protect biodiversity continued
in the UK and Mauritania
Tullow is committed to being a responsible steward of the
environment and ensuring robust systems are in place for
assessing and managing environmental risk. A key focus is our
contribution to mitigating the effects of global climate change
through our commitment to Net Zero while minimising our water
and waste impacts and protecting biodiversity.
Progressing our Net Zero Roadmap
We have committed to achieving Net Zero by 2030 on our Scope 1
and 2 GHG emissions on a net equity basis through a combination
of decarbonising our operated assets in Ghana and identifying
suitable nature-based solutions to offset our hard to abate
emissions. We are prioritising decarbonisation of our operations,
targeting to reduce emissions across our portfolio by at least
40% by 2025 on a net equity basis against a 2020 baseline
through the elimination of routine flaring.
Supported by our internal Net Zero Task Force and approved by
our Board of Directors and Senior Leadership Team, we have
defined a pathway to achieving our Net Zero target with a primary
focus on our operations in Ghana. In addition to ongoing carbon
efficiency projects, the two core components of our Net Zero
pathway are:
- Eliminating routine flaring: We will lower our GHG emissions
by at least 40% from a 2020 baseline by eliminating routine gas
flaring (by increasing our gas processing capacity) from our
Jubilee and TEN fields by 2025. The majority of spend linked
to these decarbonisation initiatives will occur before 2025. Gas
capacity changes will require shutdowns of operations at each
site to allow for switching out of core equipment and other
upgrades, which are scheduled to occur during planned
maintenance programmes. We also take a proactive role in
working with our partners at our non-operated assets, for
example, in Gabon, to drive the elimination of routine flaring
and pursue other emission reduction opportunities.
- Nature-based solutions: By seeking to invest in verified
nature-based carbon removal opportunities in Ghana, we
expect to be able to offset our residual GHG emissions by 2030.
In 2022, following a feasibility study, we signed a Letter of
Intent with the Forestry Commission in Ghana that will enable
us to conduct due diligence ahead of an anticipated Final
Investment Decision (FID) in 2023.
The proposed initiative is expected to offset approximately
600,000 tonnes of CO2e annually while generating significant
local community engagement, local jobs and positive biodiversity
outcomes through reduced deforestation and improved
land management.
Potential liabilities (i.e. costs to purchase carbon off-sets) are,
as yet unknown. Therefore, these costs have not been included in
our impairment model, as the carbon off-set price, subject
to on-going negotiations with the Forestry Commission will only
be confirned, post FID.
We update our pathway to Net Zero on an annual basis, to
account for changes in both our operational and non-operated
footprint, and to confirm the projects we are investigating are
sufficient, in terms of volume of carbon sequestered to meet
our 2030 Net Zero Commitment.
Jubilee and TEN
decarbonisation
initiatives and
other NPV+
projects
Operated
(c.85%)
Non-operated
(c.15%)
Non-operated emission
abatement projects
Nature-based
offsets to
mitigate
residual
emissions
2025
2030
Our detailed pathway to Net Zero and managing climate risks to
our business are laid out in our third annual Climate Risk Report,
prepared in line with the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations which can be found at
www.tullowoil.com/sustainability.
34
Tullow Oil plc
2022 Annual Report and Accounts
Managing water and waste
During the year, we continued our management of community
water boreholes for the benefit of our local communities in
Kenya. On average, almost 20,000 households benefited from
our water distribution which supplies approximately 4,000 cubic
metres of water per year.
Our rigorous programme of waste segregation and waste
management at Tullow Ghana enabled us to achieve zero
waste to landfill over a two-month period at our Jubilee FPSO.
We continue to embed waste awareness and practices to
maintain this standard. In 2022, we also progressed a project
to reduce single-use plastic on the Noble Venturer, the drill
ship that transports our oil onshore by providing nine water
dispensers to replace more than 180,000 plastic bottles of water
per year to hydrate a 180-string crew in high temperatures.
Protecting biodiversity
We strive to minimise negative impacts on biodiversity at the
planning, exploration, development and decommissioning
phases of our activities. In 2022, we continued with our
decommissioning activities in two regions:
UK: Drilling activity ceased in the UK in 2018, and we are currently
nearing the completion of full and final decommissioning of operated
and non-operated assets in this region. We removed all drilling
platforms and in 2022, commissioned a rock placement survey
to enable us to proceed with protecting the seabed with sustainable
local rocks, leaving it safe for fishing. We are proceeding with
safe decommissioning of platforms in satellite fields, which is
scheduled for completion by the end of 2025.
Mauritania: We are on track to complete our clearing and
decommissioning activities from our fields in Mauritania
following cessation of activity in non-operated areas in 2014.
All seabed equipment and support facilities have been removed
and final well head protections are being put in place, scheduled
for completion in 2023, with zero residual impact on the
marine environment.
Driving carbon efficiencies
We continue to drive carbon efficiencies through our operations,
and this can be seen in the approximately 75% reduction in
Scope 2 GHG emissions recorded in 2022, compared to 2018.
In the meantime, our Scope 1 emissions, correlated to production
and associated flaring levels, show a further temporary increase
in 2022. We will continue to monitor these emission sources,
until gas handling projects are completed on Jubilee and TEN.
In 2022, we recorded an increase in Scope 3 emissions, due to an
expanded basis of reporting to include all material emissions
associated with Tullow’s value chain including purchased goods
and services, capital goods and the use of sold products, in
addition to other Scope 3 emissions we already disclose. We are
continuously working to better understand our Scope 3 emissions,
engaging with our supply chain partners to influence emissions
which are outside of Tullow’s immediate operational control.
Total air emissions:
thousand tCO2e
2022
2021
2020
2019
2018
Group Scope 1
2,258
2,234
2,040
1,072
1,046
Group Scope 2
Group Scope 3
Total Group
Group emissions
intensity kg CO2e/boe
Group energy use
(GWh)
UK air emissions:
thousand tCO2e
UK Scope 1
UK Scope 2
UK energy use (GWh)
0.81
6,680
8,939
0.53
892
1.28
324
1.69
3.00
15
14
3,127
2,365
1,089
1,063
37
35
29
-
-
2,645
2,968
2,682
2,862
2,707
2022
0.059
0.2
1.1
2021
0.11
0
1.7
2020
0.27
0.57
3.6
2019
2018
0.24
0.71
4.0
-
-
-
1. GHG Data is from controlled operations and the calculation methodology can be found in the
Basis of Reporting and GHG Methodology documents at www.tullowoil.com/sustainability
2.
Integrated Reporting & Assurance Services (IRAS) has provided independent assurance over
Scope 1 and 2 emissions
For details of our Scope 1, 2 and 3 GHG emissions for the years
2018-2022, please see our Sustainability Data Workbook
at www.tullowoil.com/sustainability.
Increasing solar power: In 2022, we tripled the capacity of our
PV solar array at our offices in Takoradi, Ghana from 131 kwh/year
to approximately 390 kwh/year. The installation now provides all
power needs for our Takoradi office requirements.
2022 Annual Report and Accounts 35
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Sustainability continued
Equality and transparency
2022 highlights
- $645 million total socio-economic contribution in our host
countries, bringing total five-year socio-economic
contribution to $3.1 billion
- $468 million paid to host countries in taxes
- New human rights working group formed and actions
advanced to protect human rights
- Workforce growth of 8% to a total of 382 employees
Protecting human rights
During 2022, we advanced human rights programmes through
multiple actions including:
- Formed an internal cross-functional human rights working
group with members from across the Company.
- Conducted an internal audit of our modern slavery processes
and identified areas for improvement. Our Modern Slavery
statement can be found on our website: https://www.tullowoil.
com/application/files/9816/5823/1441/Modern_Slavery_Act_
JULY_2022.pdf
- Piloted worker welfare training modules in conjunction with
the IPIECA in Kenya.
- Achieved 100% participation of Tullow colleagues and
contracted employees in “Introduction to the UN Guiding
Principles on Business and Human Rights” training.
- 26% women colleagues overall, with 14% of Senior
Management roles held by women (compared to 29% and
10% respectively in 2021)
- Completed educational sessions on ethics and compliance
for local companies in Guyana, with 129 participants from
111 companies.
- 50 new hires onboarded in Ghana to support new FPSO
in-house operations
- Wages linked to the U.S.$ for employees in Ghana to help
overcome financial hardship caused by local currency
depreciation
- 75% localisation achieved in Ghana with a target of 90%
Promoting an ethical culture
Our Code of Ethical Conduct (CoEC) governs the way we work
and conveys a clear message to Tullow employees, supply chain
partners and external stakeholders about our approach to ethical
standards, anti-corruption, compliance and upholding human
rights. In 2022, 100% of Tullow employees completed our mandatory
annual online CoEC training and we again provided our annual
training for key suppliers. We urge our colleagues to speak up
if they observe behaviour which they believe is not in alignment
with our CoEC. In 2022, we adopted a new reporting platform
which offers improved functionality and easier access to encourage
employees to speak up. In 2022, the mix of reported concerns
were similar to those in prior years and no major disciplinary
actions were required.
Speaking up cases
Socioeconomic contribution and tax transparency
Tullow believes transparency regarding payments to
governments is an important way to promote honesty in our
industry, mitigate corruption and support inclusive development.
Tullow has been a corporate supporter of the Extractive Industries
Transparency Initiative (EITI) since 2011 and our annual Payments
to Governments Report provides details of all mandatory and
voluntary tax payments.
Our payments to governments, including payments in kind,
amounted to $468 million in 2022 (2021: $234 million). Total
payments to all major stakeholder groups including suppliers
and communities, as well as governments, brought our total
socioeconomic contribution to $645 million (2021: $445 million)
of which $173 million was spent with local suppliers and
$4 million in discretionary spend on social projects. Our total
payments made to the Ghanaian Government in 2022 amounted
to $341 million (2021: $172 million).
Engaging our people
In 2022, we reinforced our organisational structure and performance
capabilities to support an optimistic future of development and
growth. In particular, we supported the transition to in-house
operation of our Jubilee FPSO, an encouraging development
for our team in Ghana, enabling us to build the organisation’s
capability and bring opportunity to advance our business in
the region. We onboarded 50 new hires in Ghana to meet this
challenge. Overall, our workforce in 2022 grew by 8%.
Third party 11
Our 2022 Employee Value Proposition Survey delivered an
encouraging result. With close to 90% participation, we saw an
average positive 70% score across the sum of all survey questions,
an improvement from 63% and 62% in our two prior surveys.
Worker welfare and human rights 1
Breach of internal
procedures 5
Dishonest behaviour 15050+
22 speaking up cases
Human resources 4
36
Tullow Oil plc
2022 Annual Report and Accounts
+
5
5
+
18
+
18
+
+
22
+
22
+
5
5
+
+
O
O
Advancing inclusion and diversity and localisation
In 2022, we continued to support the development of our
Inclusion and Diversity (I&D) culture with awareness and training
events throughout the year. We commenced unconscious bias
training for all employees and examined our processes to
address barriers to inclusion and develop further opportunities
to advance women, including in technical roles. We adopted
balanced panels in our recruiting processes and ensure each
shortlist includes at least one diverse candidate. In 2022, 27%
of new hires were women, and 54% of new hires were African.
Our strategy of hiring local nationals and advancing their
professional development as we continue to grow our business is
one of the most important ways we can meet our commitment to
the socioeconomic development of our host nations. Localisation
also serves our business objectives as it opens up a pool of
exceptionally talented and motivated people to join our Company.
Our objective in Ghana is to achieve 90% overall workforce
localisation. At the end of 2022, we achieved 75% overall
workforce localisation. Our refreshed localisation strategy sets
us on the path to reach our target in the next 3–5 years.
% of local nationals employed in Ghana
(includes Tullow colleagues and contractors)
75%
75%
76%
79%
81%
75%
2022
2021
2020
2019
2018
2017
Selected positive score results from our EVP Survey in 2022
Where I work, we never compromise our EHS
performance in order to meet other targets
In my team people are held accountable for results
Teams in Tullow collaborate in the best interests
of the Company
91%
90%
81%
Tullow's vision, purpose and values are clearly articulated
79%
It is clear how my team's KPIs support the overall goals of
the organisation. (i.e., we measure the right things that
add value)
79%
I believe Tullow is committed to creating an inclusive and
diverse work environment
69%
On the other hand, employees expressed improvement
opportunities, primarily in the areas of senior leadership
responsiveness and improved pathways to realise individual
potential. In 2022, we worked to address these topics and
conducted a full evaluation of our performance management,
leadership visibility and recognition programmes to meet
employee needs and aspirations.
Tullow Advisory Panel (TAP): Aligned with our values of
collaboration and creating a transparent and inclusive culture,
the Tullow Advisory Panel (TAP) augments existing channels of
communication between employees, senior management and
the Board of Directors. TAP’s membership is a diverse panel of
eight elected colleagues representing employees from across
our different locations. TAP meets quarterly with Tullow’s Senior
Leadership Team and separately, with the Board of Directors, to
provide feedback collected from colleagues on a wide range of
topics from staff development to employee workload to diversity
and inclusion and more. In 2022, a focus of TAP’s feedback to
Tullow’s leadership was addressing our change to remuneration
policy in Ghana (see below).
Rewarding our employees
We aim to provide market competitive compensation packages
which we regularly review to keep pace with local market norms
and employee expectations. In 2022, we revised the compensation
packages of our teams in Ghana. The local currency, the Ghana
Cedi, declined by 55% between January and October 2022,
among the steepest declines of any currency in the world this
year. The impact of this was price hikes for imported goods
and a cost-of-living increase, leading to soaring inflation and
economic difficulties for many. Our workforce in Ghana was
severely affected by this development as local currency-based
salaries were no longer commensurate with a living wage.
In response, we established a compensation package linked to
the U.S. dollar, the currency that drives the consumer prices in
Ghana. By October 2022, we had implemented a dollar-linked
salary across all employee categories in Ghana which represented
an increase of 129% in base pay in local currency, protecting
employees against the currency depreciation.
Tullow Oil plc
2022 Annual Report and Accounts
37
Financial statementsSupplementary informationStrategic ReportGovernance Report Strategy in action
“It’s important that all
employees can speak up,
challenge constructively
and be open to diverse
views that allows us to
continuously improve. ”
Kwame Ofori Afreh
HR Manager – Ghana
Attractive Employer:
Nurturing a collaborative,
caring and open work
environment
38
Tullow Oil plc
2022 Annual Report and Accounts
Q&A
Kwame's story
Kwame Ofori Afreh
HR Manager – Ghana
What are your key responsibilities as HR Manager – Ghana?
As the HR Manager, I collaborate with the Ghana leadership team in implementing strategic and
operational people priorities, delivering on Employee Value Proposition that is linked to overall
business strategy. I provide continuous leadership for our in-country HR agenda, aligning group-wide
integration and local responsiveness on all HR initiatives. Most critical key accountability is driving
our localisation performance in line with our workforce plans and regulatory (LI) requirements.
Additionally, delivering the employee experience to enable us to attract, recruit, develop and retain
top talents.
How does your role contribute to nurturing a collaborative, caring and open work environment?
Key to my role is ensuring that each employee can be their best here in Tullow and can contribute
positively to our business outcomes, irrespective of their role. This includes working closely with
leadership and line managers to model and articulate the behaviours that support our Values and
promote a diverse, inclusive and enabling culture. More importantly, creating opportunities for
employees to engage directly with leadership through various forums including the Employee
Engagement Forum (EEF), "Ghana Connect" and the "Ask Wissam" sessions. It’s important that all
employees can speak up, challenge constructively and be open to diverse views that allow us to
continuously improve. Wellbeing is a big part of the culture here at Tullow, but it’s a high performing
culture. Driving wellbeing initiatives is an important balance to strike.
How has your career developed at Tullow?
Tullow offers exciting experiences and professional challenges at the same. In the last five years,
I have had the opportunity to work through different roles and developed experiences unique and
relevant to upstream oil and gas HR operations. I have made a number of lateral and vertical moves;
engaging with experts and the best professionals you can find in the upstream market in Ghana.
What achievements are you most proud of in 2022?
Key to the 2022 achievements is the benchmarking of the base pay for Ghana employees to
USD. This is following feedback received through engagement surveys and leadership engagements
with employees over the years. In 2022, the Ghana Cedi depreciated more than 38% by the end of the
year. The response from the intervention has been great and well received by employees which has
improved employee engagement across all areas.
2022 Annual Report and Accounts 39
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Governance and risk management
We proactively
manage risks
At Tullow, we recognise that effectively
managing risks and opportunities is essential
to our long-term success. Our ability to
identify, assess and successfully manage
current and emerging risks is critical in
ensuring we achieve our strategic objectives
and protect shareholder value.
Risk oversight and governance
A risk focused culture and consistent risk management framework
is embedded across all levels at Tullow and is driven by the Board.
The Board is responsible for overseeing the risk identification,
assessment and mitigation process. To this end, the Board
undertakes a bi-annual assessment of the risks facing the
Company, including those risks that could threaten our business
strategy, operating model, performance, solvency and liquidity.
Emerging risks are discussed by the Board and the Senior
Leadership Team periodically throughout the year.
The Board is responsible for ensuring Tullow maintains an
effective risk management and internal control system and
works closely with Tullow’s Senior Leadership Team to ensure
this is in place. The Senior Leadership Team is collectively
responsible and accountable for the risk management process
in place across the organisation, with individual members
taking ownership for risks that fall in their business area.
Tullow recognises that risk cannot be fully eliminated and that
there are certain risks the Board and/or the Senior Leadership
Team accept when pursuing strategic business opportunities.
Acceptance of risk is made at an appropriate authority level
and within Tullow’s defined risk appetite and tolerance levels.
Tullow’s risk governance framework is illustrated below:
Every layer of the organisation is responsible
for identifying key risks and managing them in
line with our risk appetite (as set by the Board).
Principal
risks
Enterprise risks
Business
delivery risks
Project
risks
t
n
e
m
e
g
a
n
a
m
k
s
i
r
p
u
-
m
o
t
t
o
b
/
n
w
o
d
-
p
o
T
Board
- Oversees identification and assessment
Senior Leadership Team (SLT)
- Sets the tone for an effective risk
of, and response to, principal risks
management culture
- Sets risk appetite
- Identifies and assesses principal and
Business functions
- Identifies and assesses business
delivery risks and raises these to the
leadership team
- Monitors effectiveness of the risk
management process
- Monitors effectiveness of risk
project risks
enterprise-wide risks
- Identifies and assesses respective
management actions for those risks
and decides the focus of effort
- Ensures effective risk mitigation
actions are planned and implemented
- Decides which risks require periodic
Board review
- Monitors effectiveness of risk
mitigation and response plans
- Provides oversight, support and
challenge to the Extended Leadership
Team and business functions
40
Tullow Oil plc
2022 Annual Report and Accounts
Risk management process
Our risk management framework takes a ‘top-down, bottom-up’
approach. It is a rigorous method that ensures ownership and
responsibility for identification, assessment and management
of key risks and opportunities, and is embedded throughout the
business. The Board sets the context for risk management through
defining principal risks, setting the strategic direction and
establishing the appropriate risk appetite for the organisation.
Risk identification and assessment
Each Business Head and Head of Function is responsible,
and accountable, for managing risk and risk mitigation within
their remit. Extended Leadership Team members review and
re-assess risk on at least a quarterly basis in their functional
areas to evaluate the strength of existing controls and determine
whether changes in risk reduction actions are needed to ensure
the risk level is within the risk appetite set by the Board.
Risk management framework
Project risk registers feed into the enterprise risk
management process
Ghana
business risks
Non-operated
business risks
Kenya
business risks
Exploration
business risks
Finance risks
Legal and
compliance
risks
People and
sustainability
risks
Business Unit and functional
leadership led review and oversight
SLT-led principal and enterprise-wide
risk review and oversight
Board-led scrutiny of principal risks
Principal risks 2022
Consolidation of business risks
To facilitate assessment of the main risks facing the business,
Tullow’s leadership undertakes a bottom-up review of the key
risks faced by the business. The key risks in each area are
identified by the Business Heads and Heads of Functions,
including mitigating actions and any emerging risks. These are
consolidated upwards into the Business Unit risk registers and
assessed according to their likelihood of occurring, and the
potential consequences to Tullow in terms of safety, reputational,
financial, legal and regulatory impact.
From this, the Senior Leadership Team identifies the principal
and enterprise-wide risks which can be either a single risk or
a set of aggregated risks which, taken together, are significant
for Tullow. Members of the Senior Leadership Team have
ownership and accountability for stewardship of each of the
principal and enterprise-wide risks. As a collective, the Senior
Leadership Team reviews and discusses the risks bi-annually to
understand whether mitigations are being effectively executed
within the agreed timeframe.
The principal risks and mitigants are discussed by the Board
bi-annually to provide ‘top-down’ challenge and support.
The result of this review is communicated back down to the SLT
and Business Units to facilitate risk awareness and effective
decision making throughout the organisation.
Risk appetite
The Board sets Tullow’s risk appetite and acceptable risk tolerance
levels for each of the principal risk categories. In considering
Tullow’s risk appetite, the Board reviews the risk identification
process, the assessment of enterprise level risks, the existing
controls and mitigating actions and the residual risks. During
this process, the Board articulates which risks Tullow should
not tolerate, which risks should be managed to an acceptable
level and which risks are accepted in order to deliver our
business strategy.
The risk appetite is reviewed at least annually by the Board
to ensure that it reflects the current external and market
conditions. A revised risk appetite was last reviewed by the
Board in March 2023.
Evolution of Tullow’s management of risk
Development of the risk management framework is an ongoing
process. During 2022 senior risk owners have been working to
promote a culture of risk awareness and challenge throughout
the business with an increased focus on managing risk. Further
consistency in risk identification, measurement and reporting
has been rolled out across the organisation.
Tullow Oil plc
2022 Annual Report and Accounts
41
Financial statementsSupplementary informationStrategic ReportGovernance Report Governance and risk management continued
Categories of principal risks
Tullow’s risk profile
The Company risk profile has been closely monitored throughout
the year, with consideration given to the risks to delivering the
Business Plan, as well as whether external factors such as the
war in Ukraine, inflationary pressures and oil price volatility have
resulted in any new risks or changes to existing risks. The impact
of these factors has been considered and managed across all
principal risks. The following table represents the Company’s
current principal risks.
Principal risk categories
Commercial
Climate
Financial
Ethics and
conduct
Stakeholder
EHS or
security
People
Cyber
Failure to deliver production targets (commercial and financial risk)
Risk details
Risk mitigations
Tullow’s Business Plan is anchored on production from the Jubilee and
TEN fields in Ghana and non-operated fields in Côte d’Ivoire and Gabon.
A decline, or problems with the performance, of wells or facilities could
result in not meeting planned production levels which in turn would lead
to a reduction in revenue and cash flow ultimately impairing our ability
to reduce leverage.
- Robust control over operations & maintenance (O&M) contract as well
as the Jubilee O&M transformation project successfully completed in
July 2022
- Cross-discipline integrated performance management including clear
KPIs and forums
- Maintenance and integrity management plans covering all equipment
A failure to grow the business via targeted investment in existing fields
and/or investment in new fields could ultimately impact our ability to
deliver the Business Plan and meet longer-term production targets.
classes
- Management and oversight of JV Partners to ensure maintenance and
integrity plans are implemented effectively
- Jubilee Expansion project, Jubilee South East, North East and TEN
Enhancement Projects
- Exploration strategy focused on acreage close to existing infrastructure, to
enable discoveries to be converted to production quickly
- Continued investment in non-operated portfolio, including
accelerating projects where possible
- Mergers & acquisitions (M&A), inorganic growth with a focus on
producing assets
- Working to secure a long-term gas offtake commercialisation
contract in Ghana as agreed in principle by the Board
- Continued investment in the non-operated portfolio
Risk of an asset integrity breach (commercial and EHS or security risk)
Risk details
Risk mitigations
A loss of asset integrity could be cause by failures to follow
our procedural requirements for operating equipment within safety
limits, equipment failure on the FPSO or lack of critical equipment or
spares. The effects could include reduction in production, revenue
and cash flow, damage to facilities and damage to relationships with
JV Partners and host governments.
- The FPSO vessels are subject to regular internal and
external certification
- Our asset and well integrity and maintenance programmes are
in place, and overseen by senior managers
- When incidents do occur we complete a root cause analysis for
every incident
- Robust control over operations & maintenance (O&M) contract as well
as the Jubilee O&M transformation project successfully completed in
July 2022
42
Tullow Oil plc
2022 Annual Report and Accounts
Risk of a major accident event (EHS or security risk)
Risk details
Risk mitigations
A major incident could potentially result in asset integrity failures and/
or extensive damage to facilities. This may in turn lead to a loss of life,
environmental damage, increased costs and reputational damage.
A failure of our colleagues or contractors to meet safety standards or
adhere to procedural requirements could result in operation of
equipment outside safe operating limits leading to a major EHS or
operation incident.
- Risk management processes embedded at all levels of
the organisation
- Asset and well integrity and maintenance programmes are in place,
including regular self-verification and external certification, audit
and assurance of integrity plans
- Root cause failure analysis processes in place for production
losses and EHS incidents to prevent recurrence and ensure lessons
are learned
- Emergency Response Plans and Incident Management Framework
to aid in escalation when incidents do occur
- Tiered assurance activities ensuring all critical processes are
adhered to
- Robust EHS aspects are included at all stages of contract
management (from specification/pre-qualification through to
contract closure)
- Active contractor engagement on safety throughout life of contract
including EHS forums to enable direct participation
Failure to unlock value (stakeholder, commercial and financial risk)
Risk details
Risk mitigations
Significant non-associated gas resource has been identified on current
licences and failure to secure gas market share could delay
development of these resources.
- A workstream has been established to assess commercialisation
opportunities in Ghana and the region that will enable development
of the identified resources while playing an important role for the
industrial development of Ghana
Delay in approval of a revised Field Development Plan (FDP) by the
Government of Kenya could impact a final investment decision.
- A revised FDP has been submitted to the Government of Kenya for
approval in line with the licence extension conditions
- Continued engagement with the Government of Kenya and regulators
to ensure timely approval of the revised FDP
Failure to secure a strategic partner would impact our ability
to progress the Kenya project to final investment decision and
unlock value.
- The Kenya JV Partners via an ongoing farm-down process are
actively seeking a strategic partner to fund the next stage of
development and unlock value. Discussions are under way with
potential bidders around a range of commercial arrangements
The inability to successfully explore and add accretive upside value to
Tullow's assets through addition of reserves and resources around
producing assets could limit the return on the licences.
- Close collaboration focused on fully leveraging geoscience expertise
to identify and mature reserves and resources which have the
potential to rapidly unlock value for producing assets
- This is reinforced by an infrastructure-led exploration (ILX) strategy
to strengthen the portfolio, by focusing on opportunities near
producing assets, and create value through integration of assets,
expertise and regional knowledge
The inability to limit our capital exposure to historical exploration
commitments in selective emerging basins of Guyana and Argentina
may result in having to divert capital from producing assets.
- A number of farm-down processes are under way to limit capital
exposure on selective emerging basins by aiming to reduce our
equity share. This will ensure Tullow can participate at an equity
consistent with our capital allocation guidance
2022 Annual Report and Accounts 43
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Governance and risk management continued
Failure to manage geopolitical risks (stakeholder and financial risk)
Risk details
Risk mitigations
Political instability in the West Africa region, where our producing
assets are concentrated, could delay and impact decision making
by host governments and local partners and may also impact
security arrangements.
- An extensive relationship management plan is in place, to actively
manage senior relationships with host governments, including an
Advisory Board in Ghana
- We ensure alignment of our business plans with national priorities
and have developed a communication plan to inform stakeholders of
the positive impact of our activities on host nations and communities
- We maintain constructive non-partisan relationships with all political
parties in Ghana
Unreasonable fiscal or regulatory demands by host governments could
obstruct efficient operations, delay implementation of our growth plans
and cause increased costs and financial loss.
- We have robust stabilisation clauses in all our Petroleum Agreements
and Production Sharing Contracts with international dispute
resolution to protect us against unreasonable demands
Failure to manage climate change risks (climate risk)
Risk details
Risk mitigations
Tullow recognises climate change as a material risk for our business.
There is a potential for climate-related risks, including regulatory
constraints, carbon pricing mechanisms, low oil price or conditional
access to capital, to affect Tullow’s ability to implement our strategy.
Challenges to our business strategy and failure to align with broader
energy transition goals could result in reduced or conditional access to
capital or shareholder/investor reluctance to invest.
Failure to deliver on our commitment to eliminate routine flaring by
2025 and thereby mitigate the carbon intensity of Tullow’s business or
to off-set hard to abate emissions (e.g. through nature-based off-set
schemes, which we continue to investigate in Ghana) may lead to
erosion of stakeholder confidence and impact our ability to attract
and retain talent.
- There is recognition and support from the Board that decarbonisation
requires investment. We are implementing our plan to achieve Net
Zero by 2030 (Scope 1 and 2 net equity), through reducing our emissions
from routine flaring and offsetting hard to abate emissions
- We stress test our portfolio to ensure core assets are resilient in
different oil and carbon price environments
- There is ongoing engagement with host countries to understand
and align with their long-term energy transition strategies, including
Paris Nationally Determined Contributions
- We are aligning our objectives with the Ghana Forestry Commission
and local stakeholders to implement a project, with a Final
Investment Decision expected in 2023
Risk of insufficient liquidity and funding capacity to sustain and grow the business or failure to deliver a highly
cash-generative business (financial risk)
Risk details
Risk mitigations
Tullow remains exposed to erosion of its balance sheet and revenues
due to oil price volatility, unexpected operational incidents, cost
inflation and failure to deliver targeted farm downs of exploration assets
and Kenya.
Failure to deliver our Business Plan could have a material negative
impact on cash flow and our ability to reduce debt and strengthen
the balance sheet, which may affect our ability to meet our financial
obligations when they fall due.
- Business Plan in place and being delivered to deliver strong cash flow
and deleveraging
- Capital structure provides liquidity headroom through to
December 2024 even in a low oil price environment
- Disciplined capital allocation prioritising high-return and short-
payback investments, and a strong focus on cost control
- Material commodity hedging programme protects against the impact
of a sustained low oil price environment
- Options and timings for refinancing are regularly reviewed
44
Tullow Oil plc
2022 Annual Report and Accounts
Failure to develop, retain and attract capability (people risk)
Risk details
Risk mitigations
There is a risk that critical staff leave the organisation resulting in
difficulty to deliver against our Business Plan.
We operate a lean and agile structure and are dependent on a small
number of key and critical roles. Loss of staff would increase pressure
on remaining colleagues and could lead to deterioration in the wellbeing
of our colleagues, a poor working environment and, potentially,
further attrition.
We may be unable to recruit the skills needed due to the overheated
global labour market in oil & gas.
- The Employee Value Proposition (EVP) rolled out in 2021,
covering culture, working environment, remuneration, learning
and development and performance management was further
developed in 2022
- Employee engagement initiatives are in place, including an employee
advisory panel, Tullow town halls, coffee mornings and employee
engagement surveys
- We have refreshed our Inclusion and Diversity (I&D) policy and hosted
a number of speakers during the year, to increase awareness and
re-affirm our focus on I&D
- Succession plans are in place for critical roles. We have undertaken a
leadership capability review of the extended leadership team, to
ensure a focus on development and ensuring the right capability is in
the organisation
Risk of a compliance or regulatory breach (ethics and conduct risk)
Risk details
Risk mitigations
Non-compliance with bribery and corruption legislation or
contractual obligations along with other applicable business conduct
requirements could expose the Company to penalties or
regulatory oversight.
- Tullow maintains high ethical standards across the business. Strong
anti-bribery and corruption (ABC) governance processes/procedures
are in place as a core element of the Ethics and Conduct (E&C)
programme
In particular, an unforeseen material compliance breach could lead to
regulatory action, an unsettled litigation/dispute or additional future
litigation that may result in unplanned cash outflow, penalty/fines,
reputational damage and a loss of stakeholder confidence
in Management.
- A mandatory annual Code of Ethical Conduct eLearning and
acknowledgement/certification process is in place for all employees.
Third-party due diligence procedures and assurance processes are
in place
- Investigation procedures and an associated misconduct and loss
reporting standard are in place
- Third-party due diligence and assurance processes are in place
- Anti-tax evasion risk assessments are undertaken with clear
mitigation actions identified, including targeted employee training
Risk of major cyber-attack (cyber risk)
Risk details
Risk mitigations
The external cybersecurity threat environment is continuously evolving
and intensifying; therefore, the risk of a major cyber-attack is an
ongoing risk that requires constant monitoring and management.
- Security Incident Event Management (SIEM) system in place,
supported by an Advanced Security Operations Centre (SOC)
providing 24/7 network and device monitoring, alerting and response
Tullow may suffer an external cyber-attack which could have far
reaching consequences for the business. This could limit our ability to
operate, impact production, expose the Company to high ransomware
demands or potentially trigger a major incident. This could result in
financial loss, loss of stakeholder confidence, loss of production,
or additional cost by way of fines or resolution of service.
- Security awareness programme in place supported by regular staff
susceptibility phishing training and testing. Annual mandatory
security awareness training for all staff
- An independent technical assurance programme is in place
2022 Annual Report and Accounts 45
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Nature of assurance
- Assurance activities are put in place across the three lines
of defence to assure that control activities are effective in
mitigating risks to the business. These specifically focus
on areas where there are internal/external changes, control
failures and historical issues.
- Business management is the first line of defence and
is responsible for ensuring their key risks have been
identified and that adequate controls are in place to
manage those risks.
- Business leadership, risk management and compliance
functions act as the second line of defence, providing
support, oversight and challenge to the business in
managing risks effectively, and providing assurance that
compliance with functional standards is being met.
- Internal Audit acts as the third line of defence and
is responsible for providing independent assurance
through its risk-based internal audit programme. The
Internal Audit Plan and outputs are reviewed by the
Audit Committee. Agreed actions for improving the
control environment and managing risk are owned by
assigned individuals and monitored through Tullow’s
actions tracking process. The Audit Committee monitors
the implementation of actions.
- 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.
Governance and risk management continued
Lines of defence
First line of defence
Business management
(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.
Second line of defence
Business leadership, risk management and compliance
functions (oversight of risk management)
- Set the framework and support embedding of effective
risk management practices.
- Provide oversight and management challenge to
leadership on the identification and management
of risk.
- Monitor compliance with functional standards
(minimum controls).
- Provide assurance through periodic reporting and
focused reviews.
Third line of defence
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
audit reviews.
Internal control
A foundation of effective governance, risk management
and control exists throughout the organisation. The
effectiveness of the internal control framework is reviewed
through the risk management process and challenged as
described above. In addition to this, the Senior Leadership
Team and Audit Committee perform an annual review of the
effectiveness of internal control. This was last undertaken in
February 2023 and reported to the Audit Committee and the
Board on 28 February and 1 March, respectively.
46
Tullow Oil plc
2022 Annual Report and Accounts
Section 172(1) statement
Statement by the Directors in performance of their statutory duties in accordance with s172(1)
of the Companies Act 2006
The Directors are required by law to act in a way that promotes the success of the Company for the benefit of shareholders as a whole.
In so doing the Company must, in accordance with s172(1)(a-f) of the Companies Act 2006, also have regard to wider expectations of
responsible business behaviour, such as having due regard to the interests of, and actively engaging with, its employees; the need to
engage and foster business relationships with suppliers, customers and others; the need to act fairly as between Members of the Company;
the likely consequences of any decision in the long term; the desirability of maintaining a reputation for high standards of business
conduct; and the impact of the Company’s operations on the community and the wider environment. The section below further details
on how the Directors have fulfilled their duties.
During the year, the Board was closely involved in all key decisions of the Company. In addition to providing rigorous evaluation, risk
management and challenge to maintain strong governance, the Board also engaged with stakeholders to inform decisions. The Board
is aware that in some situations, stakeholders’ interests will be conflicted, however, the engagement enabled them to fully understand
the key issues relevant to our stakeholders. Further details on how the Board considered stakeholders during the decision-making
process, and how the stakeholder engagement fed into this process, are set out on the next few pages.
The Board 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 shareholders as a whole in the decisions taken throughout the year ended
31 December 2022.
Decision
Production Sharing Contract for new offshore exploration licence in Côte d’Ivoire
In December 2022, the Company acquired a 90% interest in a new offshore exploration licence (CI-803) in Côte d’Ivoire.
Context and link
to strategy
Tullow’s exploration strategy in Africa is focused on infrastructure-led exploration activities to create value. Tullow leveraged
its differentiated understanding of the Tano Basin to secure the 90% interest in the new offshore exploration licence. The new
exploration licence, CI-803, along with the existing licence in Côte d’Ivoire (CI-524) provides Tullow with a strategic position in an
area adjacent to the Group’s producing fields, Jubilee and TEN in Ghana. A number of drill candidates are being matured on the
Tullow-operated CI-524 block, while preparations continue for an exploration well to be drilled during 2024.
Challenges
The addition of licence CI-803 strengthens the resource base in close proximity to the Group’s producing fields in Ghana, which
presents a compelling opportunity to leverage synergies during the exploration phase and in the event of discoveries.
Stakeholder
considerations
In making its decision to acquire the 90% interest in the offshore exploration licence the Board considered the following stakeholders:
- Host nations: The acquisition of the interest in the CI-803 licence provides synergies between two of the Company’s
areas of operation.
- Investors: The acquisition of licences adjacent to producing fields is consistent with the Company’s infrastructure-led
exploration strategy.
Link to KPIs
3. Production
6. Unlocking value
8. Total shareholder return
2022 Annual Report and Accounts 47
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Section 172(1) statement continued
Decision
Termination of proposed merger with Capricorn Energy
In September 2022, the Board decided that it would not increase its offer in respect of the proposed merger with
Capricorn Energy. The proposed merger was subsequently terminated in October 2022.
Context and link
to strategy
On 1 June 2022 Tullow entered into an agreement for a proposed all-share merger with Capricorn Energy PLC (Capricorn).
The aim of the proposed merger was to create a leading African energy company and the merger would have enabled Tullow
to accelerate debt deleveraging and investment in growth.
Challenges
Stakeholder
considerations
The proposed merger was conditional on the approval of both Capricorn and Tullow shareholders. Tullow considered the
terms of the proposed merger to be reasonable and of fair value to its shareholders. However, the proposed merger met a
significant amount of resistance from Capricorn's shareholders who were requesting improved terms. The Board decided to
adhere to the terms agreed, and confirmed on 29 September 2022 that it would not increase the value of Tullow's offer for
Capricorn or to elect to implement its offer by way of a contractual offer. The Board confirmed on 28 October 2022 that it will no
longer proceed with the combination.
In making its decision to adhere to the agreed terms, the Board considered the following stakeholders:
- Investors: The Board considered the perceived value gap between the proposed terms and the potential terms required by
the Capricorn Board. In this context, they considered the value creation potential offered by Tullow on a standalone basis and
that of the combined Group, versus potential additional dilution for Tullow's shareholders related to any adjustment in terms.
The Board also considered the financial position of Tullow on a standalone basis.
- Creditors: The Board considered Tullow's balance sheet on a standalone basis, and Tullow's ability to address its debt
maturities as they fall due. In November 2022, Tullow reported a strengthened balance sheet, with free cash flow guidance
increased to $250 million and gearing on track to be below 1.5x by 31 December 2022.
- Employees: The termination of the proposed merger, and adherence to the Company’s business plan offered stability
to Tullow’s employees.
- Host nations: The Group had received approval form the Government of Ghana for the Capricorn transaction. With the
termination of the transaction, the Group reconfirmed its commitment to continue investing in its assets in Ghana.
Link to KPIs
8. Total shareholder return
Decision
Interim Gas Sales Agreement in Ghana
In December 2022 Tullow signed an interim agreement with the Government of Ghana for the sale of 19 bcf (gross) of Jubilee gas.
The 19 bcf is expected to have been supplied by the middle of 2023, at an anticipated export rate in excess of 100 mmscfpd,
adding c.7 kboepd net production during the first half of the year. Further gas export will be contingent on reaching agreement
on acceptable commercial terms for future volumes.
Context and link
to strategy
The Foundation Gas Volume Agreement (JFGVA), agreed with the Government of Ghana in 2005 came to completion at the end of
2022. A new framework was required to allow for the continued supply of gas from Jubilee to the Government of Ghana, in line
with the Company’s strategy to commercialise gas resources in Ghana. The Interim Gas Sales Agreement is forecast to enable
continued export until the end of June 2023, when a long-term gas sales agreement is expected to be in place.
Challenges
The JFGVA provided free gas to the Government of Ghana. The volumes under the Interim Gas Sales Agreement are to be sold
at the gas price agreed in the 2017 revision of the TEN Plan of Development.
Stakeholder
considerations
In making its decision to enter into an Interim Gas Sales Agreement, the Board considered the following stakeholders:
- Host nations: Ghana’s demand for gas is expected to triple by 2036. The Board considered that the Company is well positioned
to ensure a secure and reliable supply of gas at an attractive price, and therefore ease the cost burden on Ghanaian citizens.
- Investors: The Interim Gas Sales Agreement provides new revenues for the Company and partners, representing the first
commercialisation of gas from Jubilee or TEN since Tullow’s arrival in Ghana.
Link to KPIs
2. Financial performance
3. Production
5. Sustainability
6. Unlocking value
48
Tullow Oil plc
2022 Annual Report and Accounts
Decision
Forestry Commission Letter of Intent
In December 2022, Tullow signed a Letter of Intent with the Forestry Commission in Ghana, initiating a 12- month exclusivity
period, where both parties will negotiate an Emissions Reductions Payment Agreement (ERPA). Tullow has committed
$0.682 million to fund related activities to Final Investment Decision (FID), expected in 2023.
Context and link
to strategy
Challenges
and outcome
Stakeholder
considerations
In 2021 Tullow committed to becoming a Net Zero Company by 2030 (scope 1 and 2 emissions), and to build a better future through
the responsible development of oil and gas.
The Company conducted a feasibility study to analyse the jurisdictional landscape in Ghana and identify causes of deforestation.
The study identified many drivers of deforestation, methods of intervention and implementers. The specific implementation
partners and roles will be defined during the investment readiness phase.
When approving the signing of the Letter of Intent with the Forestry Commission, the Board considered the following stakeholders:
- Investors/creditors: The signing of the Letter of Intent provides investors with confidence that the Company is committed
to meeting its Net Zero targets. The demonstration of this commitment upholds the Company’s reputation as a credible and
responsible oil & gas operator.
- Host nations: The Letter of Intent demonstrates a commitment to Ghana as a host nation. Ghana is a signatory to a landmark
agreement with the World Bank that rewards community efforts to implement projects that reduce carbon emissions from
deforestation and forest degradation. Ghana also has a REDD+ strategy that is designed to meet the requirements of the
Warsaw Framework and the United Nations Framework Convention on Climate Change (UNFCCC).
- JV Partners: The Company’s Net Zero strategy is aligned with the ambitions of its JV Partners in Ghana.
- Employees: It is important to Tullow's employees that the organisation they work for is proactively addressing climate
change issues.
Link to KPIs
6. Sustainability
Decision
Dollarisation of salaries for Ghanaian employees
Context and link
to strategy
In 2022 the Board made the decision to convert the currency equivalent of employee salaries in Ghana from the Ghanaian Cedi
(GHS) to the US Dollar (USD). This decision followed Leadership engagement with employees via surveys and feedback from the
Tullow Employee Engagement Forum (EEF) and Tullow Advisory Panel (TAP), during which employees requested for their salaries
to be denominated in USD. Achieving salary dollarisation in Ghana was a focus for Senior Leadership in 2022.
Challenges
GHS was the second poorest performing currency in 2022 and depreciated more than 18% between January and April 2022,
the largest recorded depreciation in the country since 2016. With the continuous weakening of GHS and the macro-economic
indicators pointing to a decline in Ghana, the review into dollarisation was prioritised by Senior Leadership. This led to the
decision to convert all salaries to USD as a benchmark, payable in the GHS equivalent. A number of Tullow’s competitors in
the extractive industries were already aligned to this practice. This change replaced the potential annual payment for GHS
depreciation based on the Ghana inflation vs depreciation of the GHS against USD calculation, which had not been triggered
for 2020 and 2021. The dollarisation of salaries took effect on 1st September 2022. Any inflation increases going forward will
be based on the USD market movement and inflation, and not local Ghana inflation.
Stakeholder
considerations
In supporting this decision, the Board considered the following stakeholders:
- Employees: Considering the feedback received from the Tullow Advisory Panel; our employees in Ghana; market data
and economic indicators in order to provide a degree of financial stability and protection for employees.
- Investors: The change in policy will drive further employee affiliation, retention and engagement, which will drive greater
performance and value on behalf of Tullow.
Link to KPIs
6. Sustainability
7. Leadership effectiveness
2022 Annual Report and Accounts 49
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Viability statement
Assessment period
In accordance with the provisions 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 assesses the business over a
number of time horizons for different reasons, including the following: Annual Corporate Budget (i.e. 2023), Corporate Business Plan
(five years i.e. 2023–2027), long-term Business Plan (10 years). The Board’s period of assessment for the purpose of the viability
statement is five years considering maturity of bonds in 2025 and 2026.
Notwithstanding the assessment period selected for the viability statement the Group will continue to assess the business over all
time horizons noted above.
Assessment of the Group’s principal risks
In order to make an assessment of the Group’s viability, the Directors have made a detailed assessment of the Group’s principal risks,
and the potential implications these risks could have on the Group’s business delivery and liquidity over the assessment period. This
assessment included, where appropriate, detailed cash flow analysis, and the Directors also considered a number of reasonably
plausible downside scenarios, and combinations thereof, together with associated supporting analysis provided by the Group’s
Finance team. A summary of the key assumptions aligned to the Group’s principal risks and reasonably plausible downside scenarios
can be found below. It should be noted that some assumptions encompass multiple risks but have not been repeated to avoid
unnecessary duplication.
Principal risks
Base case assumption
Downside scenario
Failure to deliver
production targets
Failure to manage
geopolitical risks
Failure to manage
climate change
risks
Risk of insufficient
liquidity and
funding capacity to
sustain and grow
the business /
failure to deliver a
highly cash
generative
business
Production is assumed to be in line with the Corporate
Business Plan.
5% reduction in production in each year.
The Group has assumed no cash outflow associated with tax
exposures and provisions.
The Group has included $72 million for potential outflows
related to settlement for legal claims in 2024. These are
currently not deemed to be probable but whose likelihood is
greater than remote.
The key impact of climate change on the Group’s portfolio of
assets is reflected in the oil price assumptions. See below.
The Directors have considered an oil price sensitivity in line
with the IEA 'Net Zero by 2050 Scenario'; see below.
Oil price assumptions are based on the forward curve at
31 December 2022 for two years, followed by the Group’s
Corporate Business Plan assumption from 2025 onwards:
2023: $84/bbl 2024: $79/bbl 2025: $70/bbl 2026: $70/bbl
2027: $70/bbl.
Operating costs and capital investment are assumed to be
in line with the Corporate Business Plan.
The Group has also assessed the impact of carbon pricing;
refer to the TCFD disclosure.
The Group has analysed two downside oil price scenarios; the
first is based on the Directors’ assessment of a reasonably
plausible downside scenario: 2023: $70/bbl 2024: $70/bbl
2025: $65/bbl 2026: $65/bbl 2027: $65/bbl. The second is in
line with the IEA “Net Zero by 2050 Scenario”: 2023: $61/bbl
2024: $58/bbl 2025: $54/bbl 2026: $50/bbl 2027: $46/bbl
Operating cost are assumed to be 12% than those included in
the Corporate Business Plan.
For detailed information on risk mitigation, assurance and progress in 2022 refer to the detailed discussion of risks on page 40.
For 'Risk of an asset integrity breach', 'Failure to unlock value', 'Risk of a major EHS accident and Security', 'Risk of a compliance or
regulatory breach', 'Failure to develop, retain and attract capability', and 'Risk of major cyber-attack' the Group has assessed that there is
no reasonably plausible scenario that can be modelled in isolation or in combination with other risks from a cash flow perspective.
50
Tullow Oil plc
2022 Annual Report and Accounts
Conclusion
The Group has $2.5 billion notes outstanding, maturing in 2025 and 2026. The Corporate Business Plan does not project sufficient free
cash flow generation to allow the Group to fully repay these notes when they fall due, and therefore it will need to access debt markets
within the viability assessment period.
In the base case, net debt and gearing are forecast to reduce sufficiently such that the Directors are confident that the Group will be
able to secure the funding required to maintain adequate liquidity headroom throughout the viability assessment period.
Under the two downside scenarios, which assume all risks arise simultaneously, execution of a refinancing would be challenging.
Management is focused on mitigating the risks around production, operating cost increases and potential outflows associated with
disputes in order to reduce the likelihood of these risks materialising, or their impact in the event these risks materialise. Furthermore,
the Directors have considered additional mitigating actions that may be available to the Group, such as incremental commodity hedging
executed in periods of higher oil prices, alternative funding options, further rationalisation of the Group’s cost base including cuts to
discretionary capital expenditure, M&A, portfolio management and careful management of stakeholder relationships.
Based on the results of the analysis and the ability to mitigate some of the risks associated with the downside scenarios, the Board of
Directors has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities, including through
refinancing activities, as they fall due over the five-year period of their assessment.
Tullow Oil plc
2022 Annual Report and Accounts
51
Financial statementsSupplementary informationStrategic ReportGovernance Report Non-financial reporting
Tullow aims to comply with the non-financial reporting requirements contained in sections
414CA and 414CB of the Companies Act 2006.The table below outlines to stakeholders Tullow’s
position, principal policies, main risks and KPIs on key non-financial areas.
Requirement
Environment
Further information: Environment,
see pages 34 and 35.
Group approach and policies
Documents
Related KPIs
Related principal risks
Oil and gas production carries a high risk of environmental impact and
incidents related to production processes.
Our product and the process associated with its production generate carbon
emissions which contribute to climate change. Tullow is working to reduce its
impact on the environment through its Net Zero 2030 commitment and through
its standards and policies.
- Climate Policy
Level 0 KPI: Embed Sustainability
Climate risk on page 44
- Safe and Sustainable Operations Policy
EHS or security risk on pages 42 and 43
across the organisation.
Level 1 KPI: Progress Net Zero plan.
- Code of Ethical Conduct
- Non-Technical Risk Standard
Employees
Further information: Our People,
see pages 36 and 37.
Further information: Health and Safety,
see page 31.
Tullow aims to create an inclusive environment, free from discrimination,
where individual differences and the contributions of all our staff are recognised
and everybody is treated fairly. We have zero tolerance for any form of
discrimination and decisions related to recruitment selection, development
or promotion are based upon aptitude and ability only.
Social policy
Further information: Community relations,
go to our Sustainability Report online.
We engage with communities early in the planning process to identify the
key impacts, both positive and negative, of our operations. We maintain
ongoing dialogue to provide information about Tullow’s activities and create
opportunities for people to contribute to decisions which affect them.
We always listen to feedback and concerns, answer enquiries and register
grievances made by community members.
Respect for human rights
Further information: Our Approach,
go to our Sustainability Report online.
Tullow respects and promotes internationally recognised human rights as set
out in the Universal Declaration of Human Rights and the International Labour
Organization Declaration on Fundamental Principles and Rights at Work. When
considering new investments, we review associated potential human rights
issues and their relationship to our operations.
Anti-corruption and anti-bribery
Further information: Anti-corruption and
anti-bribery, see page 36.
Tullow has zero tolerance of any form of corruption. We conduct our business
honestly, fairly and transparently and we do not exercise improper influence
on any individual or entity. We are subject to many anti-bribery laws in the
jurisdictions within which we work and, as a UK registered company, are
required to comply with the UK Bribery Act (2010).
This Strategic Report and the information referred to herein have been approved by the Board and signed on its behalf by:
Phuthuma Nhleko
Chair
8 March 2023
Adam Holland
Company Secretary
8 March 2023
52
Tullow Oil plc
2022 Annual Report and Accounts
- Code of Ethical Conduct
Level 0 KPI: Leadership effectiveness.
People risk on page 45
- Smart Working Policy
Level 1 KPIs: Improve employee
Ethics & conduct risk on page 45
- Code of Ethical Conduct
Level 1 KPIs: Socio-economic investment:
Stakeholder risk on pages 43 and 44
- Non-Technical Risk Standard
engagement: increase awareness and
knowledge of I&D; build capacity and
organisational effectiveness; refresh and
implement a new Employee Value
Proposition; maximise employee
performance/experience.
Deliver classrooms and dormitories for
1,500 new students in 2023; provide
scholarships and after school support for
6,100 students and train 150 STSEM
teachers; establish long-term credit
support and training for community
businesses; demonstrate Tullow's macro-
socioeconomic contribution.
- Human Rights Policy
Level 2 KPI: Human Rights: enhance
Stakeholder risk on page 43 and 44
- Code of Ethical Conduct
Modern Slavery awareness internally and
with high risk suppliers.
Ethics & conduct risk on page 45
- Code of Ethical Conduct
Level 2 KPI: Robust and effective controls
Ethics & conduct risk on page 45
in place to manage material business risk:
review and establish the HR introduction
for new joiners, the essential processes
and training required for good governance.
Requirement
Environment
Further information: Environment,
see pages 34 and 35.
Group approach and policies
Documents
Related KPIs
Related principal risks
Oil and gas production carries a high risk of environmental impact and
- Climate Policy
incidents related to production processes.
Our product and the process associated with its production generate carbon
emissions which contribute to climate change. Tullow is working to reduce its
impact on the environment through its Net Zero 2030 commitment and through
its standards and policies.
- Safe and Sustainable Operations Policy
- Code of Ethical Conduct
- Non-Technical Risk Standard
Level 0 KPI: Embed Sustainability
across the organisation.
Level 1 KPI: Progress Net Zero plan.
Climate risk on page 44
EHS or security risk on pages 42 and 43
Employees
Further information: Our People,
see pages 36 and 37.
Further information: Health and Safety,
see page 31.
Tullow aims to create an inclusive environment, free from discrimination,
where individual differences and the contributions of all our staff are recognised
and everybody is treated fairly. We have zero tolerance for any form of
discrimination and decisions related to recruitment selection, development
or promotion are based upon aptitude and ability only.
Social policy
Further information: Community relations,
go to our Sustainability Report online.
We engage with communities early in the planning process to identify the
key impacts, both positive and negative, of our operations. We maintain
ongoing dialogue to provide information about Tullow’s activities and create
opportunities for people to contribute to decisions which affect them.
We always listen to feedback and concerns, answer enquiries and register
grievances made by community members.
- Code of Ethical Conduct
Level 0 KPI: Leadership effectiveness.
People risk on page 45
- Smart Working Policy
- Code of Ethical Conduct
- Non-Technical Risk Standard
Ethics & conduct risk on page 45
Stakeholder risk on pages 43 and 44
Level 1 KPIs: Improve employee
engagement: increase awareness and
knowledge of I&D; build capacity and
organisational effectiveness; refresh and
implement a new Employee Value
Proposition; maximise employee
performance/experience.
Level 1 KPIs: Socio-economic investment:
Deliver classrooms and dormitories for
1,500 new students in 2023; provide
scholarships and after school support for
6,100 students and train 150 STSEM
teachers; establish long-term credit
support and training for community
businesses; demonstrate Tullow's macro-
socioeconomic contribution.
Respect for human rights
Further information: Our Approach,
go to our Sustainability Report online.
Tullow respects and promotes internationally recognised human rights as set
out in the Universal Declaration of Human Rights and the International Labour
Organization Declaration on Fundamental Principles and Rights at Work. When
considering new investments, we review associated potential human rights
issues and their relationship to our operations.
- Human Rights Policy
- Code of Ethical Conduct
Level 2 KPI: Human Rights: enhance
Modern Slavery awareness internally and
with high risk suppliers.
Stakeholder risk on page 43 and 44
Ethics & conduct risk on page 45
Anti-corruption and anti-bribery
Further information: Anti-corruption and
anti-bribery, see page 36.
Tullow has zero tolerance of any form of corruption. We conduct our business
honestly, fairly and transparently and we do not exercise improper influence
on any individual or entity. We are subject to many anti-bribery laws in the
jurisdictions within which we work and, as a UK registered company, are
required to comply with the UK Bribery Act (2010).
- Code of Ethical Conduct
Level 2 KPI: Robust and effective controls
in place to manage material business risk:
review and establish the HR introduction
for new joiners, the essential processes
and training required for good governance.
Ethics & conduct risk on page 45
This Strategic Report and the information referred to herein have been approved by the Board and signed on its behalf by:
2022 Annual Report and Accounts 53
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report
Directors’ report
A framework for
corporate governance
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 2022 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 2022, the Group has been
focused on capital allocation and operational performance to
achieve a more reliable and consistent operating performance
and a sustainable improvement in operating margins. Our
purpose is to build a better future through responsible oil and
gas development.
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
are 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.
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.
54
Tullow Oil plc
2022 Annual Report and Accounts
Division of responsibilities
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 Senior Leadership Team.
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
Executive Directors present, to review Board discussions and
engagement as well as the performance of the Senior
Leadership 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 Chair, the Senior
Independent Director and the Chief Executive Officer is clearly
defined and agreed by the Board and is published on the
Group’s website.
Until 20 October 2022, the Board consisted of seven independent
non-executive Directors and one Executive Director. As previously
announced by the Company, Jeremy Wilson, non-executive
Director completed nine years on the Board on 20 October 2022
but remained on the Board until the subsequent Board meeting
on 30 November 2022, after which he stepped down. It was resolved
by the Board that, given the events of the year, the Company
and the Board would benefit from Mr Wilson’s attendance and
contribution at the Board meeting in November. Nonetheless,
in accordance with Provision 10 of the UK Corporate Governance
Code, from 20 October 2022, he ceased to be considered an
independent Director by the Board, and accordingly, stepped
down as the Senior Independent Director and from the Nominations,
Remuneration and Audit Committees from that date.
As at the date of this Report, the Board consists of seven
independent non-executive Directors and two Executive
Directors. On 8 December 2022, the Company announced that
Richard Miller would be appointed as Chief Financial Officer
and Executive Director with effect from 1 January 2023. The
Company appointed Roald Goethe as an independent
non-executive Director with effect from 24 February 2023.
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 that 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 the
Chair, Executive Directors
and Senior Managers
and reviewing
the remuneration
arrangements of
the workforce.
pages 63 to 68
pages 69 and 70
pages 71 and 72
pages 73 to 97
Senior Leadership Team
Chief Executive Officer, Chief Financial Officer and three Senior Managers
The Senior Leadership Team operates under the leadership of the Chief Executive Officer and is responsible for
the delivery and execution of the Board’s strategy as well as the day-to-day management of the Company’s business
including operational performance. The Senior Leadership Team is accountable to the Board.
Following the appointment of the Chair of the Board, the Board
undertook a review of the schedule of matters reserved for the
Board and also the division of responsibilities between the Chair of
the Board, the Chief Executive and the Senior Independent Director,
and all of these are available on our website.
The Board has reviewed the criteria set out in the
Corporate Governance Code and the FRC’s Guidance on
Board Effectiveness and 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.
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 table overleaf.
Committee Reports on pages 63 to 97
2022 Annual Report and Accounts 55
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Directors’ report continued
Board and Board Committee attendance 2022
Director
Phuthuma Nhleko
Rahul Dhir
Mitchell Ingram
Jeremy Wilson1
Mike Daly
Sheila Khama
Genevieve Sangudi
Martin Greenslade
Board (6)
Audit
Committee (5)
Nominations
Committee (3)
Safety and
Sustainability
Committee (6)
Remuneration
Committee (6)
6
6
6
6
6
6
6
6
3
3
3
4
5
1 2
5
6
6
6
6
6
5
6
1 2
1. Denotes Director(s) who are no longer Directors of the Company.
2. 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.
The focus of the Board’s meetings during the first half of the year
was on operational performance and the oversight of the
Business Plan. The second half of the year focused on capital
allocation and the Company’s long-term strategy, stakeholder
engagement, and the energy transition and sustainability. Later
in the year, the Board focused on culture, and the Employee Value
Proposition. At various meetings during the year, the Board also
reviewed the key risks facing the Company and discussed the
Group’s appetite for those risks.
The Board typically meets six times a year, in person. One of
those meetings is devoted to an extensive review of the long-
term strategy of the business and another is usually held at an
overseas office of the Group to provide the Board with deeper
insights into the Company’s operations and an opportunity to
engage with stakeholders. Due to the Board’s focus on the
potential corporate transaction with Capricorn during the course
of the year, it did not travel as a group to an overseas office.
However, the Chair of the Safety and Sustainability Committee
and also the Chair of the Audit Committee travelled together to
visit the Group’s offices, operations and certain stakeholders in
Ghana, including an overnight stay on the Group’s offshore facilities.
The Directors’ observations and feedback was provided to both
the Board and the business, and the business is implementing
certain actions in response to those observations, which are
being tracked by the Board.
56
Tullow Oil plc
2022 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.
Upon joining the Board, Directors receive induction programmes
which are specifically designed to complement their
background, experience and knowledge with a more detailed
understanding of the upstream industry and other matters
regularly discussed by the Board. The programmes include
one-to-one meetings with Senior Management, functional
leaders and, where possible, visits to the Group’s principal offices
and operations. The Directors also receive an overview of their
duties, corporate governance policies and Board processes.
Directors are initially appointed for a term of three years.
With the exception of Mike Daly, who will have served nine years
on the Board by the end of May 2023, all of the Directors will
seek election or re-election at the next Annual General Meeting.
The Board will set out in the Notice of Annual General Meeting its
reasons for supporting the election or re-election of each of the
Directors. In October 2022, Jeremy Wilson completed nine years
on the Board and retired from the Board at the end of the last
Board meeting of the year, on 30 November 2022.
Following an extensive search process assisted by the executive
search consultant, Cripps Sears & Partners, the Nominations
Committee recommended, and the Board appointed, Richard
Miller as an Executive Director and Chief Financial Officer with
effect from 1 January 2023. Richard had previously served as
interim Chief Financial Officer since Les Wood’s departure on
31 March 2022 and, following a thorough search, including a
diverse and inclusive pool of external candidates, the Board was
delighted to appoint an internal candidate to the role, which
further demonstrates the Committee’s commitment to developing
a pipeline of future talent amongst its senior managers. Cripps
Sears & Partners is independent of the Company and its Group.
Board time* (%)
Principal risks and
governance 12%
20+20+
Culture and
people 8%
Safety and
sustainability
(including
stakeholder
engagement) 10%
Capital structure and
capital allocation 20%
Business operations,
restructuring and
portfolio management 30%
Strategy 20%
* Percentages are approximate.
Nominations Committee Report on pages 69 and 70
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 Group’s 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 these 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.
2022 Annual Report and Accounts 57
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report30
30
+
+
20
20
+
+
10
10
+
+
8
+
+
12
12
+
+
O
Directors’ report continued
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 also provides oversight of the
implementation of the Company’s strategic priorities with respect
to sustainability, namely; a Net Zero delivery plan, Safe Operations,
Shared Prosperity, Environmental Stewardship, and Equality
and Transparency.
Safety and Sustainability Committee Report pages 71 and 72
Audit Committee
The Audit Committee retains responsibility for oversight of the
external audit of reserves and resources. Board governance was
strengthened by the nomination of a non-executive Director
with appropriate technical expertise who has responsibility for
engagement with the Chief Petroleum Engineer on all matters
relating to reserves and resources. The same non-executive
Director is available to assist with technical concerns raised
through the Company’s confidential speaking-up service,
Safe Call, replaced by ComplianceLine in November 2022.
The Company’s external independent reserves auditor meets
with the Audit Committee at least once a year to provide
the Committee with an opportunity to ask questions and
provide challenge to Senior Management’s assumptions.
Audit Committee Report pages 63 to 68
Remuneration Committee
The policies and practices for determining the remuneration
of the Executive Directors and the Senior Managers have 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.
Remuneration Committee Report pages 73 to 97
Board oversight of climate change and disclosures in
compliance with TCFD
Climate change remains one of Tullow’s nine Principal Risks with
governance over climate-related transition and physical risks
provided at Board, senior Management and operational levels.
The Board has ultimate accountability for ensuring Tullow maintains
sound climate risk management and internal control systems.
Our CEO, a Board member, is ultimately accountable for Tullow’s
strategic response to climate change and the energy transition.
Directors are responsible for ensuring they remain sufficiently
informed of climate related risks to Tullow and the broader
energy sector, required to be able to meet their fiduciary
duties under the UK Companies Act 2006.
The Board:
- takes account of the financial impact on Tullow’s portfolio
arising from reduced oil price and demand, and potential
carbon taxes, identified in a range of climate scenarios used
to test the resilience of our business;
- ensures mitigation of climate change risks is embedded in
Tullow’s strategy, decision making on capital allocation and
Management compensation;
- monitors indications of any changes in Tullow’s access to and
cost of capital and debt stemming from shifts in investor
sentiment or regulator pressure on investors towards the oil
and gas sector in response to climate-related risks; and
- approves Tullow’s carbon management and performance,
including targets for emissions reductions and alignment
with host nations’ strategies to manage climate change.
The Board undertakes these responsibilities primarily
through three sub-committees. The Safety and Sustainability
Committee provides full oversight and assurance in relation to
operational performance on carbon emissions and management
of climate-related issues. Sustainability performance, which
includes implementation of decarbonisation initiatives and our
approach to offsetting hard to abate emissions to meet our Net
Zero Commitment, was a key focus for 2022. The Audit Committee
is responsible for ensuring the effectiveness of risk management
processes and internal control systems, including for
climate-related risks, and oversees the assessment of Tullow’s
financial resilience considering the forecasts of various scenarios
on our portfolio and ensures the findings are appropriately and
transparently reflected in our financial disclosures. Through the
Remuneration Committee the Board ensures climate and sustainability
performance, including performance against our Net Zero target,
is embedded in the corporate scorecard and annual performance
KPIs. The Board approved the inclusion of a Sustainability KPI in
the 2023 Scorecard with a weighting of 5%. The Board receives
reports from all three Committees at each Board meeting.
58
Tullow Oil plc
2022 Annual Report and Accounts
Tullow’s approach to climate-related risk management is focused
on integrating the identification, assessment and management
of climate-related risk across the business and delegating
responsibility for achieving climate-related performance targets.
Compliance
The Board is satisfied that the Group has complied in full with
the Code during the year ended 31 December 2022, with the
following exception:
- The Directors’ Remuneration Policy, approved by shareholders
in 2020, provided that Executive Director pension contributions
for new Executive Directors are aligned (as a percentage of
salary) with those available to the workforce. However, it
provided that pension contributions for existing Executive
Directors would be frozen at the 2019 cash amount and adjusted
downwards so they are aligned (as a percentage of salary) with
those available to the workforce by 1 January 2023. Between
1 January 2022 and 31 March 2022, Les Wood (Executive Director
and Chief Financial Officer) was paid pension contributions at
the frozen 2019 cash amount. This does not comply with
Provision 38 of the Code which requires these contributions
to be aligned with those available to the workforce; however,
this is reflective of Provision 143 of the FRC’s Guidance on
Board Effectiveness, which acknowledges that it may not be
practical to alter existing contractual arrangements. The
Board confirms that the pension contributions for the Chief
Executive Officer appointed in 2020 and those of the new
Chief Financial Officer appointed on 1 January 2023 are aligned
(as a percentage of salary) with those available to the workforce
and that, following the departure of Les Wood by mutual
agreement of the Board on 31 March 2022, there is no longer
any Executive Director receiving pension contributions which
are not in line with the workforce, and therefore the Corporate
Governance Code.
Phuthuma Nhleko
Chair
7 March 2023
Further information on our carbon emissions, and our Net Zero
Pathway can be found in our Strategic Report.
Tullow’s Senior Leadership Team, led by the Group Director of
People & Sustainability, is responsible and accountable for
overseeing and monitoring risks that fall under their remit, and
for leading the incorporation of climate risks, opportunities, and
scenario assumptions into enterprise risk registers. This accounts
for the policy positions and regulations within our host nations.
The Ghana Managing Director is furthermore accountable for
the implementation of decarbonisation initiatives in our Ghana
operations. The Group Sustainability function, which reports to
the Director of People & Sustainability, is responsible for leading
the integration of climate-related transition and physical risk
management across the business. The function works closely
with Group Internal Audit & Risk, Finance, Legal, Commercial
and business teams to enhance the identification, assessment
and management of climate risk and lead business teams in
understanding the transmission pathways which could affect
our business. Each part of the business therefore evaluates
climate-related risks and opportunities within their remit as
part of an ongoing risk review cycle; climate risk management
reflects Tullow’s ‘top-down, bottom-up’ approach to risk,
recognising the cross-cutting nature of physical and transition
climate risks which may affect other principal risk categories.
Audit Committee
Beyond its fiduciary duties in relation to the integrity of the
Company’s Financial Statements, the Audit Committee is also
responsible for ensuring there is a sufficient level of assurance
provided on risk management and internal controls systems,
including for Climate Risk, and whether it is sufficient for the
Board to satisfy itself that they are operating effectively. During
2022 this included a review of the climate scenario analysis and
methodologies used to test the resilience of our business, including
the potential financial impacts of climate-related transition and
physical risk. The Committee also reviewed the assurance and
audit process in support of annual climate-related disclosures.
Safety and Sustainability Committee
Tullow modified the scope of its standing EHS Committee to
include safety and sustainability in 2019 to reflect the material
nature of ESG and sustainability risks. Embedding sustainability
across the organisation, which includes progress against Tullow’s
Net Zero Commitment, was a key focus of the Committee for
2022. Among others, this included a review of enterprise-wide
climate risk identification and management processes and the
third-party assurance process for annual disclosures.
2022 Annual Report and Accounts 59
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Board of Directors
1. Phuthuma Nhleko
Independent non-executive
Chair
Age: 62
Tenure: <2 years
Appointment: October 2021
Independent: Yes
Key strengths
Executive leadership, public company
governance and leadership, emerging
markets, engineering, investor
relations, corporate finance, business
development, risk management,
technology and innovation.
Experience
Phuthuma brings extensive emerging
markets experience to Tullow having
worked successfully across Africa over
the past three decades. Phuthuma was
Chief Executive of MTN Group, the
leading pan-African telecommunications
company, from 2002 to 2011. During his
time with MTN, the Group grew rapidly
in Africa and the Middle East, gaining
over 185 million subscribers to become
one of the largest listed companies in
Africa. In 2013, Phuthuma returned to
MTN as a non-executive Director and
Chairman until 2019. This included a
period as Executive Chairman from
2015 to 2017. He remained part of the
international advisory board for the
business until August 2021. After
stepping down as Chief Executive of
MTN in 2011, Phuthuma was a
non-executive Director at BP plc (2011–16)
and Anglo-American plc (2011–15). He
also served previously on the Boards of
Nedbank and Old Mutual in South Africa.
Current external roles
Phuthuma is Chairman of Phembani
Group, an investment group which
he founded in 1994, and is Chairman of
the Johannesburg Stock Exchange Ltd.
Phuthuma is also a non-executive
Director of South African downstream
energy company, Engen Petroleum, and
a non-executive Director of IHS Towers,
the NYSE-listed Emerging Markets
Telecom Infrastructure Provider.
1
N
2
3
4
N
S
5
A
R
N
6
S
7
R
S
8
A
R
S
9
A
4. Mike Daly
Non-executive Director
Age: 69
Tenure: 8 years
Appointment: June 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 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 has served on
the advisory board of the British
Geological Survey. He is a visiting
professor at the Department of Earth
Sciences, Oxford University. He holds
a BSc in Geology from the University
College of Wales 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 and a member
of the investment committee. President
of the Geological Society of London,
a registered UK charity.
2. Rahul Dhir
Chief Executive Officer
Age: 57
Tenure: 3 years
Appointment: July 2020
Independent: No
Key strengths
Upstream business, exploration,
development and operations, executive
leadership, capital markets, M&A,
environment, health, safety
and sustainability.
Experience
Rahul brings substantial leadership
experience in the oil and gas industry to
Tullow, having founded Delonex Energy,
an Africa-focused oil and gas company
in 2013. Prior to establishing Delonex,
Rahul spent six years at Cairn India as
chief executive officer and managing
director. Under his leadership Cairn
India successfully completed a $2 billion
IPO and grew to a market value of nearly
$13 billion with operated production of
over 200,000 barrels of oil equivalent
per day. Rahul started his career as a
Petroleum Engineer, before moving into
investment banking where he led teams
at Morgan Stanley and Merrill Lynch,
advising major oil & gas companies on
merger and acquisition and capital
market related issues.
Current external roles
Member of the International Board
of Advisors at the University of Texas
at Austin.
3. Richard Miller
Chief Financial Officer
Age: 40
Tenure: < 1 year
Appointment: January 2023
Independent: No
Key strengths
Upstream oil and gas, capital markets,
M&A, financial management, audit
and assurance.
Experience
Richard brings extensive oil & gas and
financial experience to the role. He has
been acting as Interim CFO since April
2022 and has been with Tullow for over
11 years. During that time Richard led
the Tullow Finance team, supporting a
number of acquisitions, disposals and
capital markets transactions. Richard
played a significant role in the continued
turnaround of Tullow with the successful
rebasing of Tullow’s cost structure, the
resetting of the balance sheet and the
change to a more focused capital
allocation. Richard is a Chartered
Accountant and he joined Tullow from
Ernst and Young LLP where he worked
in the audit and assurance practice.
Current external roles
None.
60
Tullow Oil plc
2022 Annual Report and Accounts
5. Martin Greenslade
Senior Independent Director
Age: 58
Tenure: 4 years
Appointment: November 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 35-year
career in the property, engineering and
financial sectors in the UK and across
Africa, Scandinavia and Europe. From
2005 to 2021 Martin was 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 a board trustee of the UK
arm of International Justice Mission,
a human rights charity focused on
protecting the poor from violence
and ending human slavery.
6. Sheila Khama
Non-executive Director
Age: 65
Tenure: 4 years
Appointment: April 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. Sheila served as the chief
executive officer of De Beers Botswana
from 2005 to 2010, after which she
served as a director of the extractives
advisory programme at the African
Centre for Economic Transformation.
In 2013, Sheila took up a position as
director of the Natural Resources
Centre at the African Development
Bank, Abidjan, Côte d’Ivoire. Sheila
subsequently became a policy adviser
at the World Bank in Washington in
2016. In both roles she advised host
governments on sustainable
development policies 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 Board of the Centre for
Sustainable Development Investment,
Columbia University, and the audit
committee of the United Nations Office
of Operations, a non-executive director
of the Development Partner Institute,
a non-executive director of Base
Resources Limited and a non-executive
Director of The Metals Company, which
is listed on the NASDAQ Stock Exchange
in New York.
7. Mitchell Ingram
Non-executive Director
Age: 60
Tenure: 3 years
Appointment: September 2020
Independent: Yes
Key strengths
Upstream business, corporate finance,
accounting and audit, business
development, risk management,
executive leadership, investor and
government relations.
Experience
Mitchell brings a wealth of oil and gas
executive experience to Tullow, having
established a distinguished career
spanning over 28 years of experience in
the oil and natural gas industry. Mitchell
joined Anadarko in 2015 and became
executive vice-president of International,
Deep Water, and Exploration in 2018.
Prior to this, he served as development
director and then asset general
manager for the Karachaganack field in
Kazakhstan at BG Group, following his
time as managing director of QGC
Australia. Mitchell began his career at
Occidental and spent 22 years in a
number of technical and operational
roles in the UK North Sea, Qatar and
Libya. Mitchell holds a BSc in
Engineering Technology from Robert
Gordon University in Aberdeen.
Current external roles
None.
8. Genevieve Sangudi
Non-executive Director
Age: 46
Tenure: 4 years
Appointment: April 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 Procter & 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 an 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.
9. Roald Goethe
Non-executive Director
Age: 63
Tenure: <1 year
Appointment: February 2023
Independent: Yes
Key strengths
Upstream business, finance,
development, executive leadership,
capital markets, M&A.
Experience
Roald is a highly experienced oil and
gas executive with extensive commercial
knowledge of the energy industry in
Africa. In 2006 he founded Delaney
Petroleum Ltd, trading crude oil and
petroleum products predominantly
within West Africa and the Middle East.
Prior to establishing Delaney, Roald
spent 11 years at Trafigura Group,
where he had an integral role in the
development of the group’s oil trading
activities, primarily in West Africa.
Roald has an excellent understanding
of Tullow’s business and vision, and he
will provide a unique commercial
and entrepreneurial perspective to
Tullow’s Board.
Current external roles
Roald is a Director of ROFGO
Racing Limited.
Board composition
statistics
Tenure
Age
Nationality
0–5 Years
6–10 Years
3 Years
average
tenure
58 Years
average
age
40–50 Years
51–60 Years
61–70 Years
8989+
2222+
5656+
7878+
7878+
British
Motswana
South African
Tanzanian
German
Independent
Non-independent
77%
independent
Independence
23%
female
Male
Female
Gender
8
1
2
3
4
5
1
1
1
1
7
2
7
2
Committee membership key
Committee Chair
A Audit Committee
N Nominations Committee
R Remuneration Committee
S Safety and Sustainability Committee
Tullow Oil plc
2022 Annual Report and Accounts
61
Financial statementsSupplementary informationStrategic ReportGovernance Report+
11
11
+
+
O
O
+
33
33
+
+
45
45
+
+
O
O
+
22
22
+
+
O
O
+
11
11
+
11
+
11
+
11
+
11
+
11
11
+
+
O
O
+
22
22
+
+
O
O
Stakeholder engagement
Engaging with our
stakeholders
Strong relationships built on trust remain key to
the delivery of the Company’s strategy and goals.
During 2022 frequent engagement was carried out with
our investors, host nations and Tullow staff. This was
carried out by the Chairman, Executive Directors and
non-executive Directors. Feedback was then regularly
communicated to the Board as a whole and taken into
consideration during Board decision making.
Our key stakeholders
How the Board engaged
Our investors
S
VEST O R
R IN
U
O
OUR H
O
S
T
N
A
T
I
O
N
S
OUR PEO P L E
Our host nations
S
R
VEST O
R IN
U
O
OUR H
O
S
T
N
A
T
I
O
N
S
OUR PEO P L E
OUR H
O
S
T
N
A
T
I
O
N
S
Our people
S
VEST O R
R IN
U
O
OUR PEO P L E
- Throughout the year, Tullow management and the
Investor Relations team met both virtually and
physically with investors to discuss operational
and financial performance. Significant
engagement was also carried out with regards to
the proposed combination with Capricorn, which
was terminated in October 2022.
- Tullow attended a number of equity and debt
conferences during the year; and hosted a large
number of group and 1-2-1 meetings with current
or prospective investors. This included a dedicated
webinar for Retail Investors to engage with this
important part of our shareholder base.
- The Chair and Senior Independent Director
met with major shareholders to discuss
governance issues.
- The Chair had the opportunity to meet H.E. the
President of Ghana and other government officials
in April. The CEO also had quarterly updates with
H.E. the President in Accra and London.
Additionally, the CEO, other senior business leaders
proactively engaged with several other government
officials, including the Minister of Energy, Minister
of Finance, Minister of State for Finance, and senior
officials of Petroleum Commission, Ghana National
Petroleum Corporation and Ghana National Gas
Company Ltd., among others.
- The Non-Executive Board members Martin
Greenslade and Mitchell Ingram also engaged with
the Vice President of Ghana during a working visit
to Ghana in November. Members of the Tullow
Ghana Advisory Board also had the opportunity to
engage with HE the President of Ghana, the
Minister of Energy, Bank of Ghana and other senior
government officials.
- In November, Tullow held its inaugural “Ghana
Energy Evening” in London. The event, hosted
jointly by the CEO and Ghana’s High Commissioner
to the United Kingdom and the Republic of Ireland,
was Tullow’s maiden platform to engage with
Ghanaian diaspora in the United Kingdom.
- Non-executive Directors of the Board met
with members of the Tullow Advisory Panel on
four occasions during the course of the year.
These meetings provided an opportunity to gather
feedback from employees to help shape decisions
with regards to improving our overall Employee
Value Proposition. Such feedback led to the launch
of some significant initiatives to improve further
the Tullow employee experience in areas such as
performance management, hybrid working and
compensation policies.
- Tullow hosted a hybrid Annual General Meeting
which was also attended by the Directors and a
number of investors. At the AGM on 25 May 2022,
a significant number of votes were cast against
Special Resolution 14 (43.95%) to authorise the
Board to allot or sell equity securities for cash) and
Special Resolution 16 (24.44%) to authorise the
Company to make market purchases of its own
shares. Members of the Board have since engaged
with our major shareholders who voted against the
resolutions and have received their feedback,
which will be incorporated into the Board’s
considerations and communications in the lead
up to the next AGM in 2023.
- The CEO and other senior business leaders met the
Minister of Mines, Hydrocarbon and Energy for Côte
d’Ivoire at Africa Oil Week in Capetown.
- The CEO met Gabon’s Minister of Water, Forest, the
Sea and Environment, the Minister of Foreign
Affairs and the Secretary General of the Presidency
in London during the Commonwealth Gabonese
flag raising event.
- Additionally, the CEO met virtually with many of our
key stakeholders across our business in connection
with Tullow’s major transactions during the year.
- In 2023, Tullow’s Chair will meet with a range of
key stakeholders from across Tullow’s countries
of operations.
- The CEO and the Senior Leadership Team hosted
regular virtual town hall events which included
open Q&A throughout the year, which was
complemented by an Employee Engagement
Survey conducted in the second quarter of 2022.
- As travel restrictions lifted, the CEO and Senior
Leadership Team were able to meet with our
employees across our locations in person, hosting
many small group discussions.
62
Tullow Oil plc
2022 Annual Report and Accounts
Audit Committee report
Audit Committee Report
Martin Greenslade
Chair of the Audit Committee
Dear shareholder
The Audit Committee continues to focus on ensuring that Tullow
has a strong system of financial and non-financial controls, risk
management processes and internal audit programme. In
particular, the Audit Committee’s activities in 2022 included
oversight of Tullow’s financial reports, disclosures in key
transactional documents, 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 2022 particular focus
was given to judgements made in respect of tax treatments and
the Group’s going concern assessment. The Committee
continued to review the performance of our finance and supply
chain outsourcing partner and reviewed climate risk, including
its TCFD analysis, scenarios and disclosure.
The Committee has monitored the performance of Ernst & Young
LLP as the Company’s statutory external auditor. We continue to
be encouraged by the focus and insight provided by Ernst & Young,
especially in the areas of significant judgements and their use of
data analytics.
The Committee oversaw the appointment of the new Head of
Internal Audit and Risk in 2022. This was particularly important
due to the significant changes that occurred within the
organisational structure of the business and that of the internal
audit function during 2020 and 2021. The focus on delivery of
Internal Audit in 2022 led to an increase in the number of internal
audits performed, with 15 completed in 2022 and one in progress
at the year end.
The Committee also met with the Group Head of Ethics and
Compliance and received updates on matters including the Code
of Ethical Conduct, avenues available to our staff and suppliers
for speaking up, and procedures for the detection and prevention
of fraud.
“ The Committee continued to
review the performance of
the Group’s control
environment and
strengthened risk
management process. ”
Martin Greenslade
Chair of the Audit Committee
Based on the results of the annual effectiveness review of risk
management and internal control, the Audit Committee
concluded that the system of internal controls operated
effectively throughout the financial year and up to the date on
which the Financial Statements were signed. There were areas
identified for improvement and the Audit Committee is confident
that they are in the process of being addressed.
During 2022, the Financial Reporting Council (FRC) reviewed
Tullow’s Annual Report and Accounts for 2021 in their sample
for the thematic review of judgement and estimate disclosures.
We are pleased with the outcome of the review and no questions
or queries were reported by the FRC. It did, however, suggest
some improvements around the Group’s disclosures on certain
areas of judgement and uncertainty, which have been addressed
in our 2022 Annual Report where material and relevant. The FRC’s
role is to consider compliance with reporting standards and is
not to verify the information provided. Therefore, given the scope
and inherent limitations of their review, which does not benefit from
any detailed knowledge of the Group, it would not be appropriate
to infer any assurance from their review that our 2021 Annual
Report and Accounts are correct in all material respects.
Before advising the Board on the approval of the 2022 Annual Report
and Accounts, the Committee asked the Senior Leadership Team
to demonstrate to the Committee its processes and procedures for
ensuring that the report contains the relevant information necessary
for shareholders to assess Tullow’s position, performance, business
model and strategy and that it is fair, balanced and understandable.
Furthermore, the Committee, in conjunction with the Board
provided detailed feedback to Management on the 2021 Annual
Report and Accounts process, which has been addressed
through the 2022 process.
Martin Greenslade
Chair of the Audit Committee
7 March 2023
2022 Annual Report and Accounts 63
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Audit Committee report continued
Governance
Martin Greenslade was appointed Audit Committee Chair in 2020
following the AGM. Martin is a Chartered Accountant. He was
Chief Financial Officer at Land Securities Group plc from 2005
to 2021 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 during the year
were Mike Daly, Genevieve Sangudi and Jeremy Wilson.
Genevieve Sangudi joined the Committee in September in
advance of Jeremy Wilson stepping off the Committee in
October. Together, the members of the Committee demonstrate
competence in finance, the oil and gas industry and investing in
Africa. Mike Daly has significant prior experience in oil and gas
companies and Genevieve Sangudi has considerable pan-African
and North American marketing, investment and fund management
experience. The Company Secretary serves as the secretary
to the Committee.
The Chief Financial Officer, the Group General Counsel, the Group
Financial Controller, the Head of Internal Audit and Risk and
representatives of the external auditor are invited to attend each
meeting of the Committee and participated in all of the meetings
during 2022. 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 2022. The external auditor and the
Head of Internal Audit and Risk have unrestricted access to
the Committee Chair.
In 2022, the Committee met on five occasions and also held
conference calls between meetings to consider specific items.
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 most recently
approved the terms of reference on 30 November 2022.
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 statement 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;
64
Tullow Oil plc
2022 Annual Report and Accounts
- 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;
- meet with the Chief Petroleum Engineer and receive reports
from the independent reserves auditor (TRACS);
- 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.
Key areas reviewed in 2022
The Committee fully discharged its responsibilities during the
year and the following describes the work completed by the
Audit Committee in 2022:
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;
- the approach by management and resultant disclosure
associated with climate change and TCFD; and
- Senior Management and Board review and sign-off.
Financial reporting
As part of the financial reporting process, the Committee kept under review ongoing and emerging financial reporting risks and
judgements. The Committee met in September 2022 to review half-year Financial Statements and in November 2022 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 2023. At each stage of the process, the Committee considered the key risks identified as being
significant to the 2022 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 2022 accounts and how these were
addressed are detailed below. The related Group accounting policies can be found on pages 119 to 130.
Significant financial judgements
and areas of estimation
Carrying value of
intangible exploration
and evaluation assets
Carrying value of
property, plant and
equipment (PP&E)
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, given its materiality. The papers documented 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 development
project given key changes to the project in 2022, at the February 2023 Audit Committee meeting.
The Committee supported Management’s assessment that an impairment was not required in respect of Kenya based
on the judgemental assessment performed.
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 September 2022, November 2022
and February 2023 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 discount rates, with
particular focus on the asset and exploration risk adjustments made by Management to a peer group weighted
average cost of capital.
At the September 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 principal external reserves auditor, TRACS, at the
February Committee meeting to gain comfort over Management’s view of the carrying value of PP&E. The Committee
concurred with the impairments proposed by Management and ensured 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 can continue as a going concern. The Committee also discussed the
five-year time horizon used by Management for the viability statement which extends beyond the revised debt
maturities following the refinancing in 2021.
The Committee concurred with Management’s assessment and ensured there was an adequate disclosure of this
judgement in the Annual Report and Accounts.
Ghana Pre-emption
A detailed paper was prepared by Management and reviewed by the Committee documenting the background and the
accounting treatment of Tullow’s acquisition of additional interest in TEN and Jubilee fields in Ghana and its impact on
the Group results. The acquisition of additional interests in TEN and Jubilee by the Group has met the definition of a
business combination under IFRS 3 and has been accounted for using the acquisition method. This required the Group
to fair value assets acquired and liabilities assumed at the acquisition date which gave rise to a gain on bargain
purchase recognised in the income statement during the year.
Provisions
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 challenged Management’s position at the December and March 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.
Uncertain tax
and regulatory
treatments
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 September and February meetings to
discuss and challenge the key judgements and estimates made including the likelihood of success and the quantum of
the total exposure for which provision had been made. The Committee concurred with Management’s assessment and
ensured there was an adequate disclosure of this judgement in the Annual Report and Accounts.
2022 Annual Report and Accounts 65
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report - Matters discussed included the auditor’s assessment of
significant financial risks and the performance of Management
in addressing these risks, the auditor’s opinion of
Management’s role in fulfilling obligations for the maintenance
of internal controls, the transparency and responsiveness of
interactions with Management, confirmation that no
restrictions have been placed on it by Management,
maintaining the independence of the audit, and how it has
exercised professional challenge.
- In order to ensure the effectiveness of the external audit
process, Ernst & Young 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
2022 audit, the key audit risks identified included: oil and gas
reserve estimation; impairment of Kenya exploration and
evaluation (‘E&E’) assets; impairment and impairment reversal
assessment of Oil & Gas assets; manipulation of period-end
manual journals in order to overstate revenue and management
override of controls; accounting for Ghana pre-emption rights
and uncertain tax treatments. 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.
- The Committee closely monitors the level of audit and
non-audit services provided by the external auditor to the
Group. Non-audit services are normally limited to assignments
that are closely related to the annual audit or where the work is
of such a nature that a detailed understanding of the Group is
necessary. An internal Tullow standard for the engagement of
the external auditor to supply non-audit services is in place to
formalise these arrangements. It was revised in January 2022
and is reviewed bi-annually. It requires Audit Committee
approval for all non-trivial categories of non-audit work.
A breakdown of the fees paid in 2022 to the external auditor
in respect of audit and non-audit work is included in note 4 to
the Financial Statements and summarised on the next page.
- In addition to processes put in place to ensure segregation
of audit and non-audit roles, Ernst & Young 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.
Audit Committee report continued
Allocation of Audit Committee time* (%)
Oversight of relationship with
the external auditor 5%
Risk management
process and
internal controls
10%
* Percentages are approximate.7070+
Internal Audit 10%
Ethics and
compliance 5%
Financial
reporting and
judgements 70%
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.
- 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 the appointment of Ernst & Young
LLP as Tullow’s statutory auditor for the 2021 financial year,
which was approved by shareholders at the 2021 AGM. Under
current regulations, the Group will be required to retender the
audit by no later than the 2030 financial year.
- The external auditor is required to rotate the audit partner
responsible for the Group audit every five years. Mr Paul Wallek
is Ernst & Young LLP’s lead audit partner with effect from 2020.
- The Audit Committee assessed the qualifications, expertise
and resources, and independence of Ernst & Young LLP as well
as the effectiveness of the audit process. This review covered
all aspects of the audit service provided by Ernst & Young 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 2022 the Committee held private meetings with the
external auditor. The Audit Committee Chair also maintained
regular contact with the audit partner, Mr Paul Wallek,
throughout the year. These meetings provide an opportunity
for open dialogue with the external auditor without
Management being present.
66
Tullow Oil plc
2022 Annual Report and Accounts
+
10
10
+
+
10
10
+
+
5
5
+
+
5
5
+
+
O
O
Fees payable to auditor (%)
Non-audit
– Corporate
finance 24%
Non-audit
half-year review–
12%
2424+
Audit services
64%
Internal controls and risk management
Responsibility for reviewing the effectiveness of the Group’s risk
management and internal control is delegated to the Audit
Committee by the Board.
In 2022, 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;
- enterprise risk management and assurance processes;
- the external auditor’s observations on internal financial
controls identified as part of its audit; and
- regular performance, risk and assurance reporting by the
Business Unit and Corporate teams to the Board.
During the year, 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.
The assessment process included engagements with the Senior
Leadership Team helping to support 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 to ensure they were still valid and
their associated risk appetites.
Internal Audit periodically presented its 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 the annual tax strategy review and TCFD reporting.
In addition, during the year, the Audit Committee received
reports from the principal independent reserves auditor TRACS
and reviewed the arrangements in place for managing cyber risk
relating to the Group’s critical information systems.
All identified findings were assessed, with no indications of
fraud noted.
Based on the results of the annual effectiveness review of risk
management and internal control systems, the Audit Committee
concluded that the system of internal controls operated
effectively throughout the financial year and up to the date on
which the Financial Statements were signed. There were areas
identified for improvement and the Audit Committee is confident
that they are in the process of being addressed.
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. Throughout 2022 the Committee
requested and received reports from Management on its resource
and budget planning for the Internal Audit function in order to
assess the effectiveness of internal audit and satisfy itself that
the quality, experience and expertise of the function is appropriate
for the business. The level of internal resource available to the
function was in line with target from March. In addition, the
internal audit function uses external expertise for specialist
reviews and so the Committee challenged Management to
ensure sufficient budget was made available for additional
external resource where required. The Committee also regularly
provided feedback on progress against the 2022 internal audit
plan and guidance on the prioritisation of certain audits focused
on the effectiveness of the control environment and approved
changes to the Internal Audit plan throughout the year to meet
emerging demands.
- A new Head of Internal Audit and Risk joined the Group in
March 2022. The position’s responsibilities include evaluating
the Group’s assessment of the overall control environment.
- The Committee reviewed and challenged the 2022 programme
of internal audit work developed to address both financial and
overall risk management objectives identified within the Group
during the planning phase. The plan was subsequently
adopted with progress reported at the Audit Committee
meetings. A total of 16 internal audits were planned for 2022
of which 15 were completed with one in progress at the year
end. The plan is dynamic and changes are approved by the
Committee. The primary changes in the plan were due to
re-assessments of the priorities of the organisation and
results of audits completed. Based on the nature of the audits
completed, the assurance performed by Management and
subsequently assessed by the Committee and the scale of
organisation, the Committee believes an appropriate level
of assurance has been performed over the Group’s internal
control environment.
- Internal Audit also ran a systematic programme of audits of
suppliers’ compliance with commercial and business ethics
clauses, including bribery and corruption, with a focus on
significant and high-risk contracts.
2022 Annual Report and Accounts 67
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report+
12
12
+
+
64
64
+
+
O
O
Audit Committee report continued
Internal audit requirements continued
- Detailed results from 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.
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
2022 to allow staff to confidentially raise any concerns about
business practices. This procedure complements established
internal reporting processes. A new provider to support the
whistleblowing procedure was engaged during 2022. 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 is annually
required to complete an online awareness course to refresh
their knowledge of key provisions of Tullow’s Code of Ethical
Conduct, which was included as a Group-wide KPI. 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
- In late November 2022, the Audit Committee undertook a
review of its effectiveness during 2022, 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. The feedback
provided has been used to shape the agendas and the annual
rolling agenda of the Committee in 2023.
68
Tullow Oil plc
2022 Annual Report and Accounts
Nominations Committee report
Nominations Committee Report
“ Identifying and obtaining
the right balance of
competencies to deliver on
our strategy is a priority for
the Committee. ”
Phuthuma Nhleko
Chair of the Nominations Committee
Phuthuma Nhleko
Chair of the Nominations Committee
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 I am
pleased that we continue to have a strong African membership
and a strong female membership on the Board.
The key activities of the Committee in 2022 were 1) the search
for a new Chief Financial Officer and Executive Director, which
resulted in the appointment of Richard Miller with effect from
1 January 2023 and 2) commissioning the externally facilitated
evaluation of the performance of the Board, its committees, the
Chair and individual directors.
The appointment of Richard Miller as CFO followed an extensive
externally facilitated search process, assisted by Cripps Sears &
Partners. Among a number of other search consultants, Cripps
Sears & Partners have carried out search processes on behalf of
the Company and its Group before, but have no other connection
with the Company. A diverse and inclusive group of candidates
were shortlisted and interviewed for the CFO role and the
Committee was pleased to ultimately appoint Richard who was
an internal candidate, having previously served as Interim CFO
since April 2022 and Group Financial Controller. Richard brings
extensive oil & gas and financial experience to the role and has
been with Tullow for over 11 years. During that time Richard led
the Tullow Finance team, supporting a number of acquisitions,
disposals and capital markets transactions. Richard played a
significant role in the continued turnaround of Tullow with the
successful rebasing of Tullow’s cost structure, the resetting of
the balance sheet and the change to a more focused capital
allocation. He is a proven leader of Tullow’s culture and his
appointment is testament to the Committee and Company’s work
to ensure there is a pipeline of managers who will occupy the
most senior positions in the Company in the future.
The externally facilitated evaluation of the performance of the
Board, its Committees, the Chair and individual Directors was
assisted by Heidrick & Struggles. Among a number of other
search consultants, Heidrick & Struggles have carried out search
processes on behalf of the Company and its Group before, but
have no other connection with the Company. The evaluation was
conducted by first setting out the scope of the evaluation, which
would include assisting the Committee build a view on the skills
and experience it should seek in the next appointments to the
Board, to achieve an appropriate composition to deliver the
Company’s strategy. The process then included individual
interviews, a desktop review of Board materials and an
anonymous online survey tool completed by each of the
Directors and certain key contributors to the Board and
Committees, including the members of the Senior Leadership
Team and the Company Secretary. The facilitator presented its
findings to the Chairman and then the Board. Key strengths
identified were a clear understanding and alignment on the
purpose and strategy of the business but further consideration
should be given to articulating, energising and galvanising both
internally and externally the longer-term strategy of the business
through the energy transition. Another key strength identified
was the quality of debate, challenge and dialogue amongst the
Board members, but further consideration should be given to
providing more opportunities for engagement among the Board
members, and the Board members with the Senior Leadership
Team, staff and stakeholders since the risks associated with the
COVID-19 pandemic have subsided in our areas of operation.
Another strength identified was the diversity of experience and
capabilities on the Board but consideration should be given to
focusing on long term succession planning of the Board, looking
years in advance for both Executives and Non-Executives, to
ensure spaced rotations.
2022 Annual Report and Accounts 69
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Nominations Committee report continued
A number of these suggestions for consideration have already
resulted in action and response from the Board, including
planning for the Board’s long-term strategy session in July, visits
by our Non-Executive Directors to our overseas offices in Accra,
including facilities at Takoradi and an offshore FPSO, and the
appointment of recruitment consultants to initiate searches for
a new Non-Executive Director and certain roles within Senior
Management. Several further initiatives have been included
into the Board’s annual rolling agenda and timetable of events to
address the suggested considerations, and the Chair has also
implemented one on one meetings with each of the Directors
to discuss their individual feedback.
The Committee is also responsible for ensuring there are plans in
place for the orderly succession of Senior Manager positions
within the business. The Committee and the Board reviewed the
proposals and arrangements for the recruitment, development
and retention of managers occupying the senior positions in the
Company. In 2023, the Committee will continue in this work and
will be particularly focused on ensuring the team has the
necessary skills and expertise to deliver the future business
strategy whilst 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 2022, including our diversity statistics,
can be found on pages 36 and 37. The Committee is conscious
that, following the resignation of Dorothy Thompson from the
Board on 31 December 2021, the Board is no longer composed of
at least 33% women. However it is pleased that, following my
appointment, the Board has increased its diversity of
nationalities and is more representative of our assets’
geographic footprint. The Committee will continue to review the
diversity of skills and experience at the Board, and the need for
gender diversity remains one of the priorities.
Phuthuma Nhleko
Chair of the Nominations Committee
7 March 2023
Committee’s role
The Committee reviews the composition and balance of the
Board and Senior Managers on a regular basis. It 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 about
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 2022 are shown on page 56.
In addition to three formal meetings, the Committee held several
informal discussions, telephone conference calls and interviews
during the year and were assisted in the critical decisions arising
from these discussions through consultation with the whole Board.
70
Tullow Oil plc
2022 Annual Report and Accounts
Safety and Sustainability Committee report
Safety and Sustainability Committee report
Mitch Ingram
Chair of Safety and Sustainability Committee
Dear shareholder
The Safety and Sustainability Committee monitors the
performance and sets the forward-looking agenda for the
Company in relation to Safe Operations, Shared Prosperity,
Environmental Stewardship and Equality and Transparency.
The Committee also executes in-depth reviews of strategically
important areas of concern for the Group. In 2022 the Committee
continued to recognise the importance of process safety and
particularly the need for a focus on asset integrity and maintenance
in Ghana with performance reviewed at each Committee
meeting. There was also renewed focus on maximising the
learning from both occupational and process safety related
incidents across every part of the business, including the
non-operated part of our activities.
The Committee also had several deep dives relating to progress
on taking over the operations and maintenance (O&M) of the
KNK FPSO in Ghana from mid-2022. The Committee reviewed
the plans for implementation ahead of the project and also
continues to monitor progress since the transfer of operatorship
took place.
Tullow continued to review its overall approach to sustainability,
with a focus on embedding sustainability in the organisation.
This involved regular review of the performance of our Net Zero
plan; our socio-economic investments; our local content plans
and also the performance of our teams and their engagement.
The Group reviewed its business for a fourth year against the
recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD) and was particularly pleased when the
Financial Reporting Council, recognised our disclosure as an
example of better practice in articulating the likely timing of any
impacts of climate change.
“The Committee continued to
review the Groups safety and
environmental performance
and the progress achieved
throught the year,
embedding Sustainability
in our organisation. ”
Mitch Ingram
Chair of the Safety and Sustainability
Committee
The Committee continued to the review the progress of the Net
Zero Plan; the decarbonisation initiatives identified to reduce
emissions and eliminate routing flaring on Jubilee and TEN and
progress in identifying nature-based carbon offset opportunities
in Ghana, that included the completion of a Feasibility Study
and signing of a Letter of Intent with the Forestry Commission in
late 2022.
Mitch Ingram
Chair of the Safety and Sustainability Committee
7 March 2023
Tullow Oil plc
2022 Annual Report and Accounts
71
Financial statementsSupplementary informationStrategic ReportGovernance Report Safety and Sustainability Committee report continued
Committee’s role
The Committee’s 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’s terms of reference are reviewed annually and
are available on the corporate website.
The Committee currently comprises four non-executive
Directors. The membership of the Committee and attendance
throughout the year is set out on page 56. The Committee is
supported by the Company Secretary and the principal members
of the Senior Leadership Team who report to the Committee are
Julia Ross, Director of People and Sustainability and Wissam
Al-Monthiry, Ghana MD.
The safety and sustainability related KPIs that the Company
measured its performance on in 2022 can be found on pages 79
and 80 of this report.
The Committee continues to review high-potential incidents
(seven in 2022), especially where they have occurred repeatedly
in one location or activity.
The Committee’s focus in 2023
- A continuing emphasis on process safety, the asset integrity in
Ghana, topsides and subsea.
During 2022 we reviewed incident trends, including events
where there was a loss of containment of a hazardous fluid in
order to identify common causations and ensure that improvement
activities, including initiatives/campaigns, were appropriately
targeted. The Committee also scrutinises the outcome of audits
and investigations and importantly the closure of related actions.
Additionally, the Committee reviews Tullow’s broader sustainability
performance against our goals, aligned to our overall purpose
and business strategy. This includes receiving updates on
Tullow’s performance as evaluated by ESG ratings agencies,
our shared prosperity performance, progress of our Net Zero
strategy and also the health of the organisation through
employee engagements.
- Continually improving performance of safety, operational,
environmental and risk management.
- Reviewing the capability and organisation to deliver safety and
sustainability performance.
- Ensuring sustainable value creation through the delivery of the
sustainability strategy.
- A continuing focus on progress of the Net Zero delivery plan in
the near term (elimination of flaring by 2025) and the long-
term Net Zero on scope 1 and 2 emissions, on a net equity basis
by 2030.-
For our SECR disclosures, please go to pages 36 and 37 of the
Strategic Report.
Committee’s main responsibilities
The Committee’s main responsibilities are:
- to review and provide advice regarding the Safety and
Sustainability, Climate and Human Rights 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;
- to review the pathways to decarbonise Tullow’s operations,
and the associated costs and risks and to approve the
timeframe in which Tullow intends to achieve Net Zero; and
- to review Tullow’s approach to delivering shared
prosperity, including local content, social investment
and social performance.
72
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report
Annual statement on remuneration
Genevieve Sangudi
Chair of Remuneration Committee
The Remuneration Committee is focused on
ensuring Executive Directors and Senior
Managers 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 2022 on Directors’ remuneration.
The report is divided into three main sections:
- this Annual Statement, which contains a summary of
performance and pay for 2022, the Committee’s activities
during the year, and the proposed changes to the Directors’
Remuneration Policy for 2023;
- the 2022 Annual Report on Remuneration, which provides
details of the remuneration earned by Directors in the year
ended 31 December 2022 and how the Policy will be operated
in 2023; and
- the Directors’ Remuneration Policy Report, which will be
subject to a binding vote at the 2023 AGM and sets out the
forward-looking Directors’ Remuneration Policy for the
Company for the next three years.
2022 context
The year has been one of continued progress, with strong
operational delivery and rigorous focus on costs and capital
discipline. This resulted in free cash flow of $267m, beating
expectations and accelerating the Group’s deleveraging towards
a net debt to EBITDAX ratio of 1.3 times and liquidity headroom of
c.$1.1 billion by the year-end. This performance was driven by
revenues of c.$1.7 billion (including hedge costs of c.$313 million)
at an average realised oil price (post hedging) of $87/bbl.
“The Remuneration
Committee seeks to
align reward with the
Company’s strategy, culture
and delivery of long-term
shareholder value. ”
Genevieve Sangudi
Chair of the Remuneration Committee
2022 was the second successive year of industry top quartile
safety performance, with no recordable incidents in the year and
one Tier 2 LOPC.
There were significant operational achievements, with Ghana
facilities uptime of c.97% and four Jubilee wells and two Enyenra
wells brought online and the transition of operatorship on the
Jubilee FPSO to our internal teams resulting in increased uptime
and reduced operating costs. We also executed an Interim Gas
Sales Agreement for 19 bcf of Jubilee gas in December,
representing the first commercialisation of Jubilee gas.
We have also made progress on our ESG strategy, with
decarbonisation work continuing across the portfolio and a
Letter of Intent signed with the Ghana Forestry Commission in
December for a nature-based carbon offset project. The Final
Investment Decision for this project is expected in 2023. During
2022, Tullow continued to invest in education and enterprise
across our host nations, supporting a range of programmes from
primary to tertiary education and creating new entrepreneurship
opportunities in Ghana and Kenya. Thousands of beneficiaries of
these programmes are now leveraging new knowledge and skills
as productive members of their communities. Tullow’s multi-year
flagship senior high school programme has provided accommodation
and classroom facilities for 3,000 pupils, increasing school enrolment.
Earlier in 2022 we announced the intention to enter a combination
with Capricorn Energy. The Board were disappointed that
Capricorn subsequently withdrew its support for this proposal.
Despite this, the teams have remained focused on delivery of our
plans, and we are pleased with the operational and financial
progress made during the year to position Tullow for growth.
Tullow Oil plc
2022 Annual Report and Accounts
73
Financial statementsSupplementary informationStrategic ReportGovernance Report During 2022 the Committee explored a number of potential
approaches, and subsequently discussed proposals with a
number of our shareholders with interest representing over 40%
of share capital. I would like to take the opportunity to thank
those shareholders for taking the time to review our proposals
and provide comments for the Committee to consider. Based on
this feedback, the proposal has one central element:
Transition from the TIP to a bonus and LTIP model
We intend to move the ongoing incentive package from the TIP to
separate annual bonus and LTIP plans which are more aligned
with market practice amongst our peers and with
the expectations of our shareholders. The LTIP structure will also
provide a better incentive to achieve forward-looking multi-year
growth targets than the TIP with its backward-looking multi-year
performance assessment.
This will be a simpler and more transparent approach and will be
structured in accordance with good practice guidance with
features that align management to the experience of our
shareholders. At least one third of annual bonus awards will
be deferred into shares for three years and LTIP awards will
be subject to a three-year performance period followed by
a two-year holding period.
The overall maximum incentive opportunity will remain
unchanged at 400% of salary for Executive Directors but will be
divided up between an annual bonus of up to 150% of salary and
an LTIP award of up to 250% of salary to increase the weighting
toward long-term performance.
The performance measures will be set based on the strategic
priorities at the time. The first LTIP award to be granted in 2023
will be subject to stretching TSR conditions, split between
relative performance (50% weighting) and absolute performance
(50% weighting). Details of the relative TSR peer group and the
absolute TSR targets are found on page 85.
It is proposed that the transition from the TIP to this structure for
our CEO is undertaken in a measured and balanced way, with no
gaps or overlaps in the performance periods that apply to
awards. Therefore for 2023 and 2024 the TIP will continue to be
assessed for our CEO in accordance with the current Policy. The
first LTIP awards will be granted in 2023 and will vest based on
performance to the end of 2025. For our CEO, the first separate
annual bonus award will be made based on performance in 2025.
Our CFO, as a newly appointed Executive Director, will participate
in the annual bonus from 2023 (see illustration on page 93).
Remuneration report continued
Summary of Executive Director remuneration for 2022
Following the end of the year the Committee reviewed the
performance achieved against the KPI scorecard. The assessment
of 30% of maximum for 2022 reflects the continued progress led
by the Executive Directors to strengthen Tullow and to position
the Group to create long-term value. The details of the KPI
scorecard can be found on page 15. It was noted that there had
been strong performance across a number of our KPIs including
safety, production, business plan implementation and
sustainability. As such, the Committee felt it appropriate to
award a TIP to Rahul Dhir of 120% of salary (i.e. 30% of the
maximum 400% of salary potential), which takes into account
the progress against annual KPIs and the TSR measurement
period, which commenced 1 July 2020 and ended 31 December
2022. In line with the Policy, 50% of the TIP award is paid in cash,
with the remaining 50% deferred into shares which vest after
five years.
Board changes
As reported last year, Les Wood stepped down from the Board
on 31 March 2022. In line with the terms disclosed last year, he
remained eligible for a TIP award in respect of the 1 January to
31 March 2022 period. Based on the scorecard performance
achieved (discussed above), Les received a pro-rated cash TIP
award of 30% of salary. In accordance with the Policy and TIP
rules he did not receive an award of deferred shares.
In March 2022 we announced that Jonathan Swinney would
join Tullow as Chief Financial Officer later in the year, and that
Richard Miller would act as interim CFO until that time. Due to the
subsequent discussions with Capricorn regarding the potential
combination, it was mutually agreed with Jonathan that he
would not take up the role at Tullow. The Board were pleased to
confirm in December that Richard would be appointed as CFO
and an Executive Director with effect from 1 January 2023.
Details on Richard’s remuneration for the coming year is
found on page 85.
Directors’ Remuneration Policy
The current Directors’ Remuneration Policy was approved by
shareholders at the 2020 AGM and therefore expires at the 2023
AGM. Therefore, the Committee undertook a comprehensive
review of the approach to remuneration at Tullow during the
course of 2022. The primary aim of the review was to ensure
that executive remuneration supported and incentivised
performance that delivered long-term value growth.
The current TIP is an unusual structure that was introduced
in a different phase of Tullow’s development. From a practical
perspective the Committee has had to adapt the plan to operate
effectively in recruitment scenarios. Following feedback from
focus groups with the wider management team and input from
our major shareholders it was agreed that Tullow should move
away from this structure to better incentivise future value growth.
74
Tullow Oil plc
2022 Annual Report and Accounts
The proposal has been developed based on the feedback from a
number of our largest shareholders and best practice principles.
The Committee believes that the separate LTIP and annual bonus
will provide for an incentive structure that would more closely
align our management team with the interest of shareholders
and would provide appropriate reward for achieving stretching
value growth targets.
In order to facilitate these awards, we will put forward a resolution
at the 2023 AGM for the 2023 Tullow Executive Share Plan that
will be used to make LTIP awards and deferred bonus awards.
We hope that you are able to support the Policy and this resolution.
Summary of Executive Director remuneration for 2023
Considering the higher inflation environment, the typical pay
increase awarded to UK based employees will be 6.5% and the
Committee has agreed a 3.5% increase for Rahul Dhir which will
apply with effect from 1st April 2023
We have finalised our KPI scorecard for 2023 with a focus on
production, safety, cash flow, sustainability, and unlocking value
through the delivery of critical activities. Details can be found on
page 15. We believe all targets to be suitably challenging.
As discussed above, performance for the 2021 to 2023 period
will continue to be rewarded through the TIP, which will be based
50% on relative TSR over three years, and 50% on the KPI
scorecard performance in 2023.
If approved by shareholders, the LTIP awards for 2023 will be
granted following the 2023 AGM, with TSR performance assessed
from 1 January 2023. Details can be found on page 90.
Remuneration arrangements for the wider workforce
As noted in the statement last year, the Committee reviewed the
revised Employee Value Proposition in December 2020 and was
pleased to report its alignment with the Values and culture of the
Company. The Committee has monitored the implementation
and effectiveness of the new arrangements throughout 2021 and
2022 and is confident that the new arrangement continues to
support the high-performance culture encouraged in the
Company. The Committee will continue to consider the
alignment of remuneration arrangements through the workforce
ensuring all employees are rewarded fairly and consistently for
their contribution to the overall Company performance.
Following a review of Ghana remuneration, the committee
supported a workforce pay arrangement which led to the
salaries of our Ghanaian employees being denominated into USD,
with monthly payments converted into and paid in GHS at
prevailing rate. This was due to the ongoing depreciation of the
GHS, inflation increases and following employee feedback and
engagement. The conversion was implemented 1st September
2022 and has been widely appreciated by our employees
in Ghana.
Employee engagement and well-being were very much in the
minds of the committee this year and with high levels of inflation
and cost of living challenges impacting our employee, the
committee supported a one-off cost of living payment to
employee’s whose salary was below £50,000 or equivalent.
Tullow Oil plc
2022 Annual Report and Accounts
75
Financial statementsSupplementary informationStrategic ReportGovernance Report Stakeholder engagement
During the year, members of the Committee met with the
workforce Tullow Advisory Panel (TAP), a staff panel, which
collectively represents Tullow’s global workforce. These
meetings provided an opportunity to gather feedback from
employees to help shape decisions with regards to the ongoing
implementation of the new Employee Value Proposition. Such
feedback led to the launch of some significant initiatives to
improve further the Tullow employee experience in areas
including benefits and compensation policies.
Concluding thoughts
On behalf of the Committee, I would like to again thank
shareholders for providing comments and shaping the final
proposals presented in this report. I hope you are able to
continue to support our approach to remuneration at the 2023
AGM. 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.
Genevieve Sangudi
Chair of the Remuneration Committee
7 March 2023
Executive remuneration at a glance
Assessment of TIP Awards
Target %
7.5%
5.0%
10%
7.5%
5.0%
10.0%
5.0%
Achieved %
5.6%
6.3%
5.6%
1.9%
4.8%
2.6%
0.0%
3.2%
50.0%
Target
100%
Achieved
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Safety Financial Performance Production Business Plan Implementation
Sustainability Unlocking Value Leadership Effectiveness Total Shareholder Return
76
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued
Annual Report on Remuneration
Directors’ remuneration (audited)
The remuneration of the Directors for the year ended 31 December 2022 payable by Group companies in respect of qualifying services
and comparative figures for 2021 and 2022 are shown in the table below:
Fixed pay
Tullow Incentive Plan
Salary/fees 1
£
Pensions 2
£
Taxable
benefits 3
£
TIP cash
£
Deferred
TIP shares 4
£
Total
£
Total
fixed
pay
Total
variable
pay
Executive Directors
Rahul Dhir
2022
593,050
88,958
20,513
358,440
358,440
1,419,400
702,520
716,880
2021
580,000
87,000
7,010
580,000
606,796
1,860,806
674,010
1,186,796
Les Wood5
2022
115,374
28,843
32,129
138,449
–
314,795
176,346
134,449
Subtotal 2022
Subtotal 2021
Non-executive Directors
2021
461,500
115,374
78,291
461,495
482,816
1,599,476
655,165
944,311
2022
708,430
117,801
52,642
496,889
358,440
1,734,195
878,867
855,329
2021
1,041,500
202,374
85,301
1,041,495
1,089,612
3,460,282
1,329,175
2,131,107
Dorothy Thompson6
2022
–
2021
300,000
Mike Daly
Jeremy Wilson⁹
Genevieve Sangudi⁷
Sheila Khama
Martin Greenslade
Mitchell Ingram
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
65,000
65,000
77,718
95,000
73,981
65,000
65,000
65,000
87,962
85,000
80,000
80,000
Phuthuma Nhleko8
2022
300,000
Subtotal 2022
Subtotal 2021
(includes former
non-executive Directors)
2021
11,082
2022
749,661
2021
766,082
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
256
–
–
890
10,242
–
9,311
–
279
–
4,210
–
31,064
–
55,362
890
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
300,000
300,000
65,256
65,256
65,000
65,000
77,718
77,718
95,890
95,890
84,223
84,223
65,000
65,000
74,311
74,311
65,000
65,000
88,241
88,241
85,000
85,000
84,210
84,210
80,000
80,000
331,064
331,064
11,082
11,082
805,023
805,023
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
766,972
766,972
n/a
Total
2022 1,458,090
117,801
108,004
496,889
358,440 2,539,218 1,683,889
885,329
Total (includes former
non-executive Directors)
2021
1,807,582
202,374
86,191
1,041,495
1,089,612
4,227,254
2,096,147
2,131,107
1. Base salaries of the Executive Directors have been rounded up to the nearest £10 for payment purposes, in line with established policy.
2. None of the Executive Directors have a prospective entitlement to a defined benefit pension by reference to qualifying services. Both Rahul Dhir and Les Wood receive
cash in lieu of pension contribution.
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. These figures represent that part of the TIP Award required to be deferred into shares.
5. 2021 benefits for Les Wood include a cash buyout of five days, annual leave equating to £8,875. This was an arrangement for all employees as a response to the COVID-19
pandemic and the ability to utilise annual leave. Expenses include outplacement services in relation to his planned departure.
6. Dorothy Thompson stepped down from the Board on 31 December 2021.
7. Genevieve Sangudi was appointed Chair of the Remuneration Committee following the AGM on 25 May 2022.
8, Phuthuma Nhleko was appointed Non-Executive Director and Chair Designate effective 25 October 2021 and Non-Executive Chair effective 1 January 2022.
9. Jeremy Wilson stepped down from the Board on October 20, 2022.
Tullow Oil plc
2022 Annual Report and Accounts
77
Financial statementsSupplementary informationStrategic ReportGovernance Report Annual Report on Remuneration 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 2022.
Payments for loss of office
As announced September 2021, Les Wood stepped down from the Board on 31 March 2022 following publication of Tullow’s
2021 results.
Les Wood continued to receive his base salary, pension and benefits through to his departure date. A payment of £265,361 was made
in relation to his base salary, pension and benefits for the remaining 51/2 months of his notice period. He remained eligible for a TIP
award for service in 2022, subject to performance criteria assessed at the end of the year, as set out in the section below, and
pro-rated for the period of service rendered.
Les was treated as a good leaver for the purposes of outstanding TIP awards. As per the TIP rules, these awards will continue to vest
on their normal vesting dates. Shares will continue to be subject to the post-cessation shareholding requirement for a period of two
years after cessation. The shares that Les holds pursuant to the HMRC tax favoured Tullow Share Incentive Plan will be released on
termination of his employment. Les will also receive a capped contribution of £7,500 towards his legal fees and has been provided
outplacement services.
Determination of 2023 TIP Award based on performance to 31 December 2022 (audited)
The corporate scorecard is made up of a collection of Key Performance Indicators (KPIs) which indicate the Company’s overall
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 2022 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.
For the Executive Directors, an additional TSR metric was included, which represents a weighting of 50% of the total Company
Scorecard. The Group’s progress against its corporate scorecard is tracked during the year to assess its performance against its
strategy. Following the end of the 2022 financial year, the corporate scorecard KPI performance was assessed as 60% of the
maximum for the workforce and 30% for the Executive Directors taking into account the additional TSR metric. The Committee
is satisfied with the outcome based on the broader view of performance and stakeholder experience.
78
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued Details of variable pay earned in the year
Determination of 2023 TIP Award based on performance to 31 December 2022 (audited)
Details of the performance targets and performance against those targets are as follows:
Performance metric
Performance
Safety
Measure of Total
Recordable Incident
Rate (TRIR) and Loss of
Primary Containment
(LOPC) Tier 1& 2 as per
IOGP
Health and safety of our staff and everyone who is associated with our operations.
We have maintained our strong EHS performance in 2022.
TRIR as per IOGP
Payout
Trigger
0.78
0%
Base
0.64
50%
Stretch
0.51
100%
Trigger
Base
Stretch
2022
Performance
0.00
100%
2022
Performance
Number of LOPC Tier 1 & 2
as per IOGP
Payout
Tier 1: 1
Tier 2: 2
0%
Tier 1: 0
Tier 2: 1
50%
Tier 1: 0
Tier 2: 0
100%
Tier 1: 0
Tier 2: 1
50%
In 2022 there were no recordable injuries (versus 2 in 2021) and no process safety events
related to Loss of Primary Containment (LOPC) at Tier 1. There was one Tier 2 LOPC
recorded in 2022.
% of award
(% of salary
maximum)
Actual
Rahul Dhir
Actual
Les Wood
7.5%
(30)%
5.6%
(23)%
1.4%
(6)%
Financial Performance Key value driver for our business and the delivery of this KPI is driven by cost and
working capital management.
5%
(20)%
2.0%
(8)%
0.5%
(2)%
Trigger
Base
Stretch
2022
Performance
Operating Cash Flow (OCF)
($mm)
Payout
513
0%
570
50%
627
100%
557
39%
Normalised operating cash flow of $557 million (from our absolute OCF of $972 million) is
close to the midpoint. This has been achieved despite inflationary cost pressure during
the year.
Production
Targets related to oil
production and vessel
efficiency
Group production (kbopb)
Payout
Trigger
55
25%
Base
59
87%
Stretch
61
100%
Trigger
Base
Stretch
2022
Performance
10%
(40)%
6.3%
(25)%
1.6%
(6)%
57.4
60%
2022
Performance
Jubilee production efficiency
(% of uptime)
Payout
96%
25%
97%
75%
98%
100%
96.6%
65%
Trigger
Base
Stretch
2022
Performance
TEN production efficiency
(% of uptime)
Payout
97%
25%
98%
75%
99%
100%
97.7%
67%
The percentage of the award which is payable for the Base level of performance differs
for each measure to reflect the relative challenge associated with each performance
target.
Normalised production of 57.4 kbopb for 2022 (after benefit of the Ghana pre-emption is
deducted from absolute production of 61.1 kbopb). Strong production growth at Jubilee
offsets the production declines at TEN.
Tullow Oil plc
2022 Annual Report and Accounts
79
Financial statementsSupplementary informationStrategic ReportGovernance Report
Annual Report on Remuneration continued
Details of variable pay earned in the year continued
Determination of 2023 TIP Award based on performance to 31 December 2022 (audited) continued
Performance metric
Performance
Business Plan
implementation
Budget Adherence¹
Budget Adherence
Payout
Trigger
1.1 x Mid
0%
Base
Stretch
2022
Performance
$426m2 0.9 x Mid
50%
100%
$362m
100%
% of award
(% of salary
maximum)
Actual
Rahul Dhir
Actual
Les Wood⁴
7.5%
(30)%
5.6%
(22%)
1.4%
(6%)
Sustainability
Embed
Sustainability
across the
organisation
Work Programme achieved considering Capex & Performance
Adherence to work
programme
Payout
Trigger
Base
Stretch
2022
Performance
90%
0%
95%
50%
100%
100%
95%
48%
In 2022 we implemented 95% of the planned activity for the year and below Budget.
In 2022, we progressed our Net Zero plan with the continued implementation of our
decarbonisation initiatives and the signing of a Letter of Intent (LoI) with the Ghana Forestry
Commission (FC). The LoI is a key milestone for Tullow in developing a long-term supply of
carbon offsets.
During 2022, Tullow supported STEM education through a range of programmes from primary
to tertiary education across its countries of operation and created new entrepreneurship
opportunities in Ghana and Kenya. Thousands of beneficiaries of these programmes are now
leveraging new knowledge and skills as productive members of their communities.
Tullow’s multi-year flagship senior high school programme has provided accommodation and
classroom facilities for 3,000 pupils, increasing school enrolment.
There has also been increased focus on local content in 2022 with several new initiatives
with the supplier base in our host countries to raise awareness of business opportunities,
provide practical assistance for businesses and enhance supply chain transparency. Tullow
received the 2022 Ghana Oil and Gas Local Content award in recognition of these efforts.
The above performance delivered in overall accordance with the base target set and
provides a solid foundation on which to build in the future, therefore, a score of 2.6% out of
a possible 5% was deemed as reasonable.
5%
(20)%
2.6%
(10)%
0.6%
(3%)
Unlocking Value
Progress in 2022 against the 6 critical actions:
1. Deliver Kenya License extension and farm-down: Engagements to secure a strategic
partner for the development project in Kenya are ongoing
2. Resolve GRA exposure: Tullow continues to engage with the Government of Ghana,
including the GRA, with the aim of resolving these disputes on a mutually acceptable basis
3. Deliver O&M transformation: Successful transition to self-operate on the Jubilee FPSO in
July 2022
4. Implement Ghana gas commercialisation plan: An Interim Gas Sales Agreement for 19bcf
of Jubilee gas was executed in December 2022
5. Complete Ghana pre-emption: Deal completed in March 2022
6. Optimise non-op and exploration portfolio: Targeted resource addition achieved through
securing new licences in Gabon and Côte d’Ivoire and portfolio prospect maturation.
The Board made a judgement on the performance and decision making of the senior
leadership team over the year. They considered several factors, including the strength and
cohesiveness of the leadership team, a clear strategy being set and understood across the
organisation, a fully engaged workforce, and the successful delivery of business activities
in 2022. The strong performance in 2022 has been driven by the unrelenting focus on
business performance and the hard work and dedication of the entire Tullow team,
resulting in a score of 3.25%
The leadership team has worked in 2022 to position the organisation for future
sustainable success.
Leadership
Effectiveness
10%
(40)%
4.8%
(19)%
1.2%
(5)%
5%
(20)%
3.2%
(13)%
0.8%
(3)%
Relative Total
Shareholder Return
(TSR)³
Performance against a bespoke group of listed exploration and production companies
measured from July 2020 to 31 December 2022 - 25% is payable at median, increasing to
100% payable at upper quartile.
50%
(200%)
0%
(0%)
0%
(0%)
Tullow placed below median.
80
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued Performance metric
Performance
Total
% of award
(% of salary
maximum)
Actual
Rahul Dhir
Actual
Les Wood⁴
100%
(400%)
30%
(120%)
7.5%
(30%)
1. This is defined as percentage of work programme delivered, assessing Capex efficiency and performance against pre-set objectives and milestones.
2. Normalised to a budget comparable value. $449m times percentage adherence to work programme
3. The TSR comparator group for the 2022 TIP Award was as follows: Africa Oil, Aker BP, APA, Capricorn Energy, DNO, Energean, Enquest, Genel Energy, Harbour Energy,
Kosmos Energy, Pharos Energy, Seplat Energy (NSA), and Santos.
4. The calculation for Les Wood reflects a pro-rated TIP award for the 2022 performance year.
In line with the Policy, the TIP outcomes are divided evenly between cash and deferred shares up to the first 200% of base salary. Any
amount above 200% 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. The table below shows the values for the Executive Directors:
Director
Rahul Dhir
Les Wood
Cash TIP
Deferred TIP
£358,440
£138,449
£358,440
–
UK SIP shares awarded in 2022 (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. Shares held in the plan for five years will be free of income
tax and national insurance, as well as Capital Gains tax if retained in the plan until sold. Details of shares purchased and awarded to
Executive Directors under the UK SIP are as follows:
Director
Les Wood
Shares held
01.01.22
37,367
Partnership
shares acquired
in year
Matching
shares awarded
in year
Total shares
held 31.12.22
(including dividend
shares)
Dividend
shares acquired
in the year
SIP shares that
became
unrestricted
in year
Total unrestricted
shares held at
31.12.22 1
917
917
–
–
–
–
1. Unrestricted shares (which are included in the total shares held at 31 December 2021) are those which no longer attract a tax liability if they are withdrawn from the plan.
Executive Director and non-executive Director terms of appointment
Director
Rahul Dhir
Richard Miller
Phuthuma Nhleko
Mike Daly
Martin Greenslade
Sheila Khama
Mitchell Ingram
Genevieve Sangudi
Roald Goethe
Number of
complete
years on
the Board
Year
appointed
Date of current
engagement
commenced
Expiry of
current term
2020
2023
2021
2014
2019
2019
2020
2019
2023
2
0
1
8
3
3
2
3
0
01.07.20
01.01.23
n/a
n/a
25.10.21
24.10.24
30.05.20
31.05.23
01.11.19
31.10.24
26.04.19
26.04.25
09.09.20
08.09.23
26.04.19
25.04.25
24.02.23
23.02.26
In the case of each non-executive Director, 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.
Tullow Oil plc
2022 Annual Report and Accounts
81
Financial statementsSupplementary informationStrategic ReportGovernance Report Annual Report on Remuneration continued
CEO – total pay versus TSR
For 2022 the CEO total pay is based on the summation of the actual base pay, pension, benefits and TIP cash bonus and share award
equivalent value for Rahul Dhir for the financial year ending 31 December 2022.
CEO – TOTAL PAY VERSUS RI
TOTAL SHAREHOLDER RETURN
Return index
120
96
72
48
24
0
CEO pay £000
5,000
4,000
3,000
2,000
1,000
0
300
250
200
150
100
50
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
CEO total pay
Return index
Tullow
FTSE 250
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; whilst
the Company was placed outside of the index in 2021, we believe the size and complexity of the organisation still makes this a
comparable index. The values indicated in the graph above show the share price growth plus re-invested dividends for the period 2013
to 2022 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 10 financial years are shown in the tables below. The total
remuneration figure includes the annual bonus based on that year’s performance (2013 to 2022), PSP awards based on three-year
performance periods ending in the relevant year (2013) and the value of TIP Awards based on the performance period ending in the
relevant year (2013 to 2022). 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.
Year ending in
Aidan Heavey1
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Total
remuneration
Annual bonus
PSP vesting
£2,750,273 £2,378,316 £2,835,709 £2,893,232
£1,717,276
–
–
–
–
–
–
–
–
–
–
TIP
30%
23%
38%
39%
40%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Paul McDade2
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Total
remuneration
TIP
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
Year ending in
Dorothy Thompson3
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Total
remuneration
n/a
n/a
n/a
n/a
n/a
n/a
37,704
418,452
n/a
–
Rahul Dhir4
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Total
remuneration
TIP
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£686,519 £1,860,806 £1,419,400
20%
51.2%
30%
Year ending in
82
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued
1 & 2. 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.
3.
For 2020, total remuneration is shown for Dorothy Thompson for the period she served as Executive Chair, i.e. 1 January 2020 to 8 September 2020. For 2019, the
amount shown is the Executive Chair fee prorata for the period 9 December 2019 to 31 December 2019. Dorothy Thompson did not participate in any incentive plans
whilst serving as Executive Chair.
4.
For 2020, total remuneration is shown for Rahul Dhir from the commencement of his appointment as Chief Executive Officer on 1 July 2020.
Additional statutory information – percentage change in remuneration for executive and non-executive Directors
The table below shows the percentage change in each of the Directors total remuneration (for Executive Directors excluding the value
of any pension benefits receivable in the year) between the financial year ended 31 December 2020, 31 December 2021 and
31 December 2022, compared to that of the average for all employees of the Group.
% change from 2021 to 2022
% change from 2020 to 2021
% change from 2019 to 2020
Salary/fees
Benefits
Bonus
Salary/fees
Benefits
Bonus
Salary/fees
Benefits
Bonus
Phuthuma Nhleko 1
2607%
n/a
Rahul Dhir
Les Wood
2%
193% ²
(75%)
(59%)
Dorothy Thompson
(100%)
(100%)
Jeremy Wilson
(18%)
(100%)
Mike Daly
Martin Greenslade7
Mitchell Ingram6
Genevieve Sangudi⁸
Sheila Khama
0%
3%
0%
14%
0%
Average employees
5.4%
n/a
n/a
n/a
1051%
n/a
5.7%
n/a
(40%)
(70%)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
99%
0%
(41%) 3
n/a
379%
622% 3
n/a
0%
(78%) 5
(19%) 4
8%
295%
0%
0%
n/a
n/a
n/a
(100%) 5
(100%) 5
n/a
232%
149%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0%
59%
5%
0%
625%
n/a
46%
46%
n/a
n/a
629% 2
n/a
(60%) 5
n/a
n/a
n/a
(83%) 5
(56%) 5
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
(11.7%)
2.8%
7.0%
119.9%
(2.7%)
11%
(35.2)%
1. Phuthuma Nhleko joined late 2021 therefore shows high movement for 2022.
2.
3.
Increase in benefits for Rahul due to increased travel and subsistence post the COVID-19 pandemic.
Increase in benefits for Les Wood is due to holiday cash out for 2021 due to the COVID-19 pandemic and outplacement services provided in relation to his planned
departure.
4. The decrease in fees for Mike Daly is due to him stepping down from Chair of the Safety & Sustainability Committee on 31 December 2020.
5. Benefits have reduced due to reduced travel during the COVID-19 pandemic.
6. The increase in fees for Mitchell Ingram reflect his appointed to the Board in late 2020, and him also becoming Chair of the Safety & Sustainability Committee from
1 January 2021.
7. The increase in fees for Martin Greenslade reflect a full year in role as Chair of the Audit Committee in 2021 and his appointment as Senior Independent Director.
8. The increase in fees for Genevieve Sangudi reflect her appointment as Chair of the Remuneration Committee after the 2022 AGM. Benefits have increase due increased
travel and subsistence post the COVID-19 pandemic.
8.
Increase in average employee benefits is driven by changes to annual medical insurance premiums.
CEO pay ratio 2022
Year
2022
2021
2020
2019
2018 (voluntary disclosure)
Method
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
A
A
A
A
A
12:1
16:1
7:1
8:1
23:1
8:1
10:1
5:1
5:1
15:1
6:1
8:1
3:1
4:1
10:1
Tullow has calculated the CEO pay ratio using the methodology described as ‘Option A’ in the Regulations, as Tullow recognises that
this is the most statistically accurate form of calculation.
For 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 2022 and cash bonus payable and value of share awards to be granted for the 2022 performance
year. The STFR at 25th percentile is £119,884, £183,913 at median and £249,639 at 75th percentile. The wages component at 25th
percentile is £85,000, £142,000 at median and £175,130 at 75th percentile.
2022 Annual Report and Accounts 83
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Annual Report on Remuneration continued
CEO pay ratio 2022 continued
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. Performance for 2022 resulted in
lower TIP awards and consequently lower pay ratios. The Committee will continue to monitor longer-term trends.
1. All STFRs have been based on a full-time equivalent and annualised to provide a dataset for the full year 31 December 2022.
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.
Summary of past share awards
Details of share awards granted to Executive Directors:
2021
2022
% change
60.4
206.1
(1,681.6)
63.9
324.3
(1,808.9)
6%
57%
8%
Director
Les Wood1
Dividend equivalents
08.02.18
14.02.19
08.02.18
14.02.19
Award grant
date
Share price on
grant date
27.04.17
08.02.18
14.02.19
15.03.21
14.03.22
10.05.19
10.05.19
17.10.19
17.10.19
214p
187p
219p
54.7p
55.95p
187p
219p
187p
219p
As at
01.01.22
101,249
148,802
288,617
338,765
Granted
during
the year
–
–
–
–
–
878,646
2,605
5,052
1,372
2,661
–
–
–
–
Exercised
during
the year
101,249
–
–
–
–
–
–
–
–
As at
31.12.22
Earliest date
shares can be
acquired
Latest date
shares can
be acquired
0
27.04.20
27.07.27
148,802
288,617
338,765
08.02.23
08.02.28
14.02.24
14.02.29
15.03.26
15.03.31
878,646
14.03.27
14.03.32
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
889,123
878,646
101,249
1,666,520
Rahul Dhir2
05.08.20
27.68p
9,000,000
15.03.21
14.03.22
54.7p
55.95p
319,316
–
1,104,269
–
–
–
–
–
9,000,000
01.07.25
30.06.30
319,316
15.03.26
15.03.31
1,104,269
14.03.27
14.03.32
1. Les Wood – all awards granted to Les Wood are TIP Awards.
2. Rahul Dhir – share awards granted on 05 August 2020 represent ‘Buy-out Awards’ to replace share arrangements that were forfeited upon leaving his former employer
(full details of which are available in 2020 Directors’ Remuneration Report). The awards granted in 2021 and 2022 are TIP awards.
Share price range
During 2022, the highest mid-market price of the Company’s shares was 64.24p and the lowest was 34.96p. The year end price
was 36.92p.
The interests of the Directors (all of which were beneficial), who held office during FY 2022, are set out in the table below:
84
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued
Ordinary shares held
01.01.22
31.12.22
% of salary
under 2022
Remuneration
Policy
shareholding
guidelines 1
TIP Awards
Buyout Awards
SIP
SIP total
Unvested
Vested
Unvested
Vested
Restricted Unrestricted
31.12.22
Executive Directors
Rahul Dhir2
Les Wood3
1,346,000
1,346,000
223%
1,423,585
198,457
237,658
1,666,520
Non-executive Directors
Mike Daly
4,795
4,795
Jeremy Wilson³
87,959
87,959
Genevieve Sangudi
Sheila Khama
Martin Greenslade
–
–
–
–
7,070
60,000
Mitchell Ingram
50,000
50,000
Phuthuma Nhleko
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,000,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1. Calculated using share price of 36.92p 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 400% of their current salary. Further details of the minimum shareholding requirement are set out in the Remuneration Policy Report.
2. Ordinary shares and unvested awards held by Rahul Dhir are in respect of his Buyout Award granted on commencement of employment.
3. Retired part way through the year
4. Roald Goethe was appointed as a non-executive director Director on 24 February 2023 and disclosed that he or persons closely associated to him hold 22,000,000
ordinary shares of 10p each in the Company and $2,500,000 Senior Notes due 2025.
There have been no changes in the interests of any Director between 1 January 2023 and the date of this report.
Implementation of Policy for Executive Directors for 2023
The Remuneration Policy will be implemented during 2023 as follows:
- Base salary for Rahul Dhir will be increased by 3.5%, well below the typical increases awarded to UK based employees for 2023. Base
salary for Richard Miller was set upon his appointment at £366,000 and is not expected to be increased during 2023.
- Pension provision will be 15% of salary for Rahul Dhir and 10% of salary for Richard Miller (workforce aligned); and
- TIP Award for Rahul Dhir with a maximum opportunity of 400% of salary based on: Safety (7.5%), Financial Performance (5.0%),
Production (10.0%), Business Plan Implementation (7.5%), Sustainability (5.0%), Unlocking Value (10.0%), Leadership Effectiveness
(5.0%) and Relative TSR (50%) for the 2021-2023 performance period.
- If approved, LTIP Award for Rahul Dhir with a maximum opportunity of 250% of salary based 50% on our relative and 50% on our
absolute total shareholder returns during the 2023-2025 performance period:
- If approved, LTIP Award for Richard Miller with a maximum opportunity of 250% of salary based 50% on our relative and 50% on our
absolute total shareholder returns during the 2023-2025 performance period:
- If approved, the TSR comparator group for the both the TIP and 2023-2025 LTIP Awards will be as follows: Africa Oil, BW Energy
Capricorn Energy, Diversified Energy Co., Energean, EnQuest, Harbour Energy, Kosmos Energy, Maurel and Prom, Pharos Energy
and Seplat Energy (NSA).
- If approved, our absolute total shareholder return target for the 2023-2025 LTIP Award will be on average 20% per annum at
Threshold and on average 30% per annum at Maximum. Our relative total shareholder return target for the 2023-2025 LTIP Award
will be comparator group Median at Threshold and comparator group Upper Quartile at Maximum.
- If approved, 2023 Annual Bonus opportunity for Richard Miller with a maximum of 150% of salary based on the safety, financial
performance, production, business plan implementation, sustainability, unlocking value and leadership effectiveness targets
mentioned above.
Please see page 15 of this report for further disclosure and details of the 2023 targets and how they are linked to our strategy.
- No changes will be made to the Chair nor the non-executive Director fees from 2022 levels.
2022 Annual Report and Accounts 85
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Governance
Remuneration Committee members
Genevieve Sangudi (Committee Chair), Mitchell Ingram and Martin Greenslade
Remuneration Committee membership and attendance
Genevieve Sangudi became Committee Chair on 25 May 2022 taking over from Jeremy Wilson. Jeremy Wilson subsequently stepped
down as a member on 20 October 2022 with Martin Greenslade assuming membership in his stead. 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 54. 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. The Chief Executive and other members of the
Management Team may be invited to attend Committee meetings to provide business context and performance updates.
However, no member of Management is present when their own remuneration is determined.
Advice received from the Committee during 2022
The Committee received external advice from both FIT Remuneration Consultants (FIT) and Deloitte LLP (Deloitte) during 2022.
During the year the Committee reviewed it advisers and following a competitive tender process appointed Deloitte as the Committee’s
advisers. Both Deloitte and FIT are members of the Remuneration Consultants Group and are a signatories to its Code of Conduct.
During the year Deloitte and FIT provided no other services to the Company. Fees (ex VAT) paid to Deloitte respectively for advice
provided during 2022 amounted to £77,300, and fees paid to FIT amounted to £27,095. Neither Deloitte or FIT have any other
connections to the Company or the Directors that affect their independence. The Committee evaluates the services provided by
external advisers and is satisfied that the advice received from Deloitte and FIT was objective and independent.
Activities of the Committee during 2022
A summary of the main Committee activities during 2022 are set out below:
- Setting an appropriately stretching set of key performance metrics for the 2022 KPI scorecard;
- Monitoring progress against the 2022 KPI scorecard;
- Reviewing feedback received from shareholders at the 2022 AGM;
- Undertaking a review of the Directors’ Remuneration Policy, including consideration of alternative incentive structures,
performance measures, and other Policy elements;
- Review of changes in remuneration-related guidance, shareholder policies and governance matters;
- Reviewing the remuneration arrangements, including benchmarking of Total Remuneration for Senior Managers and reviewing
the implementation of the revised pay philosophy and principles for the wider workforce;
- Review of the Committee’s performance and terms of reference; and
- Review of draft KPIs for 2023 to align with strategy and culture of Tullow.
86
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued Principles of Executive Director remuneration
The Committee seeks to ensure that the Directors Remuneration Policy and its 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).
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.
Predictability
The TIP and proposed Annual Bonus and LTIP are subject to an individual annual cap and market standard dilution limits.
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.
Shareholder voting at the AGM
At last year’s AGM on 25 May 2022 the remuneration-related resolutions received the following votes from shareholders:
For
Against
Total votes cast (for and against)
Votes withheld
2021 Annual Statement and Annual Report on Remuneration
Total number of votes
% of votes cast
830,260,073
75,227,640
Total number of votes
905,487,713
8,123,770
91.69
8.31
% of ISC votes
62.98%
2022 Annual Report and Accounts 87
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report
Directors’ Remuneration Policy Report
This section of the report sets out the Remuneration Policy (the
“Policy”) for Executive and Non-Executive Directors which will be
put forward for shareholder approval at the 2023 AGM on 24 May
2023. The Committee intends that the Policy will come into effect
from the date of the AGM and will apply for a period of up to
three years.
Policy changes
The main change under this Policy is the transition from the
Tullow Incentive Plan to the grant of separate annual bonus and
LTIP awards. This transition will be structured to ensure that
there are no overlaps or gaps in performance assessment for
Executive Directors appointed prior to 2023.
For the current CEO the TIP will continue for 2023 (capturing the
2021-23 performance period) and 2024 (capturing 2022- 24
performance period) in accordance with the structure approved
by shareholders at the 2020 AGM. No TIP awards will be made
after 2024. Other executive directors will not participate in the
TIP for 2023 and 2024.
Executive Directors appointed from 2023 onwards, including the
current CFO, will be eligible for an annual bonus award from 2023
onwards. Our current CEO will be eligible for an annual bonus
award from 2025 onwards. The maximum opportunity will be
150% of salary and one third of any bonus earned will normally be
deferred into Tullow shares for three years.
All Executive Directors will be eligible for an LTIP award from
2023 onwards. The first grant will capture performance over
the 2023-25 period. The maximum award will be 250% of
salary, and awards will be subject to a two year holding period
following vesting.
The policy has also updated for developments in corporate
governance and feedback received from our shareholders.
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 review process
The Committee undertook a review of Directors’ Remuneration
Policy to ensure that it is appropriate to support our strategy.
This review included consideration of the effectiveness of the
current TIP approach, the Company’s experience of operating
the TIP since 2017. The central focus of the Committee was
developing an incentive structure that would reward growth
and value creation and align management with shareholders.
Before the proposal was finalised the relevant members of the
senior management team were consulted on the proposed
changes to the policy. Importantly the Committee Chair spoke
with a number of our major shareholders and their feedback
influenced the structure of the proposed Policy.
The Committee was mindful in its deliberations on the new
Remuneration Policy of any potential conflicts of interest and
sought to minimise them through an open and transparent
internal consultation process, by seeking independent advice
from its external advisers and by undertaking a broad
shareholder consultation exercise.
Summary Directors’ Remuneration Policy
Base salary
Purpose and link to strategy
Operation
Maximum opportunity
To provide an appropriate level of
fixed cash income.
Generally reviewed annually. Base salaries will be set by the
Committee taking into account:
To attract and retain individuals
with the personal attributes, skills
and experience required to deliver
our strategy
- Generally reviewed annually. 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.
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.
Any increases to current Executive Director
salaries, presented in the ‘Application of
Policy in 2023’ 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.
88
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued 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.
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) and the Tullow Sharesave (SAYE) plan.
Pension: Workforce aligned for Executive
Directors (as a percentage of salary).
Employees currently receive an employer
contribution of 10% of salary, increasing to
15% of salary for employees over 50.
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 and SAYE: 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
Legacy Tullow Incentive Plan (TIP) – applicable only for current CEO and for 2023 and 2024 only
Maximum opportunity
400% of salary.
Dividend equivalents will accrue on TIP
deferred shares over the vesting period.
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.
The current CEO is eligible to receive a TIP award, subject to
performance, for 2023 (for the 2021-23 period) and 2024 (for
the 2022-24 period). No further TIP awards will be granted
after 2024, and any Executive Directors appointed from
2023 onwards, including the current CFO, are not eligible to
participate in the plan
An annual TIP award consisting of up to 400% of base salary
which is divided evenly between cash and deferred shares
up to the first 200% of base salary.
Any amount above 200%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% of the maximum TIP opportunity will be payable for threshold performance.
Recovery provisions apply (see below).
2022 Annual Report and Accounts 89
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Maximum opportunity
Up to 150% of salary.
Directors’ Remuneration Policy Report continued
Annual bonus
Purpose and link to strategy
Operation
The executive bonus scheme
rewards Executive Directors for
achieving financial and strategic
targets in the relevant year by
reference to operational targets
and individual objectives.
The Current CEO will be eligible to participate in the Annual
Bonus plan from 2025 onwards.
The current CFO and any newly appointed Executive
Directors will be eligible to participant from 2023 onwards.
Targets are reviewed annually and any pay-out is
determined by the Committee after the year end based on
targets set for the financial period.
The Committee has discretion to amend the pay-out should
any formulaic output not reflect the Committee’s
assessment of overall business performance or if the
Committee considers the formulaic outturn is not
appropriate in the context of other factors considered by
the Committee to be relevant.
One third of any bonus earned will normally be deferred into
shares for a period of three years. Deferred bonus awards
may take the form of nil cost options, conditional awards of
shares or such other form as has a similar economic effect.
Additional shares may be delivered in respect of shares
subject to deferred bonus awards to reflect the value of
dividends paid during the period beginning with the date of
grant and ending with the date of vesting (this payment
may assume that dividends had been reinvested in Tullow
shares on a cumulative basis).
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 Annual Bonus outcomes. Performance will typically be measured over one year.
No more than 25% of the maximum opportunity will be payable for threshold performance.
Recovery provisions apply (see below).
Maximum opportunity
Up to 250% of salary.
Long Term Incentive Plan (LTIP)
Purpose and link to strategy
Operation
The LTIP provides a clear link
between the remuneration of the
Executive Directors and the
creation of value for shareholders
by rewarding the Executive
Directors for the achievement of
longer term objectives aligned to
shareholders’ interests.
Executive Directors will be eligible to be granted LTIP award
from 2023 onwards.
Awards are normally made on an annual basis and normally
vest three years from grant subject to continued
employment and the satisfaction of challenging three-year
performance targets.
A two-year holding period following LTIP vesting applies to
grants to Executive Directors. In total, this results in a
five-year combined vesting and holding period.
The Committee has discretion to vary the formulaic vesting
outturn if it considers that the outturn does not reflect the
Committee’s assessment of performance or is not
appropriate in the context of other factors considered by
the Committee to be relevant.
Additional shares may be delivered in respect of shares
which vest under the LTIP to reflect the value of dividends,
which would have been paid on those shares during the
period beginning with the date of grant and ending with the
vesting date (this payment may assume that dividends had
been reinvested in Tullow shares on a cumulative basis).
Performance and provisions for the recovery
Performance is usually measured over a three-year period.
Performance measures for LTIP awards will include financial measures which may include, but are not limited to, total shareholder return (“TSR”),
and may include strategic measures (which may include ESG measures).
Subject to the Committee’s discretion to override formulaic outturns, awards will normally vest as to 25% for threshold performance, increasing to
100% for maximum performance.
Recovery provisions apply (see below).
90
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued 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% of
post-tax share awards until a minimum shareholding
equivalent to 400% of base salary is achieved in owned shares.
Unvested TIP, LTIP and Deferred Bonus 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.
50% of the shareholding guideline (i.e. 200% of salary) will
need to be retained by Executive Directors for two years
post cessation.
Minimum requirement
400% of salary.
Performance and provisions for the recovery
Not applicable.
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 example 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, LTIP and Deferred Bonus 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 and LTIP awards, 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, LTIP and Deferred Bonus, 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.
Tullow Oil plc
2022 Annual Report and Accounts
91
Financial statementsSupplementary informationStrategic ReportGovernance Report Directors’ Remuneration Policy Report continued
Calculation of TIP awards
In addition to base salary and other benefits described in the Remuneration Policy, for 2023 and 2024 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 the 2023 and 2024 financial years, 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% of base salary. Any portion
of a TIP Award above 200% 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 89 of this report.
Performance measures for LTIP and annual bonus awards
The choice of the performance metrics and range of targets applicable to the annual bonus plan for Executive Directors reflect the
committee’s belief that any incentive compensation should be appropriately challenging and tied to both the delivery of robust
performance relating to the Group’s financial key performance indicators and, where appropriate, specific individual / strategic
objectives (including ESG objectives). Performance metrics applicable to the LTIP are selected to support Company strategy and
provide shareholder alignment. Targets applying to the annual bonus and LTIP are reviewed annually, based on a range of internal and
external reference points. Performance targets are set to be stretching but achievable, with regard to the particular strategic priorities
and business environment in a given year.
Legacy remuneration
For the avoidance of doubt, the Committee reserves the right to make any remuneration payments and/or payments for loss of office
(including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with
the 2023 Remuneration Policy set out in the document where the terms of the payment were agreed (i) before the 2023 Remuneration
Policy came into effect, provided that the terms of the payment were consistent with any applicable shareholder-approved Directors’
Remuneration Policy in force at the time they were agreed or were otherwise approved by shareholders; or (ii) at a time when the
relevant individual was not a Director of the Company (or other persons to whom the Policy set out above applies) and, in the opinion
of the Committee, the payment was not in consideration for the individual becoming a Director of the Company or such other person.
For these purposes “payments” includes the Committee satisfying awards of variable remuneration and, in relation to an award over
shares, the terms of the payment are “agreed” no later than the time the award is granted. This Policy applies equally to any individual
who is required to be treated as a Director under the applicable regulations.
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, annual bonus or LTIP
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.
92
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued 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.
Annual bonus and LTIP awards are subject to malus and clawback. The Committee retains discretion to apply malus and clawback to
the cash bonus, deferred bonus and LTIP awards up to three years after the payment or vesting of awards. Malus and clawback
triggers are outlined in the plan rules and include but are 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.
Illustration of remuneration scenarios of Executive Directors
2023 and 2024
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 for the current
CEO and CFO for 2023 and 2024:
r
i
h
D
l
u
h
a
R
r
e
l
l
i
M
d
r
a
h
c
R
i
Fixed
Target
Maximum
Maximum +50% share price growth
Fixed
Target
Maximum
Maximum +50% share price growth
£0.0m
£0.5m
£1.0m
£1.5m
£2.0m
£2.5m
£3.0m
£3.5m
£4.0m
£4.5m
Fixed pay
TIP (Cash)
TIP (Deferred shares)
Annual bonus
LTIP
1. Base salary is effective as at 1 April 2023.
2. Fixed pay includes pension in line with wider workforce.
3. For the CEO, the target TIP Award is taken to be 50% of the maximum annual opportunity for 2023 (200% of salary).The maximum value of the TIP is taken to be 400% of
salary (i.e. the maximum annual opportunity) for 2023.
4. For the CFO, the target Annual Bonus and LTIP Award is taken to be 50% of the maximum opportunity for 2023 (Annual Bonus: 75% of salary; LTIP Award: 125% of salary).
The maximum value of the Annual Bonus is taken to be 150% and LTIP Award is taken to be 250% of salary (i.e. the maximum annual opportunity).
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% share price appreciation on the maximum scenario in the chart above. For the
TIP, 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.
2022 Annual Report and Accounts 93
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report
Directors’ Remuneration Policy Report continued
Illustration of remuneration scenarios of Executive Directors continued
2025 onwards
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 for the current
CEO and CFO for 2025:
r
i
h
D
l
u
h
a
R
r
e
l
l
i
M
d
r
a
h
c
R
i
Fixed
Target
Maximum
Maximum +50% share price growth
Fixed
Target
Maximum
Maximum +50% share price growth
£0.0m
£0.5m
£1.0m
£1.5m
£2.0m
£2.5m
£3.0m
£3.5m
£4.0m
£4.5m
Fixed pay
Annual bonus
LTIP
1. Base salary is effective as at 1 April 2023.
2. Fixed pay includes pension in line with wider workforce.
3. The target Annual Bonus and LTIP Award is taken to be 50% of the maximum opportunity for 2023 (Annual Bonus: 75% of salary; LTIP Award: 125% of salary).The
maximum value of the Annual Bonus is taken to be 150% and LTIP Award is taken to be 250% of salary (i.e. the maximum annual opportunity).
4. No share price appreciation has been assumed for the fixed, target and maximum scenarios. 50% share price appreciation is applied to the maximum scenario in the
chart above.
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.
94
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued
Policy for new appointments
The remuneration of a new Executive Director will normally include salary, benefits, pension and participation in the annual bonus and LTIP
arrangements in accordance with the policy for Executive Directors’ remuneration. A newly appointed Executive Director would not
participate in the TIP. In addition, the Committee has discretion to include any other remuneration component or award which it feels is
appropriate taking into account the specific circumstances of the recruitment, subject to the principles and limits set out below. The key
terms and rationale for any such component would be disclosed as appropriate in the Directors’ remuneration report for the relevant year.
Policy
Salary
Salary will be set taking into account the individual’s experience and skills, prevailing market rates in companies
of comparable size and complexity and internal relativities.
Where appropriate the Committee may set the initial salary below the market level (e.g. if the individual has
limited PLC Board experience or is new to the role), with the intention to make phased pay increases over a
number of years, which may be above those of the wider workforce, to achieve the desired market positioning.
These increases will be subject to continued development in the role.
Buy-out awards Where an individual forfeits outstanding variable pay opportunities or contractual rights at a previous employer
as a result of appointment, the Committee may offer compensatory payments or awards, in such form as the
Committee considers appropriate, taking into account all relevant factors including the form of awards, expected
value and vesting time frame of forfeited opportunities.
When determining any such buy-out, the guiding principle would be that awards would generally be on a
like-for-like basis unless this is considered by the Committee not to be practical or appropriate.
Award may be facilitated under the existing incentive plans where possible, but also using Rule 9.4.2. of the
Listing Rules, if necessary.
Maximum level
of variable
remuneration
The Committee will not offer non-performance-related variable remuneration and the maximum level of variable
remuneration which may be granted (excluding buyout awards) is 400% of base salary, which is in line with the
current maximum limit under the annual bonus and LTIP.
Other elements
of remuneration
Other elements may be included in the following circumstances:
- An interim appointment being made to fill an Executive Director role on a short-term basis.
- If exceptional circumstances require that the Chair or a Non-Executive Director takes on an executive function
on a short-term basis.
- If an Executive Director is recruited at a time in the year when it would be inappropriate to provide an annual
bonus or LTIP award for that year. Subject to the limit on variable remuneration set out above, the quantum in
respect of the period employed during the year may be transferred to the subsequent year.
- If the Executive Director is required to relocate, reasonable relocation, travel and subsistence payments may be
provided (either via one-off or ongoing payments or benefits).
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, and payments may be made for accrued holiday, outplacement.
The Committee reserves the right to make payments by way of settlement of any claim arising in connection with the cessation
of employment.
2022 Annual Report and Accounts 95
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Directors’ Remuneration Policy Report continued
Policy for loss of office continued
The following payments may also be made to departing Executive Directors:
TIP (cash)
TIP (shares)
Cessation of employment due to death, injury, disability, retirement (for TIP awards only),
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).
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.
Annual bonus
The Executive Director will normally be considered for a bonus payment.
It is the Committee’s policy to ensure that any bonus payment reflects
the departing Executive Director’s performance. Unless the
Committee determines otherwise, any bonus payment will be paid at
the usual time following the determination of performance measures
and be subject to a pro rata reduction for time served during the
performance period.
Unvested awards will continue and will vest at the normal vesting
date. In exceptional circumstances, the Committee may decide that
the Executive Director’s deferred share awards will vest at the date of
cessation of employment.
Deferred bonus
shares
LTIP awards
Unvested awards will continue and will remain capable of vesting at
the normal vesting date. To the extent that the awards vest, a
two-year holding period would then normally apply.
In exceptional circumstances, the Committee may decide that the
Executive Director’s awards will vest and be released early at the date
of cessation of employment or at some other time (e.g. following the
end of the performance period).
In either case, vesting will depend on the extent to which the
performance measures have been satisfied and will be subject to a
pro rata reduction of the awards for time served from the grant date
to the date of cessation of employment (although the Committee has
discretion to disapply time pro rating if the circumstances warrant it).
No entitlement to annual bonus award
following date notice is served.
Unvested awards will normally lapse on
cessation of employment.
Unvested awards will normally lapse on
cessation of employment.
If an Executive Director leaves for any
reason after an award has vested but
before it has been released (i.e. during a
holding period), their award will ordinarily
continue to be released at the normal
release date.
The terms applying to any buyout awards on cessation of employment or change of control would be determined when the award
is granted. Such terms would normally be consistent with the principles outlined above.
In the event of a change of control deferred bonus shares will vest in full. LTIP awards will vest early in the event of change of control.
The level of vesting will be determined taking into account the extent to which performance measures are satisfied at the date of the
relevant event and, unless the Committee determines otherwise, awards will be pro-rated for time served from the grant date to the
date of the relevant event. TIP awards will be treated in line with the plan rules.
96
Tullow Oil plc
2022 Annual Report and Accounts
Remuneration report continued Consideration of shareholder’s 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.
Prior to the finalisation of this Policy the Committee consulted with all major shareholders on the proposals. This feedback helped
inform the final Policy put forward for shareholder approval. The Committee will seek to engage directly with major shareholders and
their representative bodies should any material changes be proposed to be made to 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 the Company Secretary and the Director, People
and Sustainability. During the year this included updates on discussions with the Executive Leadership Team and the Senior
Leadership Team on the proposed changes to the Directors’ Remuneration Policy and how these changes would apply more widely to
other employees.
Non-executive Directors terms of appointment
Non-executive Director
Phuthuma Nhleko
Mike Daly
Martin Greenslade
Sheila Khama
Mitchell Ingram
Genevieve Sangudi
Roald Goethe
Number of
complete
years on the
Board
Date of current
engagement
commenced
Year
appointed
Expiry of
current term
2021
2014
2019
2019
2020
2019
2023
1
8
3
3
2
3
0
25.10.21
24.10.24
30.05.20
31.05.23
01.11.19
31.10.24
26.04.19
26.04.25
09.09.20
08.09.23
26.04.19
25.04.25
24.02.23
23.02.26
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.
Genevieve Sangudi
Chair of the Remuneration Committee
7 March 2023
2022 Annual Report and Accounts 97
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Other statutory information
The Directors present their Annual Report and audited Financial
Statements for the Group for the year ended 31 December 2022.
Principal activities
Tullow is an independent oil and gas, exploration and production
group, quoted on the London and Ghana stock exchanges.
The Group has interests in over 30 exploration and production
licences across six 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 53. 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 54 to 97
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.
Delisting from Euronext exchange in Dublin
On 10 October 2022, Tullow delisted from the Euronext exchange
in Dublin. During this process, a Q&A was made available on our
website for any Irish shareholders with concerns.
Listing of Notes
Tullow’s Senior Secured Notes due 2026 and Senior Notes due
2025 are listed on the Luxembourg Stock Exchange.
Results and Dividends
The profit on ordinary activities after taxation of the Group for
the year ended 31 December 2022 was $49 million (2021: loss
of $81 million). In 2022, the Board recommended that no interim
and final dividend would be paid.
Subsequent events since 31 December 2022
As announced on 14 February 2023, throughout 2021 and 2022,
Tullow has received revised and new tax assessments from
the Ghana Revenue Authority (GRA). Tullow believes these
assessments are without merit and filed requests for arbitration
with the International Chamber of Commerce in London, in
accordance with the dispute resolution process set out in the
Petroleum Agreements which govern TGL’s activities in Ghana.
Notwithstanding this formal step, Tullow intends to continue
to engage with the Government of Ghana, including the GRA,
with the aim of resolving these disputes on a mutually
acceptable basis.
In March 2023, Tullow and its JV Partners submitted an updated
Field Development Plan to the Ministry of Energy and Petroleum
and the Energy and Petroleum Regulatory Commission Authority
in Kenya, for their approval. This is currently under review by the
relevant authorities.
In 2023, there were two new appointments:
Richard Miller appointed as Chief Financial Officer (CFO) from
January 2023.
Roald Goethe appointed as independent non-executive Director
from February 2023.
There have not been any other events since 31 December 2022
that have resulted in a material impact on the year end results.
There have not been any other events since 31 December 2022
that have resulted in a material impact on the year end results.
Share capital
As at 7 March 2023, the Company had an allotted and fully paid
up share capital of 1,441,255,150 ordinary shares each with a
nominal value of £0.10.
Substantial shareholdings
As at 31 December 2022, 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
Number of shares
% of issued
capital (as at
date of
notification)
Petrolin Group
(Samuel Dossou-Aworet)
Azvalor Asset Management
S.G.I.I.C., S.A.
1,408,609,725
13.07%
173,325,714
12.05%
RWC Asset Management LLP
71,022,015
5.09%
Summerhill Trust Company
(Isle of Man) Limited
The Goldman Sachs Group, Inc
58,838,104
40,116,703
4.19%
2.79%
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
98
Tullow Oil plc
2022 Annual Report and Accounts
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:
(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
becoming the beneficial owner, directly or indirectly, of shares
of the Company which grant that person more than 50% of the
voting rights of the Company;
- under the $600 million senior secured revolving facility
agreement between, among others, the Company and certain
subsidiaries of the Company, ABSA Bank, Barclays, BNP
Paribas, DNB (UK), JP Morgan, ING Belgium, Nedbank, Standard
Chartered Bank, Standard Bank of South Africa, Glas Trust
Corporation and the lenders specified there in, the Company is
obliged to notify the agent (who notifies the lenders) upon the
occurrence of a change of control. Each lender shall be
entitled to 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. Each
lender shall be entitled to cancel its commitments immediately
under the agreement. So long as such lender states its
requirement to be repaid within 30 days of being notified by
the agent, the repayment amount will become due and payable
by no later than 30 days after the agent has notified the
Company to request such payments;
- under an Indenture relating to $1.8 billion of 10.25% senior
secured notes due in 2026 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 or any part the
notes at 101% of the aggregate principle amount of the notes,
plus accrued and unpaid interest on the notes repurchased to
the date of purchase 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 du days and no later than 60 days from the date
of the repurchase offer; and
- relating to $800 million of 7% 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% of the aggregate principle
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.
2022 Annual Report and Accounts 99
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Other statutory information continued
Directors
The biographical details of the Directors of the Company at the
date of this report are given on pages 60 and 61.
Details of Directors’ service agreements and letters of
appointment can be found on page 81. Details of the Directors’
interests in the ordinary shares of the Company and in the
Group’s long term incentive and other share option schemes are
set out on page 85 in the Directors’ Remuneration Report.
Directors’ indemnities and insurance cover
As at the date of this report, indemnities are in force under which
the Company has agreed to indemnify the Directors, to the extent
permitted by the Companies Act 2006, against claims from third
parties in respect of certain liabilities arising out of, or in
connection with, the execution of their powers, duties and
responsibilities as Directors of the Company or any of its
subsidiaries. The Directors are also indemnified against the cost
of defending a criminal prosecution or a claim by the Company,
its subsidiaries or a regulator provided that where the defence is
unsuccessful the Director must repay those defence costs. The
Company also maintains directors’ and officers’ liability
insurance cover, the level of which is reviewed annually.
Conflicts of interest
A Director has a duty to avoid a situation in which he or she has,
or can have, a direct or indirect interest that conflicts, or possibly
may conflict, with the interests of the Group. The Board requires
Directors to declare all appointments and other situations that
could result in a possible conflict of interest and has adopted
appropriate procedures to manage and, if appropriate, approve
any such conflicts. The Board is satisfied that there is no
compromise to the independence of those Directors who have
appointments on the boards of, or relationships with, companies
outside the Group.
Powers of Directors
The general powers of the Directors are set out in Article 104 of
the Articles of Association of the Company. It provides that the
business of the Company shall be managed by the Board which
may exercise all the powers of the Company whether relating
to the management of the business of the Company or not.
This power is subject to any limitations imposed on the Company
by applicable legislation. It is also limited by the provisions of the
Articles of Association of the Company and any directions given
by special resolution of the shareholders of the Company which
are applicable on the date that any power is exercised.
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
100
Tullow Oil plc
2022 Annual Report and Accounts
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
143,623,893 ordinary shares. The authority lasts until the
earlier of the conclusion of the Annual General Meeting of the
Company in 2023 or 30 June 2023; and
- Borrowing powers – the net external borrowings of the Group
outstanding at any time shall not exceed an amount equal to
four times the aggregate of the Group’s adjusted capital and
reserves calculated in the manner prescribed in Article 105 of
the Company’s Articles of Association, unless sanctioned by an
ordinary resolution of the Company’s shareholders.
Appointment and replacement of Directors
The Company shall appoint (disregarding Alternate Directors) no
fewer than two and no more than 15 Directors. The appointment
and replacement of Directors may be made as follows:
- the shareholders may by ordinary resolution elect any person
who is willing to act to be a Director;
- the Board may elect any person who is willing to act to be a
Director. Any Director so appointed shall hold office only until
the next Annual General Meeting and shall then be eligible
for election;
- each Director is required in terms of the Articles of Association
to retire from office at the third Annual General Meeting after
the Annual General Meeting at which he or she was last elected
or re-elected, although he or she may be re-elected by
ordinary resolution if eligible and willing. However, to comply
with the principles of best corporate governance, the Board
intends that each Director will submit him or herself for
re-election on an annual basis;
- the Company may by special resolution remove any Director
before the expiration of his or her period of office or may, by
ordinary resolution, remove a Director where special notice
has been given and the necessary statutory procedures are
complied with; and
- there are a number of other grounds on which a Director’s
office may cease, namely voluntary resignation, where all the
other Directors (being at least three in number) request his
or her resignation, where he or she suffers physical or mental
incapacity, where he or she is absent from meetings of the
Board without permission of the Board for six consecutive
months, becomes bankrupt or compounds with his or her
creditors or where he or she is prohibited by law from being
a Director.
Encouraging diversity in our workforce
Tullow is committed to eliminating discrimination and
encouraging diversity amongst its workforce. Decisions related
to recruitment selection, development or promotion are based
upon merit and ability to adequately meet the requirements of
the job, and are not influenced by factors such as gender, marital
status, race, ethnic origin, colour, nationality, religion, sexual
orientation, age or disability.
Auditor and disclosure of relevant audit information
Having made the requisite enquiries, so far as the Directors are
aware, there is no relevant audit information (as defined by
section 418(3) of the Companies Act 2006) of which the
Company’s auditor is unaware and each Director has taken all
steps that ought to have been taken to make him or herself
aware of any relevant audit information and to establish that the
Company’s auditor is aware of that information.
We want our workforce to be truly representative of all sections
of society and for all our employees to feel respected and able to
reach their potential. Our commitment to these aims and
detailed approach are set out in Tullow’s Code of Ethical Conduct
and Equal Opportunities Policy.
We aim to provide an optimal working environment to suit the
needs of all employees, including those of employees with
disabilities. For employees who become disabled during their
time with the Group, Tullow will provide support to help them
remain safely in continuous employment.
Employee involvement and engagement
We use a range of methods to inform and consult with
employees about significant business issues and our performance.
These include webcasts, the Group’s intranet and town hall
meetings. In 2019, we established the workforce Tullow Advisory
Panel (TAP) in conjunction with existing means to continue
engaging with our workforce. Further details on the TAP and
employee engagement are described on page 62 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 30 to 37 of this report. Further information
is available on the Group website: www.tullowoil.com, and our
2022 Sustainability Report.
A resolution to re-appoint Ernst & Young as the Company’s
auditor will be proposed at the 2023 AGM on 24 May 2023.
More information can be found in the Audit Committee Report
on pages 63-68.
Annual General Meeting
The AGM is expected to be held on Wednesday 24 May 2023. The
Notice of Annual General Meeting will set out the resolutions to
be proposed at the forthcoming AGM, which will be sent to
shareholders in due course and in accordance the the
requirement of the Listing Rules.
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
7 March 2023
Registered office:
9 Chiswick Park
566 Chiswick High Road
London W4 5XT
Company registered in England and Wales No. 3919249
Tullow Oil plc
2022 Annual Report and Accounts
101
Financial statementsSupplementary informationStrategic ReportGovernance Report Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable
United Kingdom law and regulations.
Company law requires the directors to prepare Financial
Statements for each financial year. Under that law the
directors have elected to prepare the Group and Parent Company
financial statements in accordance with UK-adopted
international accounting standards (IFRSs), and the Parent
Company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law), including
Financial Reporting Standard 101 Reduced Disclosure Framework
(FRS 101). Under company law the directors must not approve the
Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group and the Company
for that period.
Under the Financial Conduct Authority’s Disclosure Guidance and
Transparency Rules and the Transparency (Directive 2004/109/
EC) Regulations 207 (as amended), Group Financial Statements
are required to be prepared in accordance with UK adopted
international accounting standards and international Financial
Reporting Standards adopted pursuant to Regulation (EC) No.
1606/2002 as it applies in the European Union.
In preparing these Financial Statements the Directors are
required to:
- select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
- make judgements and accounting estimates that are
reasonable and prudent;
- 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 and in respect of the Parent
Company Financial Statements, FRS 101 is insufficient to
enable users to understand the impact of particular
transactions, other events and conditions on the Group and
Company financial position and financial performance;
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
and Group’s transactions and disclose with reasonable accuracy
at any time the financial position of the Company and the Group
and enable them to ensure that the Company and the Group
Financial Statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Group and
Parent Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a strategic report, Directors’ report,
Directors’ remuneration report and corporate governance
statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website.
Directors’ responsibility statement (DTR 4.1 and the
Transparency (Directive 2004/109/EC) Regulations
(as amended))
The Directors confirm, to the best of their knowledge:
- that the consolidated Financial Statements, prepared
in accordance with UK-adopted international accounting
standards and IFRSs adopted pursuant to Regulation (EC)
No. 1606/2002 as it applies in the European Union;
- give a true and fair view of the assets, liabilities, financial
position and profit of the Parent Company and undertakings
included in the consolidation taken as a whole;
- that the Annual Report, including the Strategic Report,
includes a fair review of the development and performance of
the business and the position of the Company and
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face; and
- that they consider the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position,
performance, business model and strategy.
- in respect of the Group Financial Statements, state whether
UK-adopted international accounting standards and IFRSs
adopted pursuant to Regulation (EC) No. 1606/2002 as it
applies in the European Union;
Rahul Dhir
Chief Executive Officer
7 March 2023
- have been followed, subject to any material departures
disclosed and explained in the Financial Statements;
- in respect of the Parent Company Financial Statements, state
whether applicable UK Accounting Standards, including
FRS 101, 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 and/or
the Group will continue in business.
102
Tullow Oil plc
2022 Annual Report and Accounts
Independent auditor’s report
to the members of Tullow Oil plc
Opinion
In our opinion:
- Tullow Oil plc’s group financial statements and parent company financial statements (the “financial statements”) give a true and
fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2022 and of the group’s profit for the
year then ended;
- the group financial statements have been properly prepared in accordance with UK adopted international accounting standards and
International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union;
- the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
- the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Tullow Oil plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended
31 December 2022 which comprise:
Group
Parent company
Group balance sheet as at 31 December 2022
Company balance sheet as at 31 December 2022
Group income statement for the year then ended
Company statement of changes in equity for the year then ended
Group statement of comprehensive income and expense for the
year then ended
Related notes 1 to 7 to the financial statements including a
summary of significant accounting policies
Group statement of changes in equity for the year then ended
Group cash flow statement for the year then ended
Related notes 1 to 31 to the financial statements, including a
summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and
UK adopted international accounting standards and International Financial Reporting Standards adopted pursuant to Regulation (EC)
No. 1606/2002 as it applies in the European Union. The financial reporting framework that has been applied in the preparation of the
parent company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced
Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our
report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion
Independence
We are independent of the group and parent in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain
independent of the group and the parent company in conducting the audit.
2022 Annual Report and Accounts 103
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Independent auditor’s report
to the members of Tullow Oil plc continued
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s ability to
continue to adopt the going concern basis of accounting included:
- evaluating whether management’s going concern period, of 12 months from signing of the financial statements, was appropriate;
- with the assistance of our business modelling specialists reviewing the integrity of management’s corporate model by checking
consistency of the central assumptions and formulas;
- comparing the forecasted cash expenditure incorporated in the model with the board approved budget to ensure consistency;
- assessing historical forecasting accuracy through comparing forecast versus actual analysis;
- ensuring assumptions, such as hedging, provision utilisation and decommissioning escrow payments, were consistent with other
areas of our audit;
- checking that the cash flows assumptions used in the going concern model were consistent with those used for impairment testing
purposes and ensuring any differences were appropriate;
- ensuring the commercial reserves profile used in the impairment testing is consistent the model used to determine the availability
of the Revolving Credit Facility (‘RCF’);
- evaluating the reasonableness of management’s downside scenario;
- evaluating the sensitivity of the RCF availability to reductions in future oil prices to determine the impact on available liquidity under
different price scenarios;
- performing independent reverse stress test analysis on the cash flow forecasts to assess the oil price at which a drawdown on the
RCF would become necessary;
- confirming that the forecast decarbonisation costs were included in the model; and
- reviewing management’s proposed disclosures to ensure that they were appropriate and met current accounting requirements.
Our key observations
In forming our conclusions, we have considered the 2021 refinancing of debt, which has extended maturities of borrowings to 2025
and 2026 with annual capital payments of $100m. Considering the maturities of the bonds is in 2025 and 2026, we consider the
going concern period of 12 months to be reasonable. Forecast oil prices and the hedge position of the Group provides significant
headroom under the base case and downside case. The Group has access to a committed Revolving Credit Facility (RCF) of up to
$500m throughout the going concern period and it is considered remote that this will not be available for the remainder of the going
concern period. Under management’s reverse stress test, a drawdown on the RCF would be required at an oil price of $20/bbl for the
going concern period.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern
for a period up to March 2024.
In relation to the group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s
ability to continue as a going concern.
Overview of our audit approach
Audit scope
- We performed an audit of the complete financial information of 4 components and audit procedures on
specific balances for a further 7 components.
- The components where we performed full or specific audit procedures accounted for 99% of Adjusted
EBITDAX, 100% of Revenue and 99% of Total assets.
Key audit matters
- Recoverability of Kenya intangible exploration and evaluation asset
- Uncertain Tax Treatments
- Recoverability of Property plant and equipment
- Fair valuation of additional interest acquired in Ghana assets
- Impairment reversal of investment in subsidiaries (parent company only)
104
Tullow Oil plc
2022 Annual Report and Accounts
Materiality
- Overall Group materiality of £26.2m which represents 2.5% of average normalised Adjusted Earnings
before Interest Tax Depreciation Amortisation and Exploration (‘EBITDAX’).
An overview of the scope of the parent company and group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
for each company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements.
We take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the
business environment the potential impact of climate change and other factors such as recent Internal audit results when assessing
the level of work to be performed at each company.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, of the 48 reporting components of the Group, we selected 14 components
covering entities within Australia, Argentina, Côte D’Ivoire, Gabon, Ghana, Guyana, Kenya, Netherlands and the United Kingdom, which
represent the principal business units within the Group.
Of the 11 components selected, we performed an audit of the complete financial information of 4 components (“full scope components”)
which were selected based on their size or risk characteristics. For the remaining 7 components (“specific scope components”), we
performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact
on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 97% (2021: 96%) of the Group’s Adjusted EBITDAX, 97%
(2021: 92%) of the Group’s Revenue and 90% (2021: 97%%) of the Group’s Total assets. For the current year, the full scope components
contributed 103% (2021: 101%) of the Group’s Adjusted EBITDAX, 99% (2021: 92%) of the Group’s Revenue and 83% (2021: 64%) of the
Group’s Total assets. The specific scope component contributed -6% (2021: -1%) of the Group’s Adjusted EBITDAX, -2% (2021: 0%) of
the Group’s Revenue and 7% (2021: 27%) of the Group’s Total assets. The audit scope of these components may not have included
testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the
Group. We also performed specified procedures over certain aspects of Revenue, Intangible Exploration and Evaluation assets and
Non-Current Provisions at 3 locations.
The remaining 37 components together represent 3% of the Group’s Adjusted EBITDAX. For these components, we performed other
procedures, including analytical review and testing of consolidation journals and intercompany eliminations to respond to any
potential risks of material misstatement to the Group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Total assets
Adjusted EBITDAX
Revenue
3% – Other procedures 9595+
9494+
3% – Other procedures 8383+
83% – Full scope components
7% – Specific scope components
10% – Other procedures
99% – Full scope components
-2% – Specific scope components
103% – Full scope components
-6% – Specific scope components
2022 Annual Report and Accounts 105
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report+
4
4
+
+
2
2
+
+
O
O
+
2
2
+
+
3
3
+
+
O
O
+
7
7
+
+
10
10
+
+
O
O
Independent auditor’s report
to the members of Tullow Oil plc continued
Changes from the prior year
We have reduced the number of full scope components by 1 this year, as all the hedging positions of the Group were concentrated in
the Parent company. For other scopes, we have updated our assessment this year to remove entities which are no longer material,
due to sale, liquidation, settlements or write-offs. This has limited impact on coverage.
In a change in approach from the prior year, audit work for the Ghana component, which covers 2 full scope components, has been
performed by an integrated primary audit team comprising of team members from EY UK and EY Ghana and led by the Senior
Statutory Auditor (“primary audit team”).
During the current year’s audit cycle, visits were undertaken by the Group audit team to Ghana in November 2022 and February 2023.
These visits involved meetings with local management, including members of finance, legal and commercial teams. We held
discussions on the audit approach, reviewed working papers to validate that the required procedures have been performed and
discussed the issues arising in the component audit.
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
In the prior year this audit work was performed by a separate Ghana component team.
Climate change
Stakeholders are increasingly interested in how climate change will impact Tullow Oil Plc. The Group has determined that the most
significant future impacts from climate change on their operations will be from potential falls in oil prices, carbon pricing mechanisms,
accessibility to debt and equity funding and ability to retain employee and stakeholder confidence in their commitments. These are
explained on page 27 in the Task Force for Climate related Financial Disclosures and on pages 42 to 45 in the principal risks and
uncertainties. They have also explained their climate commitments on pages 36 to 39. All of these disclosures form part of the “Other
information,” rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely
of considering whether they are materially inconsistent with the financial statements, or our knowledge obtained in the course of the
audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other information”.
In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any
consequential material impact on its financial statements.
The Group has explained in note 26 how they have reflected the impact of climate change in their financial statements including how
this aligns with their commitment to being Net Zero on Scope 1 and Scope 2 emissions on a net equity basis by 2030 supporting the
goal of limiting global temperature rise to well below 2o C as per Article 2 of the Paris Agreement. Significant judgements and
estimates relating to climate change are included in note 26. These disclosures also explain where governmental and societal
responses to climate change risks are still developing, and where the degree of certainty of these changes means that they cannot be
taken into account when determining asset and liability valuations under the requirements of UK adopted international accounting
standards and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the
European Union. In note 26 to the financial statements supplementary sensitivity disclosures of the impact of changes in oil price
under IEA scenario-Net Zero Emission by 2050 have been provided.
Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating management’s
assessment of the impact of climate risk, physical and transition, their climate commitments, the effects of material climate risks
disclosed on pages 42 to 45 and the significant judgements and estimates disclosed in note 26 and whether these have been
appropriately reflected in asset values where these are impacted by future cash flows and associated sensitivity disclosures (see
note 26), and in the timing and nature of liabilities recognised, (see note 26) following the requirements of UK adopted international
accounting standards and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it
applies in the European Union. As part of this evaluation, we performed our own risk assessment, supported by our climate change
internal specialists. This included making inquiries of Head of Sustainability and Group Finance teams, and a review of peer
disclosures and sector guidance on climate change and energy transition to determine the risks of material misstatement in the
financial statements from climate change which needed to be considered in our audit.
We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and viability and
associated disclosures. Where considerations of climate change were relevant to our assessment of going concern, these are
described above.
Based on our work we have considered the impact of climate change on the financial statements to impact certain key audit matters.
Details of our procedures and findings are included in our explanation of key audit matters below.
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 our opinion thereon, and we do not provide a separate opinion on these matters.
106
Tullow Oil plc
2022 Annual Report and Accounts
Key observations communicated to the
Audit Committee
We consider acceptable the
judgements used by management in
calculating a gross NPV and then
applying probabilities to reflect the
remaining project uncertainties to
calculate the recoverable amount
We also reported that costs relating
to carbon offset projects for the
Kenya project to be carbon neutral
have not yet been assessed by
management and are therefore not
incorporated into the recoverable
value of the asset.
On sensitivity disclosures,
management appropriately disclosed
the impact on the value of the Kenya
asset under the IEA’s NZE scenario.
Key audit matters continued
Risk
Our response to the risk
Recoverability of Kenya Intangible
Exploration and Evaluation Asset
(‘E&E’)
This is an estimate based on uncertain
outcomes. The recoverability of the
Kenya E&E asset carries inherent risks
that the project does not progress to
development, requiring the write-off or
impairment of the related capitalised
costs or the reversal of previously
recorded impairment charges, when the
relevant IFRS requirements are met.
Refer to the Audit Committee Report
(page 65); Accounting policies (page 119);
and Note 9 of the Consolidated Financial
Statements (page 129)
Determining the recoverable value of the
Kenya E&E asset is judgemental given
the uncertainties surrounding the
progression of the project to Final
Investment Decision (‘FID’). Management
has performed an impairment assessment
under the value-in-use (‘VIU’) methodology
where estimates are made for key
inputs including oil prices; discount
rates; inflation rates; production profiles;
cost profiles and fiscal terms. The VIU
recoverable value is risk-adjusted for
uncertainties associated with the
Group’s ability to recover the value of
the asset.
These uncertainties include securing a
strategic partner, obtaining government
deliverables (for example access to land
and water and improved fiscal terms),
and arranging financing to develop the
asset, which represent a source of
potential management bias.
As a result of these factors, there is
significant judgement relating to the
Kenya E&E asset and whether an
impairment or impairment reversal is
required at year end. As disclosed in
Note 9, changes in significant
assumptions can result in a material
impairment charge, or impairment
reversal. No impairment or impairment
reversal has been recorded.
We consider that the risk associated
with this key audit matter has remained
consistent with the previous year.
Our procedures included, amongst others:
- obtaining, reviewing and comparing the draft
Field Development Plan (‘FDP’) submitted to the
Government of Kenya in December 2021 and the
revised FDP in March 2023;
- reconciling the oil and gas resources and cost
estimates used in the model to the resources
report produced by management’s external expert
and included in the FDP;
- engaging an EY partner with significant oil
and gas reserves expertise to review the
resources reports generated by management’s
external expert;
- evaluating the professional qualifications and
objectivity of management’s external experts who
performed the detailed preparation of the
reserve estimates;
- engaging our valuation specialists to test the
mathematical accuracy and formulae integrity
of management’s model;
- evaluating the appropriateness of management’s
discount rate for Kenya based on an independent
re-calculation of the discount rate including an
assessment of country specific risks;
- evaluating the appropriateness of the oil prices
used in management’s model;
- sensitising the valuation based on less favourable
fiscal terms, oil price and discount rate and
auditing sensitivities performed by Tullow
including using the IEA’s Net Zero Emissions oil
price forecast post 2030;
- engaging our valuation specialists to evaluate
management’s probabilistic methodology for
reflecting certain risks in the valuation.
- assessing the appropriateness of the probabilistic
assessment used to adjust for the uncertainties in
computing the recoverable amount of the asset by
independently evaluating each uncertainty’s facts
and circumstances through inspection of
supporting evidence including communications
with a potential farm down partner and the
Government of Kenya and discussions with
management outside of the finance function;
- assessing potential physical risks arising from
climate change and carbon intensity of the project
and whether this may impact the chances of
development; and
- assessing whether the disclosures provided in
the financial statements reflect management’s
judgements, risks and uncertainties of the project.
The audit procedures were primarily performed by
our group engagement team with the assistance of
valuation specialists.
Tullow Oil plc
2022 Annual Report and Accounts
107
Financial statementsSupplementary informationStrategic ReportGovernance Report Key observations communicated to the
Audit Committee
Based on the evidence obtained and
audit procedures performed,
including inspecting external legal
and tax opinions on the most
significant exposures, we are
satisfied that the accounting
treatment in respect of potential tax
exposures is appropriate.
We also concluded that the
disclosures made in the financial
statements are appropriate.
Independent auditor’s report
to the members of Tullow Oil plc continued
Key audit matters continued
Risk
Our response to the risk
Uncertain Tax Treatments
This is an estimate based on uncertain
outcomes. The risk is that tax provisions
are not appropriate given the nature of
the tax matter.
Refer to the Audit Committee Report
(page 65); Accounting policies (page
120-121); and Note 6 of the Consolidated
Financial Statements (pages 126-127)
Auditing the uncertain tax treatments
and the related provisions is subjective
because the estimation requires
significant judgement, including
evaluating the outcome of the tax
matter, the timescale for resolution and
the need to negotiate with various
stakeholders. Furthermore, the outcome
of the tax matter in most instances is
outside of Tullow’s control.
As described in note 1(ag) of the
accounting policies to the Consolidated
Financial Statements Tullow’s
contingent liabilities in respect to
uncertain tax matters amounts to
$1024.0 million. Tullow have recognised
a total provision of $127.9 million, which
is split into an income tax payable of
$70.6 million and $35.8 million in
provisions. Outcomes not in Management’s
favour, that are not provided for
appropriately, could result in material
charges through the Group’s profit and
loss once settled.
The risk has increased this year due to
increased engagement and new
disputes raised by the tax authorities.
Our procedures included, amongst others:
- obtained correspondence with tax authorities and
when required used our local teams and tax
specialists on specific regimes to assess
management’s assumptions and judgements
regarding the level of provisions made;
- inspecting external legal and tax opinions, where
considered necessary, to corroborate
management’s assessment of the risk profile in
respect of tax claims;
- evaluating the professional qualifications and
objectivity of management’s external experts;
- discussed the likelihood and quantum of any
potential settlement with management outside
the finance/tax function including the General
Counsel, CEO and Chair;
- reviewed publicly available information regarding
other significant tax claims against multi-nationals
in Ghana, in particular MTN, to understand the
basis of the claim and the outcome;
- obtained direct confirmation from external legal
counsel to corroborate the status and
management position for material litigation;
- obtained Tullow’s uncertain tax treatment
assessments and audited the associated
workings, including assessing any exposures and
provisions were appropriately extrapolated for
periods which have yet to be audited; and
- considered the relevant disclosures made within
the financial statements to ensure they
appropriately reflect the facts and circumstances
of the tax exposures and are in accordance with
the requirements of IAS 37 Provisions, IAS 12
Income Taxes and IFRIC 23 Uncertainty over
Income tax treatments.
Our audit responses was executed by the primary
audit team, with support from our Ghana tax team.
Our audit procedures over this risk area covers 100%
of the reported risk amount.
108
Tullow Oil plc
2022 Annual Report and Accounts
Key observations communicated to the
Audit Committee
We reported to the Audit Committee
that, based on our testing performed
and the subsequent adjustments
made by management, we
considered the current period
impairment charge is fairly stated.
We also reported that management
had appropriately included costs
for decarbonisation projects
identified within the Ghana asset
impairment models.
On sensitivity disclosures,
management appropriately disclosed
the impact on the value of PP&E
under the IEA’s NZE scenario.
Key audit matters continued
Risk
Our response to the risk
Recoverability of Property, Plant
and Equipment (‘PP&E’)
This is a forecast-based estimate. The
risk is that potential impairments are
not identified on a timely basis. The risk
is similar to 2021 given lower reservoir
performance in TEN offset by additions
to reserves following the acquisition of
additional stakes in the Ghana assets.
Refer to the Audit Committee Report
(page 65); Accounting policies (pages
119-120); and Note 10 of the Consolidated
Financial Statements (pages 130-131)
Auditing the impairment of PP&E
involves estimation of key inputs in
particular commodity price assumptions
and discount rates. Changes to any of
these key inputs could lead to a further
impairment or a reversal of impairment,
hence this is considered a key audit
matter. Following the identification of
indicators of impairment in the TEN CGU
and impairment reversals for Group’s
remaining CGUs, the carrying values
were tested for impairment or
impairment reversal. A net impairment
of $391.2 million was recorded.
We consider that the risk associated
with this key audit matter has remained
consistent with the previous year.
Our procedures included, amongst others:
- confirming our understanding of Tullow’s
impairment testing process, as well as the control
environment implemented by management by
performing a walkthrough of the process;
- engaging our valuation specialists to test the
mathematical accuracy and formulae integrity of
management’s model;
- comparing Tullow’s commodity price scenarios to
assessments provided by our valuation specialists
and to prices used by peer companies. We also
compared Tullow’s prices to the IEA’s Net Zero
Emissions 2050 (NZE) and to the Announced
Pledges Scenario (APS) price assumptions as
potential contradictory evidence for best
estimates of future oil prices;
- assessing the appropriateness of management’s
impairment discount rates including an independent
re-calculation of the discount rate including an
assessment of country specific risks;
- reconciling production profiles used in the
impairment model to the reserves report
produced by management’s external expert;
- evaluating the professional expertise and
objectivity of management’s external experts;
- performing benchmarking on cost estimate
profiles, the inflation rate and foreign exchange
rates based on comparison with recent actuals
and our understanding obtained from other areas
of the audit;
- tested whether decarbonisation costs were
incorporated in the models; and
- auditing sensitivities performed by Tullow
including using the IEA’s Net Zero Emissions oil
price forecast.
The audit procedures were performed by our
group engagement team with the assistance of
valuation specialists.
2022 Annual Report and Accounts 109
Tullow Oil plc
Financial statementsSupplementary informationStrategic ReportGovernance Report Independent auditor’s report
to the members of Tullow Oil plc continued
Key audit matters continued
Risk
Our response to the risk
Fair valuation of additional
interest acquired in Ghana assets
This is a forecast-based estimate. The
risk is that fair value recorded is not
appropriate considering significant
estimation involved and judgement
required in determining technical
accounting considerations.
Refer to the Audit Committee Report
(pages 63 to 69); Business combinations
(page 120); Accounting policies (pages 119
to 130); and Note 15 of the Consolidated
Financial Statements (pages 142 t0 143)
Auditing the fair valuation of the
additional interest involves estimation of
key inputs including commodity price
assumptions, discount rates,
commercial reserves and related costs
profiles. This is consistent with the
estimates referred to above in the
Recoverability of Kenya Intangible
Exploration and Evaluation Asset (‘E&E’)
and Recoverability of Property, Plant
and Equipment (‘PP&E’). A gain on
bargain purchase of $196.8m was
recorded in the profit and loss account.
Changes to any of these key inputs could
result in material changes to asset
values, hence this is considered a key
audit matter.
Our procedures included, amongst others:
- reading the SPA between Tullow and the seller to
ensure Management’s calculation and narrative
was consistent with the underlying agreements;
- assessing whether the acquisition of an additional
stake in the TEN and Jubilee where Tullow has
existing interests, and where no change of control
has taken place, qualifies as a business combination;
- agreeing consideration paid to bank statements;
- in auditing the valuation of the acquired tangible
oil and gas assets refer to the key audit matters
on Recoverability of PP&E and Recoverability of
E&E with respect to procedures performed on the
key assumptions;
- assessing the appropriateness of management’s
approach in relying on estimates produced for
31 December 2021 Annual Report and Accounts
and challenging management on whether key
assumptions such as prices had changed between
31 December 2021 and the acquisition date; and
- reviewing management’s proposed IFRS 3
disclosures for appropriateness; assessed the
appropriateness of management’s methodology
of assigning fair value to legal exposures taken
on by Tullow;
The audit procedures were performed by our
group engagement team with the assistance of
valuation specialists.
Key observations communicated to the
Audit Committee
The acquisition of an additional
interest in the TEN and Jubilee fields
meets the definition of a business
under accounting standards resulting
in the fair valuation of the additional
interest acquired. The previously
held interest does not require a fair
value assessment as there was no
change in joint control status.
We considered management bias
and potential incentive in using the
2021 year-end assumptions as
management’s prices and discount
rate were at the low end of our ranges.
We have carried out a sensitivity
using a middle of the range oil price
and adjusting discount rate for changes
in macro factors, which supports the
fair value computed by management.
We concluded that the final bargain
gain of $197m recognised , and
associated disclosures are appropriate
110
Tullow Oil plc
2022 Annual Report and Accounts
Key observations communicated to the
Audit Committee
We confirmed that our observations
with respect to the recoverable
amount of underlying assets are also
relevant for the recoverable amount
of investments in subsidiaries.
We agree with the impairment recorded.
We agree that the final disclosures in
the parent Company financial
statements are appropriate.
Key audit matters continued
Risk
Our response to the risk
Our procedures included, amongst others:
- assessing the methodology used by management
to estimate the recoverable value of each
investment for which an impairment test was
performed, to ensure that it was consistent with
the accounting standards;
- testing that the relevant assets and liabilities of
each investment have been appropriately included
in the assessment of recoverable value, including
the effects of intercompany balances;
- testing the appropriateness of correction of prior
year restatement and associated disclosures; and
- refer to the key audit matters on Recoverability of
PP&E and Recoverability of E&E with respect to
procedures performed on the recoverable value of
individual assets tested for impairment, including
our consideration of climate change.
The audit procedures were performed by our
group engagement team with the assistance of
valuation specialists.
Impairment Reversal of
Investment in Subsidiaries
(Parent company only)
This is a forecast-based estimate.
The risk is that potential impairments
triggers at the subsidiary level are not
identified on a timely basis and would
impact the recoverability of the parent
company’s investments in subsidiaries.
Refer to Parent Accounting policies (page
159); and Note 1 of the Parent Financial
Statements (page 160)
Investments in subsidiaries in parent
company financial statements are more
sensitive to changes in recoverable
value than the Group’s underlying assets
because certain assets have not been
subject to impairment in the past.
The principle driver of the recoverable
amount of investments in subsidiaries is
the estimated value of underlying net
assets held by the Group’s subsidiaries.
Refer to Recoverability of PP&E and
Recoverability of E&E above for related
key audit matters.
Changes to assumptions could lead to
material changes in estimated recoverable
amounts, resulting in either impairment
(2022 aggregate impairment taken of
$502.5 million) or reversals or
impairment taken (2021 aggregate
impairment reversal of $1017.6 million).
We consider that the risk associated
with this key audit matter has remained
consistent with the prior year.
In the prior year, our auditor’s report included a key audit matter in relation to the Estimation of Ghana decommissioning provision.
In the current year, this has not been considered as a KAM following the reduction in executive involvement and lower allocation
of resources. This was due to the reduced level of judgement involved in the decommissioning estimation process in the current
year as management’s base cost estimate has not changed from the prior year. There were limited movements in the Ghana
decommissioning provisions other than changes from discount rate and inflation rate and therefore did not require significant
effort and time from the audit team.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements
on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.
We determined materiality for the Group to be $26.2 million (2021: $24 million), which is 2.5% (2022: 2.4%) of normalised Adjusted EBITDAX.
Our key criterion in determining materiality remains our perception of the needs of Tullow’s stakeholders. We consider which
earnings, activity or capital-based measure aligns best with the expectations of the users of Tullow’s financial statements. In doing
so, we apply a ‘reasonable investor perspective’, which reflects our understanding of the common financial information needs of the
members of Tullow as a group. We believe that Adjusted EBITDAX provides us with the most appropriate measure upon which to
calculate materiality as it represents a key performance indicator used by Tullow’s investors.
Tullow Oil plc
2022 Annual Report and Accounts
111
Financial statementsSupplementary informationStrategic ReportGovernance Report Independent auditor’s report
to the members of Tullow Oil plc continued
Our application of materiality continued
Materiality continued
We have determined that the basis of planning materiality should be normalised Adjusted EBITDAX (i.e. excluding non-recurring
items), calculated as the average of 2020 and 2021 actuals as well as management’s 2022 budget (2021: normalised adjusted EBITDAX)
to account for short term oil and gas price volatility experienced in 2022. In determining the use of a normalised measure, we
recognised oil & gas prices are volatile caused by the pandemic receding and the war in Ukraine. The views of economists and market
participants are that short term increase in oil prices is from the management of supply of oil in the market which will be addressed
over time. Given this, we believed it was important that, in setting materiality, we did not overact to what is expected to be a temporary
phenomenon – especially when Tullow continues to be the same company structurally.
By applying a normalised approach, large year-on-year swings in materiality are minimised. We have excluded non-recurring items
such as impairments of E&E assets and producing oil & gas assets, non-cash movements in provisions and gains on sale to ensure
we are using a consistent measure representative of the underlying business.
The non-recurring items excluded in 2022 were impairment of E&E assets ($105 million), impairment of oil and gas assets ($391 million)
and non-cash movement in provisions ($4 million) offset by gains on disposal and gains on hedging instruments ($1 million).
The non-recurring items excluded in 2021 were impairment of E&E assets ($60 million), impairment of oil and gas assets ($54 million),
non-cash movement in provisions ($59 million) and restructuring costs ($3 million), offset by gains on disposal ($120 million).
The non-recurring items excluded in 2020 were impairment of E&E assets ($987 million), impairment of oil and gas assets
($251 million), non-cash movement in provisions (nil), and restructuring costs ($92 million), offset by gains on disposal ($3.4 million)
and gains on hedging instruments ($1 million).
We determined materiality for the Parent Company to be $28.2 million (2021: $25.7 million), which is 1.4% (2021: 1.4%) of equity.
During the course of our audit, we reassessed initial materiality and concluded that the Group’s actual performance in 2022 did not
affect our initial materiality. As such, our materiality was unchanged from planning.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was
that performance materiality was 50% (2021: 50%) of our planning materiality, namely $13.1m (2021: $12m). We have set performance
materiality at this percentage due to our assessment of the nature, number and impact of the adjusted and unadjusted audit
differences identified in 2021 audit.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on
the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component.
In the current year, the range of performance materiality allocated to components was $2.6m to $13.1m (2021: $2.7m to $11.5m).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $1.3m (2021: $1.2m),
which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on pages 1 to 93 and 164 to 167 including
Strategic report, Corporate Governance and Supplementary information, other than the financial statements and our auditor’s report
thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion thereon.
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 course of 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 this gives rise
to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there
is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
112
Tullow Oil plc
2022 Annual Report and Accounts
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.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you
if, in our opinion:
- 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 and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
- certain disclosures of directors’ remuneration specified by law are not made; or
- we have not received all the information and explanations we require for our audit
Corporate Governance Statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the group and company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
- Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 93;
- Directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period is
appropriate set out on pages 110 to 111;
- Director’s statement on whether it has a reasonable expectation that the group will be able to continue in operation and meets its
liabilities set out on page 111;
- Directors’ statement on fair, balanced and understandable set out on page 93;
- Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 67;
- The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out
on page 67; and;
- The section describing the work of the audit committee set out on page 63
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 93, 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 and parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to
do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Tullow Oil plc
2022 Annual Report and Accounts
113
Financial statementsSupplementary informationStrategic ReportGovernance Report Independent auditor’s report
to the members of Tullow Oil plc continued
Auditor’s responsibilities for the audit of the financial statements continued
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the
company and management.
- We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the
most significant are those that related to the reporting framework (UK-adopted IAS, IFRS, Companies Act 2006, the UK Corporate
Governance Code and Listing Rules of the UK Listing Authority) and the relevant tax compliance regulations in the jurisdictions in
which Tullow operates. In addition, we concluded that there are certain significant laws and regulations that may have an effect
on the determination of the amounts and disclosures in the financial statements and those laws and regulations relating to health
and safety, employee matters, environmental matters and bribery and corruption practices. We understood how Tullow Oil plc is
complying with those frameworks by making inquiries of management, internal audit and those responsible for legal and compliance
procedures. We corroborated our enquiries through review of board minutes, papers provided to Audit committees and
correspondence received from regulatory bodies
- Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations.
Our procedures involved journal entry testing, with a focus on journals meeting defined risk criteria based on our understanding
of the business; inquiries with legal counsel, group management, internal audit and all full and specific scope management; review
of volume and nature of whistleblowing complaints received during the year. Where instances of non-compliance were identified,
we consulted the relevant EY local teams and EY specialists who aided us in determining sufficient, and executing appropriate,
procedures to respond to the risk identified.
- We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by
meeting with management together with our forensic specialists. We gained an understanding of where there was susceptibility to
fraud, how the company is complying with international tax laws and regulations, procedures in place to address the risk of bribery
and corruption in high-risk countries, procedures around setting key performance indicators and assessment of whistleblowing
incidences for those with a potential financial reporting impact.
- In addition, we utilised internal and external information to perform a fraud risk assessment for each of the countries of operation.
We considered the risk of fraud and the possibility of fraudulent or corrupt payments made through the purchase to pay process
through management override and, in response, we incorporated data analytics across manual journal entries into our audit approach.
Where exceptions and instances of risk behaviour patterns were identified, we tested of transactions back to the source information.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
- Following the recommendation from the audit committee we were appointed by the company on 21 July 2020 to audit the financial
statements for the year ending 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments is 3 years, covering the years ending 2020 to 2022.
- The audit opinion is consistent with the additional report to the audit committee.
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.
Paul Wallek (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
7 March 2023
114
Tullow Oil plc
2022 Annual Report and Accounts
Group income statement
Year ended 31 December 2022
Continuing activities
Revenue
Cost of sales
Gross profit
Administrative expenses
Gain on bargain purchase
Gain on disposals
Other gains and losses
Exploration costs written off
Impairment of property, plant and equipment, net
Restructuring costs and other provisions
Operating profit
Gain on hedging instruments
Finance income
Finance costs
Profit from continuing activities before tax
Income tax expense
Profit/(loss) for the year from continuing activities
Attributable to:
Owners of the Company
Earnings/(loss) per ordinary share from continuing activities
Basic
Diluted
1. Refer to Note 6 for details on prior year restatement.
Group statement of comprehensive income and expense
Year ended 31 December 2022
Profit/(loss) for the year
Items that may be reclassified to the income statement in subsequent periods
Cash flow hedges
Loss arising in the year
Gains/ (losses) arising in the year – time value
Reclassification adjustments for items included in profit on realisation
Reclassification adjustments for items included in loss on realisation – time value
Exchange differences on translation of foreign operations
Other comprehensive expense
Tax relating to components of other comprehensive expense
Net other comprehensive expense for the year
Total comprehensive income/(expense) for the year
Attributable to:
Owners of the Company
Notes
2022
$m
2
4
4
15
8
19
9
10
4
18
5
5
6
7
Notes
18
18
18
18
1,783.1
(697.5)
1,085.6
(51.0)
196.8
–
3.1
(105.2)
(391.2)
(4.2)
733.9
0.8
42.9
(335.5)
442.1
(393.0)
49.1
49.1
¢
3.4
3.3
2022
$m
49.1
(399.5)
21.7
288.5
30.8
10.2
(48.3)
–
(48.3)
2021
Restated1
$m
1,285.4
(638.9)
646.5
(64.1)
–
120.3
–
(59.9)
(54.3)
(61.8)
526.7
–
44.3
(356.1)
214.9
(295.6)
(80.7)
(80.7)
¢
(5.7)
(5.7)
2021
$m
(80.7)
(159.3)
(182.1)
112.3
40.7
(1.4)
(189.8)
2.7
(187.1)
0.8
(267.8)
0.8
(267.8)
Tullow Oil plc
2022 Annual Report and Accounts
115
Financial statementsSupplementary informationStrategic ReportGovernance Report Group balance sheet
As at 31 December 2022
ASSETS
Non-current assets
Intangible exploration and evaluation assets
Property, plant and equipment
Other non-current assets
Deferred tax assets
Current assets
Inventories
Trade receivables
Other current assets
Current tax assets
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
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 liabilities
EQUITY
Called-up share capital
Share premium
Foreign currency translation reserve
Hedge reserve
Hedge reserve – time value
Merger reserve
Retained earnings
Equity attributable to equity holders of the Company
Total equity
Approved by the Board and authorised for issue on 7 March 2023.
Rahul Dhir
Chief Executive Officer
Richard Miller
Chief Financial Officer
7 March 2023
7 March 2023
116
Tullow Oil plc
2022 Annual Report and Accounts
Notes
2022
$m
2021
$m
9
10
11
21
12
13
11
6
14
16
17
20
18
16
17
20
21
18
22
22
18
18
288.6
2,981.4
327.1
14.5
3,611.6
181.6
26.8
567.9
15.4
636.3
354.6
2,914.6
489.1
354.4
4,112.7
134.8
99.8
704.5
19.7
469.1
1,428.0
5,039.6
1,427.9
5,540.6
(750.2)
(100.0)
(98.8)
(186.0)
(186.3)
(751.1)
(100.0)
(296.5)
(115.1)
(80.9)
(1,321.3)
(1,343.6)
(780.0)
(2,372.8)
(415.6)
(551.5)
(57.9)
(987.1)
(2,468.7)
(431.0)
(677.3)
(99.0)
(4,177.8)
(4,663.1)
(5,499.1)
(6,006.7)
(459.5)
(466.1)
215.2
1,294.7
(238.6)
(150.3)
(94.4)
755.2
(2,241.3)
(459.5)
(459.5)
214.2
1,294.7
(248.8)
(39.3)
(146.9)
755.2
(2,295.2)
(466.1)
(466.1)
Group statement of changes in equity
Year ended 31 December 2022
At 1 January 2021
Loss for the year
Hedges, net of tax
Derecognition of the
convertible bond3
Currency translation
adjustments
Exercise of employee
share options
Share-based
payment charges
At 1 January 2022
Profit for the year
Hedges, net of tax
Currency translation
adjustments
Exercise of employee
share options
Share-based
payment charges
Notes
18
17
22
23
18
22
23
Share
capital
$m
211.7
–
–
–
–
2.5
–
Share
premium
$m
1,294.7
–
–
–
–
–
–
214.2
–
–
1,294.7
–
–
–
1.0
–
–
–
–
At 31 December 2022
215.2
1,294.7
Equity
component
of
convertible
bonds
$m
48.4
–
–
(48.4)
–
–
–
–
–
–
–
–
–
–
Foreign
currency
translation
reserve 1
$m
(247.4)
–
–
–
(1.4)
–
–
(248.8)
–
–
10.2
–
–
Hedge
reserve
– time
value 2
$m
(5.4)
–
(141.5)
Hedge
reserve 2
$m
4.8
–
(44.1)
Merger
reserve
$m
755.2
–
–
Retained
earnings
$m
(2,272.0)
(80.7)
–
Total
equity
$m
(210.0)
(80.7)
(185.6)
–
–
–
–
–
–
–
–
–
–
–
–
48.4
–
–
(1.4)
(2.5)
11.6
–
11.6
(466.1)
49.1
(58.5)
(39.3)
–
(111.0)
(146.9)
–
52.5
755.2
–
–
(2,295.2)
49.1
–
–
–
–
–
–
–
–
–
–
–
10.2
(1.0)
5.8
–
5.8
(238.6)
(150.3)
(94.4)
755.2
(2,241.3)
(459.5)
1. The foreign currency translation reserve represents exchange gains and losses arising on translation of foreign currency subsidiaries, monetary items receivable from
or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation.
2. The hedge reserve represents gains and losses on derivatives classified as effective cash flow hedges.
3. On 12 July 2021 Tullow repaid the $300 million Convertible Bond due 2021 (note 17). As the conversion option was not exercised, the equity component of $48.4 million has
been transferred from the separate reserve to retained earnings.
Tullow Oil plc
2022 Annual Report and Accounts
117
Financial statementsSupplementary informationStrategic ReportGovernance Report Group cash flow statement
Year ended 31 December 2022
Cash flows from operating activities
Profit from continuing activities before tax
Adjustments for:
Depreciation, depletion and amortisation
Gain on bargain purchase
Gain on disposals
Other gains and losses
Taxes paid in kind
Exploration costs written off
Impairment of property, plant and equipment, net
Restructuring costs and other provisions
Payment under restructuring costs and other provisions
Decommissioning expenditure
Share-based payment charge
Gain on hedging instruments
Finance income
Finance costs
Operating cash flow before working capital movements
Decrease/ (increase) in trade and other receivables
Increase 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 additional interest in joint operation
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
Payment of obligations under leases
Finance costs 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 gain
Cash and cash equivalents at end of year
1. Refer to Note 6 for details on prior year restatement.
118
Tullow Oil plc
2022 Annual Report and Accounts
Notes
2022
$m
2021
Restated1
$m
442.1
214.9
10
15
8
19
6
9
10
23
18
5
5
11
15
28
28
28
28
28
425.8
(196.8)
–
(3.1)
(21.4)
105.2
391.2
4.2
(127.3)
(57.7)
5.8
(0.8)
(42.9)
335.5
1,259.8
288.4
(48.0)
(193.1)
1,307.1
(229.3)
1,077.8
68.1
(126.8)
(42.6)
(263.8)
8.9
(356.2)
–
(100.0)
–
(203.8)
(249.0)
378.9
–
(120.3)
–
(12.2)
59.9
54.3
61.8
(12.6)
(52.8)
11.6
–
(44.3)
356.1
895.3
(17.9)
(41.9)
7.5
843.0
(56.1)
786.9
132.8
–
(86.1)
(150.4)
2.0
(101.7)
(56.6)
(2,379.9)
1,800.0
(155.9)
(234.9)
(552.0)
(1,027.3)
168.8
469.1
(1.6)
(342.1)
805.4
5.8
14
636.3
469.1
Accounting policies
Year ended 31 December 2022
(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 2022:
- Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37;
- IFRS 9 Financial Instruments – Fees in the '10 per cent' test for derecognition of financial liabilities';
- Reference to Conceptual Framework – Amendments to IFRS 3; and
- Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16.
The 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.
Upcoming International Financial Reporting Standards not yet adopted
Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not
mandatory for 31 December 2022 reporting periods and have not been early adopted by the Group. These standards, amendments or
interpretations 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
The Group has revised its accounting policy in relation to the presentation of corporate income taxes in Gabon and Côte d’Ivoire
Production Sharing Contracts (PSCs).
Under the terms of the PSCs the share of the profit oil which the government is entitled to is deemed to include the notional corporate
income tax which is paid by the government on behalf of Tullow. From 1 January 2022 the notional corporate income tax is classified
as an income tax in accordance with IAS 12 Income taxes which has resulted in a gross up of revenue with a corresponding increase
in income tax expense. In the previous years, the Revenues and Taxes from Gabon and Côte d’Ivoire were presented on a net basis.
This change has been implemented to more accurately represent the Group’s income tax obligations in Gabon and Côte d’Ivoire and to
be more comparable with other entities in the sector. Prior period balances have been adjusted to conform with the same presentation.
As a result of the change, revenue for the year ended 31 December 2021 increased from $1,273.2 million to $1,285.4 million, whilst
income tax expense increased from $283.4 million to $295.5 million. There is no impact on profit/(loss) for the year from continuing
activities nor on basic and diluted earnings per share. In addition, the restatement had no impact on reported net assets, cash flows
or total equity. Accordingly, an additional balance sheet as at 1 January 2020 has not been presented. Refer to Note 6.
Other than the above, the Group’s accounting policies are consistent with the prior year.
(d) Basis of preparation
The Financial Statements have also been prepared in accordance with UK-adopted international accounting standards (UK-adopted
IFRSs) and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in 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).
The Financial Statements have been prepared on the historical cost basis, except for derivative financial instruments and contingent
consideration which have been measured at fair value 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 principal accounting
policies adopted by the Group are set out below.
Liquidity risk management and going concern
Assessment period and assumptions
The Directors consider the going concern assessment period to be up to 31 March 2024. The Group closely monitors and manages its
liquidity headroom. Cash forecasts are regularly produced, and sensitivities run for different scenarios including, but not limited to,
changes in commodity prices, different production rates from the Group’s producing assets and different outcomes on ongoing
disputes or litigation.
Management has applied the following oil price assumptions for the going concern assessment:
Base Case: $84/bbl for 2023, $79/bbl for 2024; and
Low Case: $70/bbl for 2023, $70/bbl for 2024.
The Low Case includes, amongst other downside assumptions, a 5% production decrease compared to the Base Case.
Tullow Oil plc
2022 Annual Report and Accounts
119
Financial statementsSupplementary informationStrategic ReportGovernance Report (d) Basis of preparation continued
Liquidity risk management and going concern continued
At 31 December 2022, the Group had $1.1 billion liquidity headroom consisting of c.$0.6 billion free cash and $0.5 billion available under
the revolving credit facility.
The Group’s forecasts show that the Group will be able to operate within its current debt facilities and have sufficient financial
headroom for the going concern assessment period under its Base Case and Low Case. Based on the analysis above, the Directors
have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
Thus, they have adopted the going concern basis of accounting in preparing the year end result.
(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.
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.
If the Group loses control over a subsidiary, it derecognises the related assets, liabilities, non-controlling interest and other
components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair
value. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
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.
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 assets and liabilities 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) Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or
other assets are acquired. The consideration transferred for the acquisition comprises of:
- Fair values of the assets transferred;
- Liabilities incurred to the former owners of the acquired business;
- Equity interests issued by the group;
- Fair value of any asset or liability resulting from a contingent consideration arrangement; and
- Fair value of any pre-existing equity interest in the subsidiary.
The Group determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive
process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is
critical to the ability to continue producing outputs, and the inputs acquired include an organised workforce with the necessary skills,
knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is
considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.
Identifiable assets acquired and liabilities and contingent liabilities assumed when control is obtained over a business, and when an
interest or an additional interest is acquired in a joint operation which is a business are, with limited exceptions, measured initially at
their fair values at the acquisition date.
Acquisition-related costs are expensed as incurred.
The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition-date fair
value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as
goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is
recognised directly in profit or loss as a bargain purchase.
120
Tullow Oil plc
2022 Annual Report and Accounts
Accounting policies continuedYear ended 31 December 2022 (g) Revenue from contracts with customers
Revenue from contracts with customers represents the sales value, net of VAT, of the Group’s share of liftings in the year.
Revenue is recognised when control of the goods or services are transferred to the customer at an amount that reflects the
consideration to which the Group expects to be entitled in exchange for those goods or services. The Group has concluded that it
is the principal in all of its revenue arrangements since it controls the goods or services before transferring them to the customer.
The crude oil produced by the upstream operations is sold to external customers. Revenue from the sale of crude oil is recognised
at the point in time when control of the product is transferred to the customer, which is typically when goods are delivered, and title
has passed. The transportation and shipping costs associated with the transfer of the product to the point of sale is recognised as a
selling cost.
Under the terms of the relevant production sharing arrangements, the Group is entitled to its participating share in the crude oil based
on the Group’s working interest. Revenue from contracts with customers is recognised based on the actual volumes sold to
customers. No adjustments are made to revenue for any differences between volumes sold to customers and unsold volumes which
the Group is entitled to sell based on its working interest. Revenue in respect of such volumes is only recognised when there is a
transfer of output to the Group’s customers. Differences between the volume which the Group is entitled to sell based on its working
interest and the actual volumes that the Group has sold to customers are recognised as an under/overlift (note (g)) within cost of sales.
Under the terms of the Production Sharing Contracts in Gabon and Côte d’Ivoire, the Group is not required to pay any corporate income
taxes. The share of the profit oil which the government is entitled to is deemed to include a portion representing the notional
corporate income tax paid by the government on behalf of the contractors. This portion of notional corporate income tax is presented
as an income tax expenses with a corresponding amount recognised in Revenue.
The Group’s sales of crude oil are priced based on the consideration specified in contracts with customers with reference to quoted
market prices in active markets, adjusted for a quality differential based on gravity of the crude oil sold relative to Brent. Invoices are
typically paid on 30-60 day terms.
For certain non-operated arrangements, the Group’s stake is structured as a carried interest, in which all costs relating to the
performance of petroleum operations are borne by the operator and other joint venture partners and are recovered upon production.
The recognition of revenue is on net basis, where the Group only accounts for its share of profit oil.
(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.
(i) Inventories
Inventories, other than oil products, are stated at the lower of cost and net realisable value. Cost is determined on a weighted average
cost basis and comprises direct purchase costs. Net realisable value is determined by reference to prices existing at the balance
sheet date, less estimated costs of completion and the estimated costs necessary to make the sale.
Oil product is stated at net realisable value and changes in net realisable value are recognised in the income statement.
(j) Foreign currencies
The US dollar is the 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 entities are translated at exchange rates prevailing on the balance sheet
date. Income and expense items are translated at the average exchange rate 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.
Tullow Oil plc
2022 Annual Report and Accounts
121
Financial statementsSupplementary informationStrategic ReportGovernance Report (k) Intangible, exploration and evaluation assets and oil and gas 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.
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.
Exploration and evaluation assets are tested for impairment when reclassified to development assets, or whenever facts and
circumstances indicate impairment. An impairment loss is recognised for the amounts by which the exploration and evaluation
assets’ carrying amount exceeds their recoverable amount. The recoverable amount is the higher of the exploration and evaluation
asset’s fair value less cost to sell and their value in use.
Once commercial reserves are found, exploration and evaluation assets are tested for impairment and transferred to development
assets. No depreciation and/or amortisation is charged during the exploration and evaluation phase.
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.
The excess amount over the carrying value of the asset is recognised as a gain on disposal of exploration and evaluation assets in the
statement of profit or loss.
(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%
statistical probability that the actual quantity of recoverable reserves will be more than the amount estimated as proven and probable
reserves and a 50% 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
The Group assesses at each reporting date whether there is an indication that an asset (or CGU) may be impaired. In assessing
whether an impairment is required, the carrying value of the asset or CGU is compared with its recoverable amount. The recoverable amount
is the higher of the asset’s/CGU’s fair value less costs of disposal (FVLCD) and value in use (VIU). Given the nature of the Group’s
activities, information on the fair value of an asset is usually difficult to obtain unless negotiations with potential purchasers or similar
transactions are taking place. Consequently, unless indicated otherwise, the recoverable amount used in assessing the impairment
charges described below is VIU. The Group estimates VIU using a discounted cash flow model.
In order to discount the future cash flows the Group calculates asset or 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 all CGUs, 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 using a risk-free rate, and is re-assessed 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.
122
Tullow Oil plc
2022 Annual Report and Accounts
Accounting policies continuedYear ended 31 December 2022 (p) Property, plant and equipment – non-oil and gas assets
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) Borrowing costs
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 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.
UK PRT refunds are included in the income statement and is taxable for UK corporation tax.
(t) Pensions
Contributions to the Group’s defined contribution pension schemes are charged to operating profit on an accrual 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.
Tullow Oil plc
2022 Annual Report and Accounts
123
Financial statementsSupplementary informationStrategic ReportGovernance Report (u) Derivative financial instruments continued
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; and
- 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.
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.
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.
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. In an event of a repayment of the liability component, the original equity component is transferred to
retained earnings.
124
Tullow Oil plc
2022 Annual Report and Accounts
Accounting policies continuedYear ended 31 December 2022 (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 substantially 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
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, in case of
Joint operation, 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, or applying the unit of production method, 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.
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, and leases of low-value assets with a value of $5,000.
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.
Tullow Oil plc
2022 Annual Report and Accounts
125
Financial statementsSupplementary informationStrategic ReportGovernance Report (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 overleaf.
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 2022, 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.
Impairment of trade and joint venture 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 Management assessment the credit loss in trade receivables and joint venture receivable as at
31 December 2022 would be immaterial; therefore, in line with IFRS 9, no impairment was recognised (2021: $nil).
In order to minimise the risk of default, credit risk is managed on a Group basis (note 18).
(z) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, demand deposits and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
(aa) 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.
126
Tullow Oil plc
2022 Annual Report and Accounts
Accounting policies continuedYear ended 31 December 2022 (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 2022 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.
Offsetting of financial instruments:
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position
if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to
realise the assets and settle the liabilities simultaneously.
(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) 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 insurance policies are recorded within profit and loss with corresponding cost for replacement asset as additions to
property, plant and equipment. Insurance proceeds are recognised at the point when the realisation of income is virtually certain.
(ae) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that
an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation.
Onerous contracts
If the Group has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision.
However, before a separate provision for an onerous contract is established, the Group recognises any impairment loss that has
occurred on assets dedicated to that contract.
An onerous contract is a contract under which the unavoidable costs (i.e., the costs that the Group cannot avoid because it has the
contract) of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable
costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any
compensation or penalties arising from failure to fulfil it. The cost of fulfilling a contract comprises the costs that relate directly to
the contract (i.e., both incremental costs and an allocation of costs directly related to contract activities).
Tullow Oil plc
2022 Annual Report and Accounts
127
Financial statementsSupplementary informationStrategic ReportGovernance Report (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 9)
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 exist 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.
Details on impact of these key estimates using sensitivities applied to impairment models can be found in note 9.
The most material area where judgement was applied during 2022 was in the assessment of the value in use (VIU) of the Kenyan CGU
and assessing the likelihood of recovery of the net book value of the asset. A trigger for potential impairment reversal was identified
following the Group’s increase in long-term oil price assumption resulting in an increase in the underlying value of the project. Due to
the stage of this project being pre-final investment decision (FID) and only having 2C resources booked, the VIU assessment required
estimation and judgement in a number of different aspects including oil prices differentials, uncontracted cost profiles and certain
fiscal terms. Furthermore, the Group has identified the following estimation uncertainties, which require judgement, in respect to the
Group’s ability to realise the estimated VIU; receiving an acceptable offer from a strategic partner, obtaining financing for the project
and government deliverables. These items require satisfactory resolution before the Group can take FID. Due to the binary nature of
these uncertainties the Group was unable to either adjust the cash flows or discount rate appropriately. It has therefore used its
judgement and assessed the probability of achieving FID and therefore the recognition of commercial reserves.
This probability was applied to the VIU to determine a risk adjusted VIU and compared against the net book value of the asset.
Based on this there is no impairment or impairment reversal as at 31 December 2022. Should the uncertainties around the project
be resolved there will be a reversal of previously recognised impairment. However, if the uncertainties are not resolved there will
be an impairment of $253 million.
Lease accounting (note 19)
Discount rate
The Group has assessed 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 external borrowings with a consortium of lenders, these are considered
the best reference for the incremental borrowing rate for the Group. The weighted average cost of those borrowings is considered
to the Group's 'all in rate', at the lease commencement date if the interest rate implicit in the lease is not readily determinable. As at
31 December 2022, the Group's incremental borrowing rate was 9.82%.
Determination of the lease term
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. 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. For leases relating to Joint Venture operations
where there is an option to extend, the Group will only proceed after it has received Joint Venture approval to extend. At the inception
of new leases in relation to joint arrangements they do not include any period covered by an extension option in the lease term
because they cannot be reasonably certain that approval from the other venturers can be obtained. The majority of extension and
termination options held are exercisable only by the Group and not by the respective lessor.
Fair valuation of additional interest acquired in Ghana assets (note 15)
The additional interest acquired in the Ghana assets has been recorded at fair value as required under IFRS 3. The property, plant and
equipment acquired through the business combination has been recognised at the fair value based on the net present value of the
discounted future cash flows. Significant inputs to the valuation include short- and long-term commodity prices, reserve estimates,
production volume profiles, planned development expenditure, cost profiles and discount rates, and are consistent with those applied
by the management when testing assets for impairments.
128
Tullow Oil plc
2022 Annual Report and Accounts
Accounting policies continuedYear ended 31 December 2022 (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 10)
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, 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 annually by Management and 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 remaining recoverable reserves and the proportion of the gross reserves which are attributable to host governments
under the terms of the Production Sharing Contracts. Future development costs are estimated taking into account the level of
development required to produce the reserves by reference to operators, where applicable, and internal engineers.
Net entitlement reserves estimates are subsequently calculated using the current oil price and cost recovery assumptions, in line with
the relevant agreements. Changes in reserves as a result of factors such as production cost, recovery rates, grade of reserves or oil
and gas prices could impact the depletion rates, carrying value of assets (refer to the Commercial Reserves and Contingent Resources
Summary on page 176).
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 2022 Financial Statements
should Management have concluded differently.
Details on the impact of these key estimates and judgements using sensitivity applied to impairment models can be found in note 10.
Uncertain tax treatments
The Group is subject to various material claims which arise in the ordinary course of its business in various jurisdictions, including cost
recovery claims, claims from regulatory bodies and both corporate income tax and indirect tax claims. The Group is in formal dispute
proceedings regarding a number of these tax claims. The resolution of tax positions, through negotiation with the relevant tax authorities
or litigation, can take several years to complete. In assessing whether these claims should be provided for in the Financial Statements,
Management has considered them in the context of the applicable laws and relevant contracts for the countries concerned. 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.
Due to the uncertainty of such tax items, it is possible that on conclusion of an open tax matter at a future date the outcome may differ
significantly from Management’s estimate. If the Group was unsuccessful in defending itself from all of these claims, the result would
be additional liabilities of $1,024.0 million (2021: $1,025.5 million) which includes $32.4 million of interest and penalties (2021: $33.6 million).
Provisions of $106.4 million (2021: $127.9 million) are included in income tax payable ($70.6 million (2021: $34.1 million)), deferred tax
liability ($nil (2021:41.0 million)), and provisions ($35.8 million (2021: $52.8 million)). Where these matters relate to expenditure which is
capitalised within Intangible Exploration and Evaluation Assets and Property, Plant and Equipment, any difference between the amounts
accrued and the amounts settled is capitalised within the relevant asset balance, subject to applicable impairment indicators. Where
these matters relate to producing activities or historical issues, any differences between the accrued and settled amounts are taken to
the group income statement.
The provisions and contingent liabilities relating to these disputes have decreased following the conclusion of tax authority challenges
and matters lapsing under the statute of limitations, but have increased, following new claims being initiated and extrapolation of
exposures through to 31 December 2022, giving rise to an overall decrease in provision of $21.5 million and decrease in contingent liability
of $1.5 million.
Tullow Oil plc
2022 Annual Report and Accounts
129
Financial statementsSupplementary informationStrategic ReportGovernance Report (ag) Key sources of estimation uncertainty continued
Ghana tax assessments
In October 2021, Tullow Ghana Limited (TGL) filed a Request for Arbitration with the International Chamber of Commerce (“ICC”)
disputing the $320 million branch profits remittance tax (BPRT) assessment issued as part of the direct tax audit for the financial
years 2014 to 2016. The Ghana Revenue Authority (GRA) is seeking to apply BPRT under a law which the Group considers is not
applicable to TGL, since it falls outside the tax regime provided for in the Petroleum Agreements and relevant double tax treaties.
The parties have agreed a procedural timetable for the arbitration under which the first Tribunal hearing will be held in October 2023.
In December 2022, TGL received a $190.5 million corporate income tax assessment and payment demand from the GRA relating to the
disallowance of loan interest for the financial years 2010 to 2020. The Group has previously disclosed assessments by the GRA relating
to the same issue; this revised assessment supersedes all previous claims. The Group considers the assessment to breach TGL’s
rights under its Petroleum Agreements. In February 2023, TGL filed a Request for Arbitration with the ICC, disputing the assessment
with the suspension of TGL’s obligation to pay any amount in relation to the assessment until the dispute is formally resolved.
In December 2022, TGL received a $196.5 million corporate income tax assessment and payment demand from the GRA relating to
proceeds received by Tullow during the financial years 2016 to 2019 under Tullow’s corporate Business Interruption Insurance policy.
The Group considers the assessment to breach TGL’s rights under its Petroleum Agreements. In February 2023, TGL filed a Request for
Arbitration to the ICC, disputing the assessment with the suspension of TGL’s obligation to pay any amount in relation to the
assessment until the dispute is formally resolved.
The Group continues to engage with the Government of Ghana with the aim of resolving all tax disputes on a mutually acceptable basis.
Bangladesh litigation
The National Board of Revenue (NBR) is seeking to disallow $118 million of tax relief in respect of development costs incurred by Tullow
Bangladesh Limited (TBL). The NBR subsequently issued a payment demand to TBL in February 2020 for Taka 3,094 million (c.$37 million)
requesting payment by 15 March 2020. However, under the Production Sharing Contract (PSC), the Government is required to
indemnify TBL against all taxes levied by any public authority, and the share of production paid to Petrobangla (PB), Bangladesh’s
national oil company, is deemed to include all taxes due which PB is then obliged to pay to the NBR. TBL sent the payment demand
to PB and the Government requesting the payment or discharge of the payment demand under their respective PSC indemnities.
On 14 June 2021, TBL issued a formal notice of dispute under the PSC to the Government and PB. A further request for payment was
received from NBR on 28 October 2021 demanding settlement by 15 November 2021. Arbitration proceedings were initiated under
the PSC on 29 December 2021. A procedural hearing was held on 28 June 2022 which set the timetable for the process going forward.
The first submissions have been made in October 2022 with the first Tribunal hearing scheduled for May 2024.
Other items
Other items totalling $280.0 million (2021: 547.5 million) comprise exposures in respect of claims for corporation tax in respect of
disallowed expenditure or withholding taxes that are either currently under discussion with the tax authorities or which arise in
respect of known issues for periods not yet under audit.
Timing of cash flows
While it is not possible to estimate the timing of tax cash flows in relation to possible outcomes with certainty, Management
anticipates that there will not be material cash taxes paid in excess of the amounts provided for uncertain tax treatments.
130
Tullow Oil plc
2022 Annual Report and Accounts
Accounting policies continuedYear ended 31 December 2022 Notes to the Group Financial Statements
Year ended 31 December 2022
Note 1. Segmental reporting
The information reported to the Group’s Chief Executive Officer for the purposes of resource allocation and assessment of segment
performance is focused on four Business Units – Ghana, Non-operated producing assets including Uganda and decommissioning assets,
Kenya and Exploration. Therefore, the Group’s reportable segments under IFRS 8 are Ghana, Non-operated, Kenya and Exploration.
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 2022 and 31 December 2021.
2022
Sales revenue by origin
Segment result1
Other provisions²
Gain on bargain purchase
Other gains and losses
Unallocated corporate expenses³
Operating profit
Gain on hedging instruments
Finance income
Finance costs
Profit before tax
Income tax expense
Profit after tax
Total assets
Total liabilities⁴
Other segment information
Capital expenditure:
Property, plant and equipment
Intangible exploration and evaluation assets
Depletion, depreciation and amortisation
Impairment of property, plant and equipment, net
Exploration costs written off
Ghana
$m
Non-Operated
$m
Kenya
$m
Exploration
$m
Corporate
$m
Total
$m
1,578.5
524.0
–
–
(319.4)
1,783.1
692.5
337.3
(0.5)
(102.6)
(337.5)
589.2
(4.1)
196.8
3.1
(51.1)
733.9
0.8
42.9
(335.5)
442.1
(393.0)
49.1
3,827.7
380.6
265.6
46.0
519.7
5,039.6
(2,220.5)
(401.6)
(14.1)
(4.6)
(2,858.3)
(5,499.1)
342.9
0.9
(362.1)
(380.6)
(0.9)
26.9
(1.7)
(52.7)
(10.6)
1.8
–
(2.1)
(1.3)
–
(0.5)
–
42.1
–
–
(105.6)
0.9
–
(9.7)
–
–
370.7
39.2
(425.8)
(391.2)
(105.2)
1. Segment result is a non-IFRS measure which includes gross profit, exploration costs written off and impairment of property, plant and equipment. See reconciliation below.
2. This is included within the Restructuring costs and other provisions in the Group Income Statement.
3. Unallocated expenditure include amounts of a corporate nature and not specifically attributable to a geographic area.
4. Total liabilities – Corporate comprise of the Group’s external debt and other non-attributable liabilities.
Reconciliation of segment result
Segment result
Add back:
Exploration costs written off
Impairment of property, plant and equipment
Gross profit
2022
$m
2021
Restated 1
$m
589.2
532.3
105.2
391.2
1,085.6
59.9
54.3
646.5
1. Revenue from crude oil sales has been restated following a revision to the Group's accounting policy. This resulted in an increase to revenue for the year ended
31 December 2022 of $21.4 million (2021: $12.2 million), and a corresponding increase to income tax expense. Refer to note 6.
Tullow Oil plc
2022 Annual Report and Accounts
131
Financial statementsSupplementary informationStrategic ReportGovernance Report
Note 1. Segmental reporting continued
All sales are made to external customers. Included in revenue arising from Ghana and Non-Operated segments are revenues of
approximately $696.9 million, $566.1 million, $310.9 million and $242.3 million relating to the Group’s customers who each contribute more
than 10% of total sales revenue (2021: 329.6 million, $256.9 million, $151.1 million and $145.2 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. Payment terms are
typically 30 days from the bill of lading.
Ghana
$m
Non-Operated
$m
Kenya
$m
Exploration
$m
Corporate
$m
Total
$m
2021
Sales revenue by origin – restated6
Segment result1- restated6
Other provisions²
Gain on disposal
Unallocated corporate expenses³
Operating profit
Finance income
Finance costs
Profit before tax
Income tax expense - restated6
Loss after tax
1,020.4
469.8
6.6
417.9
298.7
–
–
–
(13.2)
–
(152.9)
1,285.4
(70.5)
–
(165.7)
(52.1)
532.3
(58.7)
120.3
(67.2)
526.7
44.3
(356.1)
214.9
(295.6)
(80.7)
Total assets – restated6
4,283.8
501.2
264.6
122.3
368.8
5,540.6
Total liabilities⁴ – restated6
(2,529.3)
(478.9)
(18.0)
(12.8)
(2,967.7)
(6,006.7)
Other segment information
Capital expenditure:
Property, plant and equipment
Intangible exploration and evaluation assets⁵
Depletion, depreciation and amortisation
Impairment of property, plant and equipment, net
Exploration costs written off⁵
99.6
1.2
(334.5)
(119.1)
(1.2)
43.9
(11.8)
(28.8)
64.8
11.8
–
8.2
(1.4)
–
–
–
48.8
(0.1)
–
(70.5)
4.6
–
(14.1)
–
–
148.1
46.3
(378.9)
(54.3)
(59.9)
1. Segment result is a non-IFRS measure which includes gross profit, exploration costs written off and impairment of property, plant and equipment. See reconciliation below.
2. This is included within the Restructuring costs and other provisions in the Group Income Statement.
3. Unallocated expenditure include amounts of a corporate nature and not specifically attributable to a geographic area.
4. Total liabilities – Corporate comprise of the Group’s external debt and other non-attributable liabilities.
5. Non-operated segment includes release of $15.3 million indirect tax provision following settlement.
6. Segment revenue and segment result allocation between the reportable segments have been restated to correct a prior period error arising from incorrect classification
of loss on realisation of the cash flow hedges within reportable segments. Total balances have remained unchanged.
The allocation for the year ended 31 December 2021 increased revenue for Ghana and Non-Operated by $109.8 million and $43.1 million, respectively, whilst the hedging
loss of $152.9 million was allocated to Corporate.
Total assets and total liabilities allocation between the reportable segments have been restated to correct a prior period error arising from incorrect classification of tax
assets and liabilities within reportable segments. The above balances have been restated by:
Total assets – increase/(decrease)
Total liabilities – (increase)/decrease
Ghana
$m
Non-Operated
$m
Kenya
$m
Exploration
$m
Corporate
$m
(35.1)
(32.0)
5.4
(11.2)
(6.0)
6.0
(22.0)
24.0
57.8
13.2
Total
$m
–
–
In addition, revenue from crude oil sales has been restated following a revision to the Group's accounting policy. This resulted in an increase to revenue for the year
ended 31 December 2022 of $21.4 million (2021: $12.2 million), and a corresponding increase to income tax expense. Refer to note 6.
132
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022
Note 1. Segmental reporting continued
Sales revenue and non-current assets by origin
Ghana
Total Ghana
Kenya
Total Kenya
Argentina
Côte d’Ivoire
Guyana
Total Exploration
Gabon
Côte d’Ivoire
Equatorial Guinea1
Total Non-Operated
Corporate
Total
Sales
revenue
2022
$m
1,578.5
1,578.5
Sales
revenue
2021
Restated2
$m
1,020.4
1,020.4
–
–
–
–
–
–
477.0
47.0
–
524.0
–
–
–
–
–
–
312.6
46.2
59.1
417.9
(319.4)
(152.9)
Non-current
assets3
2022
$m
Non-current
assets3
2021
$m
3,087.4
3,087.4
258.5
258.5
33.6
2.4
–
36.0
132.6
59.2
–
191.8
23.4
3,131.3
3,131.3
261.7
261.7
30.4
–
69.1
99.5
148.7
81.4
–
230.1
35.6
1,783.1
1,285.4
3,597.1
3,758.3
1. The disposal of Equatorial Guinea was completed in March 2021 (refer to note 8).
2. Segment revenue allocation between the reportable segments has been restated to correct a prior period error arising from incorrect classification of loss on realisation
of the cash flow hedges within reportable segments. Total balances have remained unchanged. The allocation for the year ended 31 December 2021 increased revenue
for Ghana and Non-Operated by $109.8 million and $43.1 million, respectively, whilst the hedging loss of $152.9 million was allocated to Corporate.
In addition, Revenue from crude oil sales has been restated following a revision to the Group's accounting policy. For the year ended 31 December 2022, this resulted in
an increase to revenue in Côte d’Ivoire of $3.2 million and Gabon of $18.2 million (2021: $5.5 million and $6.7 million, respectively), and a corresponding increase to
income tax expense. Refer to note 6.
3. Non-current assets exclude derivative financial instruments and deferred tax assets.
Note 2. Total revenue
Revenue from contracts with customers
Revenue from crude oil sales1
Total revenue from contracts with customers
Loss on realisation of cash flow hedges
Total revenue
2022
$m
2021
Restated1
$m
2,102.5
2,102.5
(319.4)
1,438.4
1,438.4
(153.0)
1,783.1
1,285.4
1. Revenue from crude oil sales has been restated following a revision to the Group's accounting policy. This resulted in an increase to revenue for the year ended
31 December 2022 of $21.4 million (2021: $12.2 million), and a corresponding increase to income tax expense. Refer to note 6.
Finance income has been presented as part of net financing costs (refer to note 5).
Note 3. Staff costs
The average annual number of employees employed by the Group worldwide was:
Administration
Technical
Total
2022
Number
2021
Number
182
194
376
192
186
378
Tullow Oil plc
2022 Annual Report and Accounts
133
Financial statementsSupplementary informationStrategic ReportGovernance Report
Note 3. Staff costs continued
Staff costs in respect of those employees were as follows:
Salaries
Social security costs
Pension costs
Redundancy costs
Total staff costs
2022
$m
66.3
7.0
5.3
0.1
78.7
2021
$m
64.3
10.4
5.2
3.1
83.0
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 costs recognised in the income statement were $10.5 million (2021: $23.8 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 $5.3 million (2021: $5.2 million).
Details of Directors’ remuneration, Directors’ transactions and Directors’ interests are set out in the part of the Directors’ Remuneration
Report described as having been audited, which forms part of these Financial Statements.
Note 4. Other costs
Operating profit is stated after charging/(deducting):
Operating costs
Depletion and amortisation of oil and gas and leased assets1
Underlift, overlift and oil stock movements
Royalties
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
Other administrative costs
Total administrative expenses
Total restructuring costs and other provisions2
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
2022
$m
2021
$m
10
23
23
10
266.5
410.7
(46.3)
61.7
0.4
4.4
697.5
5.4
15.1
30.5
51.0
4.2
2.1
0.6
2.7
0.5
1.0
–
1.5
4.2
268.7
360.9
(20.0)
40.5
0.5
(11.7)
638.9
11.1
18.0
35.0
64.1
61.8
1.6
0.8
2.4
0.5
0.4
0.1
1.0
3.6
1. Depreciation expense on leased assets of $60.9 million as per note 10 includes a charge of $3.9 million on leased administrative assets, which is presented within
administrative expenses in the income statement. The remaining balance of $57.0 million relates to other leased assets and is included within cost of sales.
2. This includes restructuring and redundancy costs of $0.1 million (2021: $3.1 million) as well as movements in other provisions of $4.1 million (2021: $58.7 million).
134
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 4. Other costs continued
Fees payable to Ernst & Young 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.
Corporate finance services are in relation to Class 1 Disposal. Non-audit services were 55% of audit services during the year.
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 63 to 68. 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
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 income
Total finance income
Net financing costs
Note 6. Taxation on profit on continuing activities
Current tax on profits for the year
UK corporation tax
Foreign tax
Taxes paid in kind under production sharing contracts
Adjustments in respect of prior periods
Total corporate tax
UK petroleum revenue tax
Total current tax
Deferred tax
Origination and reversal of temporary differences
UK corporation tax
Foreign tax
Adjustments in respect of prior periods
Total deferred corporate tax
Deferred UK petroleum revenue tax
Total deferred tax
Total income tax expense
Notes
19
20
19
2022
$m
250.4
76.4
326.8
0.3
2.4
6.0
335.5
(29.6)
(13.3)
(42.9)
292.6
2021
$m
243.0
83.4
326.4
19.1
3.0
7.6
356.1
(38.8)
(5.5)
(44.3)
311.8
Notes
2022
$m
2021
Restated 1
$m
(11.8)
321.0
21.4
(3.3)
327.3
(2.8)
324.5
11.4
54.0
(2.9)
62.5
6.0
68.5
393.0
(19.2)
162.2
12.2
(3.3)
151.9
(1.2)
150.7
18.1
80.3
43.8
142.2
2.7
144.9
295.6
21
1.
Income tax expense has been restated following a revision to the Group's accounting policy. The revenue from certain Production Sharing Contracts in Gabon and
Côte d’Ivoire is now presented gross of corporate income taxes deemed to have been paid as part of the Government's share of profit oil. This has resulted in an increase
to revenue for the year ended 31 December 2022 of $21.4 million (2021: $12.2 million), and a corresponding increase to income tax expense. This change has been
implemented to more accurately represent the income taxes suffered by the Group on its profits in Gabon and Côte d’Ivoire and to be more comparable with other
entities in the sector.
Tullow Oil plc
2022 Annual Report and Accounts
135
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 6. Taxation on profit on continuing activities continued
The tax rate applied to profit on continuing activities in preparing the reconciliation below is the UK corporation tax rate applicable to
the Group’s UK profits. The difference between the total income tax expense shown above and the amount calculated by applying the
standard rate of UK corporation tax applicable to UK profits of 19% (2021: 19%) to the profit before tax is as follows:
Profit from continuing activities before tax
Tax on profit from continuing activities at the standard UK corporation tax rate of 19% (2021: 19%)
Effects of:
Non-deductible exploration expenditurea
Other non-deductible expenses
Deferred tax asset not recognisedb
Utilisation of tax losses not previously recognised
Adjustment relating to prior yearsc
Other tax rates applicable outside the UK
Other income not subject to corporation tax
Tax impact of acquisition through business combination (note 15)
2022
$m
442.1
84.0
0.5
27.8
138.5
(0.4)
(6.2)
214.6
(0.1)
(65.7)
2021
Restated
$m
214.9
40.8
8.5
13.3
94.4
(0.1)
40.4
118.3
(20.0)
–
Total income tax expense for the year
393.0
295.6
a.
b.
c.
Includes recurring explorations costs written off where there is no deferred tax impact.
Includes hedging losses and interest expense.
Includes movements in provisions in respect of uncertain tax treatments.
The Finance Act 2021 sets the Corporation Tax main rate at 19% for the financial year beginning 1 April 2022 and at 25% for the financial
year beginning 1 April 2023. These changes were enacted on 10 June 2021 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%) and Gabon convention fields (50%), Gabon PSC fields (35%) and CDI PSC (25%). Furthermore, there is no tax
benefit arising on net interest and hedging expense in the UK. Accordingly, the Group’s tax charge will continue to vary according to
the jurisdictions in which pre-tax profits arise.
The Group has tax losses of $4,237.4 million (2021: $5,400.0 million) that are available for offset against future taxable profits in the
companies in which the losses arose. Deferred tax assets have not been recognised in respect of losses of $4,128.9 million
(2021: $4,749.7 million) as it is not sufficiently probable that there will be future taxable profits against which these losses can be utilised.
The Group has recognised deferred tax assets of $35.8 million (2021: $222.0 million) in relation to tax losses only to the extent of
anticipated future taxable income or gains in relevant jurisdictions. The Group has suffered these losses in either the current or
preceding period in the tax jurisdiction to which the deferred tax asset relates. The tax losses can be carried forward indefinitely.
There are no temporary differences 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 2022 nil tax expense (2021: $2.8 million of tax credit) has been recognised through other comprehensive income.
136
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 7. 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 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 were converted into ordinary shares.
Profit/ (loss) for the year
Net profit attributable to equity shareholders
Effect of dilutive potential ordinary shares
Diluted net earnings/ (loss) attributable to equity shareholders
Number of shares
Basic weighted average number of shares
Dilutive potential ordinary shares
Diluted weighted average number of shares
2022
$m
49.1
–
49.1
2022
Number
2021
$m
(80.7)
–
(80.7)
2021
Number
1,437,099,966
1,418,378,706
48,375,409
45,708,796
1,485,475,375
1,464,087,502
Note 8. Asset disposals
On 31 March 2021, the Group completed the sale of its assets in Equatorial Guinea with a cash consideration received of $88.9 million.
This transaction included contingent future payments of up to $16.0 million which are linked to asset performance and oil price.
As per the SPA, a further $5.0 million of additional consideration was also received on completion of Dussafu Marin Permit in Gabon.
On 9 June 2021, the Group completed the asset sale of Dussafu Marin Permit in Gabon with a cash consideration received of $39.0 million.
This transaction included contingent future payments of up to $24.0 million which are linked to asset performance and oil price.
Given Tullow no longer holds interest in the above assets, based on publicly available information the Company has assessed that the
asset performance condition is not met. Accordingly, no contingent consideration has been recognised as of 31 December 2022.
Book value of assets disposed
Property, plant and equipment
Inventories
Other current assets
Total assets disposed
Trade and other payables
Provisions
Current tax liabilities
Deferred tax liabilities
Total liabilities disposed
Net (liabilities)/ assets disposed
Cash consideration
Transaction costs
Gain on disposal1
Equatorial
Guinea
$m
Dussafu
$m
Total
$m
124.9
10.1
70.2
205.2
(54.6)
(122.9)
(13.6)
(17.8)
52.0
3.2
1.7
56.9
(18.5)
(4.7)
–
–
(23.2)
(208.9)
33.7
39.0
(0.3)
5.0
(3.7)
132.8
(11.3)
125.2
72.9
6.9
68.5
148.3
(36.1)
(118.2)
(13.6)
(17.8)
(185.7)
(37.4)
93.8
(11.0)
120.2
1.
In 2021, in addition to $125.2 million gain on disposals recognised following the Equatorial Guinea and Dussafu disposals, the Group recognised a loss of $5.1 million
relating to its sale of Dutch assets to Hague and London Oil plc (HALO) in 2017, and a gain of $0.2 million relating to other transactions during the period which resulted
in an overall gain of $120.3 million. No gain on disposals was recognised for the year ended 31 December 2022.
Tullow Oil plc
2022 Annual Report and Accounts
137
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 8. Asset disposals continued
Uganda
Contingent asset
During 2020, the Group completed the disposal of its interest in Uganda for upfront cash consideration of $500.0 million, with
$75.0 million due on FID and contingent future payments linked to oil prices. Given the existing uncertainties around the project,
management has concluded that the conditions for recognition of an asset associated with contingent consideration under IFRS 15
were not met as of 31 December 2022.
Note 9. Intangible exploration and evaluation assets
At 1 January
Additions1
Amounts written off
At 31 December
1.
In Kenya, proceeds from Early Oil Pilot Scheme (EOPS) cargo sales of $6.9 million have been recorded as a credit against capital expenditure.
The below table provides a summary of the exploration costs written off on a pre tax basis by country.
2022
$m
354.6
39.2
(105.2)
288.6
2021
$m
368.2
46.3
(59.9)
354.6
Country
Guyana
Guyana
Côte d’Ivoire
New Ventures
Other
Total write-off
CGU
Kanuku
Orinduik
Block 524
Various
Various
a. Unsuccessful well costs written off.
b. Licence relinquishments, expiry, planned exit or reduced activity.
c. Current year expenditure on assets previously written off.
d. New Ventures expenditure is written off as incurred.
Rationale for
2022
write-off
2022
write-off
$m
2022
Remaining
recoverable
amount
$m
a, b
b
c
d
75.3
22.4
3.1
3.0
1.4
105.2
–
–
–
–
–
–
In Kenya, the Group had received a 15-month licence extension from September 2020 to December 2021 which was contingent on certain
conditions, including submission of a technically and commercially compliant Field Development Plan (FDP). On 10 December 2021,
Tullow and its Joint Venture Partners submitted an FDP to the Government of Kenya and fulfilled its licence obligations. The Group
expects a production licence to be granted once due Government process has been completed.
Since 1 January 2022, there have been ongoing discussions with the Government of Kenya on approval of the FDP and securing
government deliverables. An updated FDP was submitted on 3rd of March and is being reviewed by the Government of Kenya before
ratification by the Kenyan Parliament. In addition, the Company continues to progress with the farm down process.
In line with its accounting policy, the Group has performed a VIU assessment of the Kenya asset following identification of triggers for
impairment and impairment reversal. This resulted in an NPV significantly in excess of the book value of $252.6 million. However, the
Group has identified the following estimation uncertainties in respect to the Group’s ability to realise the estimated VIU; receiving and
subsequently finalising an acceptable offer from a strategic partner and securing governmental approvals relating thereto, obtaining
financing for the project and government deliverables. These items require satisfactory resolution before the Group can take a Final
Investment Decision. Due to the binary nature of these uncertainties the Group was unable to either adjust the cash flows or discount
rate appropriately. It has therefore used its judgement and assessed a probability of achieving FID and therefore the recognition of
commercial reserves. This probability was applied to the VIU to determine a risk adjusted VIU and compared against the net book
value of the asset. Based on this there is no impairment or impairment reversal as at 31 December 2022. The cash flows in the VIU
assessment were discounted using a pre- tax nominal r discount rate of 20%. Refer to note 10 for oil price assumptions.
138
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 9. Intangible exploration and evaluation assets continued
Should the uncertainties around the project be resolved, there will be a reversal of a previously recorded impairment. However, if
the uncertainties are not resolved there will be an additional impairment of $252.6 million. A reduction or increase in the two-year
forward curve of $5/bbl, based on the approximate range of annualised average oil price over recent history, and a reduction or
increase in the medium and long-term price assumptions of $5/bbl, based on the range of annualised average historical prices, are
considered to be reasonably possible changes for the purposes of sensitivity analysis. Decreases to oil prices specified above would
result in an impairment charge of $31.6 million, whilst increases to oil prices specified above would result in an impairment reversal of
$35.2 million. A 1% change in the pre-tax discount rate would result in an impairment charge of $34.2 million. The Group believes a 1%
change in the pre-tax discount rate to be a reasonable possibility based on historical analysis of the Group’s and a peer group of
companies’ impairments. Refer to Note 26 for Net Zero Emission scenarios.
Country
Suriname
Uganda
Gabon
Peru
Côte d’Ivoire
Other
Total write-off
CGU
Blocks 47 and 62
Exploration areas 1,1A, 2 and 3A
Tchatamba
Licences Z67 and Z68
Block 520
Various
a. Current year expenditure on assets previously written off.
b. Licence relinquishments, expiry, planned exit or reduced activity.
c. Release of indirect tax provision following settlement.
d. Unsuccessful well costs written off.
Note 10. Property, plant and equipment
Rationale for
2021
write-off
2021
write-off
$m
2021
Remaining
recoverable
amount
$m
b,d
c
d
b
b
a
58.9
(15.3)
2.2
1.8
6.6
5.7
59.9
–
–
–
–
–
–
–
2022
Oil and gas
assets
$m
2022
Other fixed
assets
$m
2022
Right of use
assets
$m
Notes
2022
Total
$m
2021
Oil and gas
assets
$m
2021
Other fixed
assets
$m
2021
Right of use
assets
$m
2021
Total
$m
Cost
At 1 January
Additions
Acquisitions1
Transfer2
Asset retirement
Currency translation
adjustments
At 31 December
Depreciation, depletion,
amortisation and impairment
At 1 January
Charge for the year
Impairment loss
Capitalised depreciation
Asset retirement
Currency translation
adjustments
1
15
15
4
10,521.7
305.2
473.2
–
–
(117.5)
11,182.6
(8,263.7)
(353.7)
(391.2)
–
–
69.5
2.0
–
–
(38.1)
(3.4)
30.0
(53.8)
(11.2)
–
–
38.1
1,091.7
63.5
–
86.6
(41.7)
11,682.9
370.7
473.2
86.6
(79.8)
–
(3.3)
(124.2)
(11.5)
1,196.8
12,409.4
10,521.7
(450.8)
(60.9)
–
(46.1)
41.7
(8,768.3)
(425.8)
(391.2)
(46.1)
79.8
(7,915.9)
(304.9)
(54.3)
–
–
10,460.2
73.0
69.6
1.6
1,018.6
73.5
11,548.4
148.1
(1.4)
(0.3)
69.5
(42.3)
(13.4)
–
–
1.4
–
(1.4)
(0.4)
(12.2)
1,091.7
11,682.9
(352.3)
(60.6)
–
(38.0)
–
(8,310.5)
(378.9)
(54.3)
(38.0)
1.4
120.2
2.5
0.9
123.6
11.4
0.5
0.1
12.0
At 31 December
(8,888.4)
(24.4)
(515.2)
(9,428.0)
(8,263.7)
(53.8)
(450.8)
(8,768.3)
Net book value at 31 December
2,294.2
5.6
681.6
2,981.4
2,258.0
15.7
640.9
2,914.6
1. This relates to an acquisition through business combination discussed in Note 15.
2. As a result of Ghana pre-emption a proportionate amount has been reclassified from receivables due from joint venture partners to right of use assets relating to the
Group’s existing interest in lease contracts in the joint operation.
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.
Tullow Oil plc
2022 Annual Report and Accounts
139
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 10. Property, plant and equipment continued
During 2022 and 2021 the Group applied the following nominal oil price assumptions for impairment assessments:
2022
2021
Year 1
$84/bbl
$76/bbl
Year 2
$79/bbl
$71/bbl
Year 3
$70/bbl
$68/bbl
Year 4
Year 5
Year 6 onwards
$70/bbl
$65/bbl
$70/bbl
$70/bbl inflated at 2%
$65/bbl
$65/bbl inflated at 2%
Limande and Turnix CGU (Gabon)
Tchatamba (Gabon)
Oba and Middle Oba CGU (Gabon)
Echira, Niungo and Igongo (Gabon)
TEN (Ghana)
Mauritania
UK CGU
Impairment
a. Change to decommissioning estimate.
b. Revision of value based on revisions to reserves
Trigger for
2022
impairment/
(reversal)
2022
Impairment/
(reversal)
$m
Pre-tax
discount rate
assumption
2022
Remaining
recoverable
amount d
$m
a
a
a
a
b
a
a,c
(1.6)
(1.3)
(0.4)
(1.4)
380.6
12.8
2.5
391.2
15%
15%
17%
17%
13%
n/a
n/a
44.6
38.0
11.8
8.6
931.7
–
–
c. The fields in the UK are grouped into one CGU as all fields within those countries share critical gas infrastructure.
d. The remaining recoverable amount of the asset is its value in use.
Impairments identified in the TEN fields of $380.6 million were primarily due to lower 2P reserves partially offset by oil price assumptions.
Oil prices stated above are benchmark prices to which an individual field price differential is applied. All impairment assessments are
prepared on a VIU basis using discounted future cash flows based on 2P reserves profiles. A reduction or increase in the two-year
forward curve of $5/bbl, based on the approximate range of annualised average oil price over recent history, and a reduction or
increase in the medium and long-term price assumptions of $5/bbl, based on the range of annualised average historical prices, 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 $131.4 million for Ghana and increase the impairment by $19.2 million for Non-Operated, whilst
increases to oil prices specified above would result in a credit to the impairment charge of $122.0 million for Ghana and no change to
Non-Operated. A 1% change in the pre-tax discount rate would increase the impairment by $33.0 million for Ghana and increase the
impairment by $2.9 million for Non-Operated. The Group believes a 1% change in the pre-tax discount rate to be a reasonable
possibility based on historical analysis of the Group’s and peer group of companies’ impairments.
For Net Zero Emissions sensitivities refer to Note 26.
Limande and Turnix CGU (Gabon)
Ezanga (Gabon)
Oba and Middle Oba CGU (Gabon)
Espoir (Côte d’Ivoire)
TEN (Ghana)
Mauritania
UK CGU
Impairment
Trigger for
2021
impairment/
(reversal)
2021
Impairment/
(reversal)
$m
Pre tax
discount rate
assumption
a,c
a,c
a,c
a,c
a,b,c
b
b,d
(40.8)
(17.0)
(3.2)
(8.7)
119.1
2.1
2.8
54.3
13%
15%
15%
10%
10%
n/a
n/a
2021
Remaining
recoverable
amount
$m
50.8
22.4
10.5
81.4
1,171.4
–
–
a.
Increase to short, medium and long-term oil price assumptions.
b. Change to decommissioning estimate.
c. Revision of value based on revisions to reserves.
d. The fields in the UK are grouped into one CGU as all fields within those countries share critical gas infrastructure.
e. The remaining recoverable amount of the asset is its value in use.
140
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 10. Property, plant and equipment continued
Impairments identified in the TEN fields of $119.1 million were primarily due to lower TEN 2P reserves and higher capital expenditure
partially offset by price and lower decommissioning costs. This is offset by impairment reversals mainly in Gabon of $61.1 million and
Espoir of $8.7 million as a result of higher oil prices and higher 2P reserves.
Oil prices stated above are benchmark prices to which an individual field price differential is applied. All impairment assessments are
prepared on a VIU basis using discounted future cash flows based on 2P reserves profiles. A reduction or increase in the two-year
forward curve of $5/bbl, based on the approximate range of annualised average oil price over recent history, and a reduction or increase
in the medium and long-term price assumptions of $5/bbl, based on the range of annualised average historical prices, 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 $157.7 million for Ghana and reduce the impairment reversal by $12.4 million for Non-Operated, whilst increases
to oil prices specified above would result in a credit to the impairment charge of $157.7 million for Ghana and increase the impairment
reversal by $1.3 million for Non-Operated. A 1% increase in the pre-tax discount rate would increase the impairment by $40.7 million
for Ghana and reduce the impairment reversal by $3.3 million for Non-Operated. The Group believes a 1% change in the pre-tax
discount rate to be a reasonable possibility based on historical analysis of the Group’s and peer group of companies’ impairment.
Note 11. Other assets
Non-current
Amounts due from Joint Venture Partners
VAT recoverable
Current
Amounts due from Joint Venture Partners
Underlifts
Prepayments
Other current assets
Notes
2022
$m
2021
$m
19
19
323.3
3.8
327.1
452.3
76.2
31.3
8.1
567.9
895.0
486.0
3.1
489.1
554.7
26.7
49.6
73.5
704.5
1,193.6
The decrease in non-current receivables from JV Partners compared to December 2021 mainly relates to reduction in time remaining
on the TEN FPSO lease, net decrease in GNPC (Ghana National Petroleum Corporation) receivable and reduction in partner share
following Ghana pre-emption.
The movement in current receivables from JV Partners relates mainly to timing of partner balances and reduction in partner share
following Ghana pre-emption.
The decrease in other current assets compared to 2021 is mainly due to a collection of the deferred consideration relating to the
Uganda disposal in March 2022 ($67.9 million net ).
Note 12. Inventories
Warehouse stock and materials
Oil stock
2022
$m
69.1
112.5
181.6
2021
$m
55.5
79.3
134.8
The increase in oil stock is associated with the timing of liftings of the Group's share of crude oil around period end.
Note 13. Trade receivables
Trade receivables comprise amounts due for the sale of oil. 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.
The balance of trade receivables as at 31 December 2022 of $26.8 million (2021:$99.8 million) mainly relates to oil sales in Gabon for
liftings between September and December 2022. The December Jubilee (Ghana) sale was settled before 31 December 2022.
Tullow Oil plc
2022 Annual Report and Accounts
141
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 14. Cash and cash equivalents
Cash at bank
Short-term deposits and other cash equivalents
Notes
2022
$m
305.3
331.0
636.3
2021
$m
226.1
243.0
469.1
Cash and cash equivalents includes an amount of $74.7 million (2021: $92.4 million) which the Group holds as operator in Joint Venture
bank accounts. Included within cash at bank is $7.0 million (2021: $0.8 million) held in restricted bank accounts. This mainly consists
of $4.5 million held as security for performance bonds relating to work commitments on exploration licences.
Note 15. Business combination
On 17 March 2022 the Group completed the pre-emption related to the sale of Occidental Petroleum’s (“Oxy”) interests in the Jubilee
and TEN fields in Ghana to Kosmos Energy. As a result of this acquisition, the Group’s interest in the TEN fields increased from 47.18%
to 54.84%, and from 35.48% to 39.0% in the Jubilee field. Tullow did not obtain control as a result of this transaction, as all joint venture
partners retain joint control.
The total purchase consideration, which was funded from cash on the balance sheet, comprises of $118.2 million cash settled on
completion, and $8.6 million subsequent post-completion adjustment paid in May 2022. There is no element of contingent
consideration included in the purchase price.
The fair values of the identifiable assets and liabilities acquired were:
Property, plant and equipment
Inventories
Other current assets
Total assets acquired
Trade and other payables
Provisions
Deferred tax liabilities
Total liabilities assumed
Net identifiable assets acquired
Purchase consideration transferred
Deemed settlement of provision
Gain on bargain purchase
Fair value
recognised on
acquisition
$m
473.2
12.1
31.4
516.7
(10.5)
(61.6)
(143.6)
(215.5)
301.0
(126.8)
22.6
196.8
There were no acquisitions in the year ended 31 December 2021.
The property, plant and equipment acquired through the business combination has been recognised at the fair value based on the net
present value of the discounted future cash flows. Significant inputs to the valuation include short- and long-term commodity prices,
reserve estimates, production volume profiles, planned development expenditure, cost profiles and discount rates, and are consistent
with those applied by the management when testing assets for impairments.
The fair value of acquired other receivables is nil. The gross contractual amount for other receivables due is $0.9 million, with a loss
allowance of $0.9 million recognised on acquisition.
The deferred tax liability mainly comprises the tax effect of the accelerated depreciation for tax purposes of tangible assets.
Contingent liabilities recognised in a business combination
A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the
higher of the amount that would be recognised in accordance with the requirements for provisions as per IAS 37 “Provisions,
Contingent Liabilities and Contingent Assets”, or the amount initially recognised less (when appropriate) cumulative amortisation
recognised in accordance with the requirements for revenue recognition.
142
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 15. Business combination continued
As part of the pre-emption Tullow has taken on pro-rated exposure relating to Anadarko WCTP Company’s (“Anadarko”) BPRT and AOE
disputed claims. In February 2018, Anadarko, whom Oxy acquired the interests from, received a provisional assessment for AOE for
US$346.6 million, including a penalty of $329.5 million, (the portion of this claim related to Tullow’s acquired interests was $67.2
million) covering financial years 2006 – 2016 and in November 2018 the Ministry of Finance confirmed that the assessment was
suspended pending the Government reaching a final view on the basis for calculating AOE. Anadarko continued to dispute the AOE
assessment issued and considered no AOE was payable for these periods. In September 2021, Anadarko received a revised tax audit
report from the Ghana Revenue Authority (GRA) for the financial years 2014 to 2018 including a $228.3 million branch profits remittance
tax (BPRT) assessment (including late payment interest of $52.1 million) (the portion of this claim related to Tullow’s acquired interests
was $67.1 million). The Anadarko BPRT assessment is covered by a Notice of Dispute issued in June 2020.
A contingent liability at fair value of $36.8 million was recognised at the acquisition date for provisions resulting from certain
contractual indemnities. There was no change in provision as at 31 December 2022.
Revenue and net profit contribution
The acquired business contributed revenues of $133.2 million and net profit of $19.6 million to the Group for the period from 17 March 2022
to 31 December 2022. If the acquisition had occurred on 1 January 2022, the consolidated pro-forma revenues would have been
$169.2 million higher and the consolidated pro-forma profit for the period ended 31 December 2022 would have been higher by $11.4 million.
These amounts have been calculated using the acquired interest’s results and adjusting them for the additional depreciation and
amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment had applied from
1 January 2022, together with the consequential tax effects.
Acquisition-related costs
Acquisition-related costs of $0.6 million are included in administrative expenses in the statement of profit or loss and in operating
cash flows in the statement of cash flows.
Recognition of gain on bargain purchase
The difference between the fair value of net assets acquired and consideration paid was recognised within the income statement
as gain on bargain purchase of $196.8 million. This is mostly due to the change in the oil markets from 2021, when the transaction
between Occidental Petroleum and Kosmos Energy was negotiated to March 2022, when the acquisition was completed by Tullow.
The consideration paid by Tullow for the acquired interest was based on the proportionate consideration agreed between Occidental
Petroleum and Kosmos Energy, subject to completion adjustments. Additionally, the original transaction between the two parties was
driven by the seller’s intention to leave the region and dispose of the non-core elements of the portfolio which it had acquired from
Anadarko Petroleum in August 2019.
Note 16. Trade and other payables
Current liabilities
Trade payables
Other payables
Overlifts
Accruals¹
Current portion of lease liabilities
1. Accruals mainly relate to capital expenditure, interest expense on bonds and staff-related expenses.
Non-current liabilities
Other non-current liabilities¹
Non-current portion of lease liabilities
Notes
19
Notes
19
2022
$m
68.4
51.4
–
379.3
251.2
750.2
2022
$m
47.1
732.9
780.0
2021
$m
60.2
57.4
0.7
381.3
251.5
751.1
2021
$m
75.2
911.9
987.1
1. Other non-current liabilities include balances related to JV Partners.
Trade and other payables are non-interest bearing except for leases (note 19).
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 11). The change in trade payables and in other payables
predominantly represents timing differences and levels of work activity.
The decrease in non-current portion of lease liabilities mainly relates to reduction in time remaining on the TEN FPSO lease.
Tullow Oil plc
2022 Annual Report and Accounts
143
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 17. Borrowings
Current
Borrowings – within one year
10.25% Senior Secured Notes due 2026
Non-current
Borrowings – after one year but within five years
7.00% Senior Notes due 2025
10.25% Senior Secured Notes due 2026
Carrying value of total borrowings
2022
$m
2021
$m
100.0
100.0
2022
$m
100.0
100.0
2021
$m
792.8
1,580.0
2,372.8
2,472.8
792.1
1,676.6
2,468.7
2,568.7
The Group’s capital structure includes $1.7bn Senior Secured Notes (2026 Notes), $800 million Senior notes due 2025 (2025 Notes) and
a $500 million Super Senior Revolving Credit Facility (SSRCF) which will primarily be used for working capital purposes.
The 2026 Notes, maturing in May 2026, require an annual prepayment of $100 million, in May, of the outstanding principal amount plus
accrued and unpaid interest, with the balance due on maturity.
On 16 May 2022, the Group made the annual prepayment of $100 million of the 2026 Notes, which reduced total debt to $2.5 billion.
The 2025 Notes are due in a single payment in March 2025.
The SSRCF, maturing in December 2024, comprises of (i) a $500 million revolving credit facility and (ii) a $100 million letter of
credit facility. The revolving credit facility remains undrawn as at 31 December 2022. Letters of credit amounting to $44 million
(2021: $20 million) have been issued under the facility.
Unamortised debt arrangement fees for the 2026 Notes, 2025 Notes and the SSRCF are $20.0 million, $7.0 million and $4.8 million respectively.
The 2026 Notes and the SSRCF are senior secured obligations of Tullow Oil Plc and are guaranteed by certain of the subsidiaries
of the Group.
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. The Group monitors capital on the basis of the gearing, being net debt divided by adjusted
EBITDAX, and maintains a policy target of less than 1x.
SSRCF covenants
The SSRCF does not have any financial maintenance covenants. Availability under the $500 million cash tranche of the facility is
determined on an annual basis with reference to the Net Present Value of the 2P reserves of the Group (2P NPV) at the end of the
preceding calendar year. SSRCF debt capacity is calculated as 2P NPV divided by 1.1x less senior secured debt outstanding.
144
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022
Note 17. Borrowings continued
2025 Notes and 2026 Notes covenants
The 2025 Notes and the 2026 Notes are subject to customary high yield covenants including limitations on debt incurrence, asset
sales and restricted payments such as prepayments of junior debt and dividends.
Key covenants in the current business cycle are considered to be those related to debt incurrence and restricted payments.
For definitions of the capitalised terms used in the following paragraphs please refer to the offering memorandum of the 2025 Notes
and/or the 2026 Notes.
Tullow is permitted to incur additional debt if the ratio of Consolidated Cash Flow to Fixed Charges for the previous 12 months is at
least 2.25 times on a pro forma basis.
Tullow is permitted to incur secured debt if the 2P Reserves Coverage Ratio is at least 2.0 times on a pro forma basis.
Subject to certain conditions, Tullow is permitted to incur debt to refinance the 2025 Notes on a like for like basis, i.e. subordinated to
the 2026 Notes.
Tullow would be permitted to make payments towards the 2025 Notes amounting to the greater of $100 million per year and 50% of the
Consolidated Net Income of the Company for the period from 1 January 2021 to the end of the most recently completed fiscal half-year
for which internal financial statements are available if, after giving pro forma effect to the payment(s) if the 2P Reserves Coverage
Ratio is equal to or greater than 1.5 times.
Tullow would be permitted to make payments towards the 2025 Notes amounting to the greater of $100 million per year, 50% of the
Consolidated Net Income of the Company for the period from 1 January 2021 to the end of the most recently completed fiscal half-year
for which internal financial statements are available and 100% of Consolidated Cash Flow per year if the 2P Reserves Coverage Ratio is
equal to or greater than 2.0 times and the Consolidated Leverage Ratio is less than 1.5 times.
The Company or its affiliates may, at any time and from time to time, seek to retire or purchase outstanding debt through cash
purchases and/or exchanges, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or
exchanges, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market
conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Note 18. Financial instruments
Financial risk management objectives
The Group’s Corporate Treasury function provides services to the business, coordinates access to international financial markets,
monitors and manages the financial risks relating to the operations of the Group through internal management reports which analyse
exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and price risk),
credit risk and liquidity risk.
The Group seeks to minimise the effects of these risks by using derivative financial instruments to hedge these risk exposures, if deemed
appropriate. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors. Compliance with
policies and exposure limits are monitored and reviewed internally on a regular basis. The Group does not enter into or trade financial
instruments, including derivatives, for speculative purposes.
Financial assets
Financial assets at amortised cost
Trade receivables
Amounts due from Joint Venture Partners
Cash and cash equivalents
Financial liabilities
Liabilities at amortised cost
Trade payables
Other payables
Borrowings
Lease liabilities
Derivative financial instruments
Used for hedging
2022
$m
2021
$m
26.8
775.6
636.3
1,438.7
115.4
430.7
2,472.8
984.1
99.8
1,040.7
469.1
1,609.6
135.2
439.4
2,568.7
1,163.4
244.2
179.9
4,247.3
4,486.6
Tullow Oil plc
2022 Annual Report and Accounts
145
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 18. Financial instruments continued
Fair values of financial assets and liabilities
With the exception of the 2026 Notes and the 2025 Notes, 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 2026 Notes and 2025 Notes as determined using market
value at 31 December 2022, was $1,364.8 million (2021: $1,814.2 million) and $490.0 million (2021: $661.0 million) respectively. These are
compared to their carrying value of $1,680.0 million (2021: $1,776.7 million) and $792.9 million (2021: $792.1 million). The 2026 Notes and
the 2025 Notes are categorised as level 1 in the fair value hierarchy.
The Group has no material financial assets that are past due. No material financial assets are impaired at the balance sheet date.
All financial assets and liabilities with the exception of derivatives are measured at amortised cost.
Fair values of derivative instruments
All derivatives are recognised at fair value on the balance sheet with valuation changes recognised immediately in the income
statement, unless the derivatives have been designated as a cash flow hedge. Fair value is the amount for which the asset or liability
could be exchanged in an arm’s-length transaction at the relevant date. Where available, fair values are determined using quoted
prices in active markets. To the extent that market prices are not available, fair values are estimated by reference to market-based
transactions, or using standard valuation techniques for the applicable instruments and commodities involved.
The Group’s derivative carrying and fair values were as follows:
Assets/liabilities
Cash flow hedges
Oil derivatives
Deferred premium
Oil derivatives
Total assets
Total liabilities
2022
Less than
1 year
$m
(162.1)
(162.1)
2022
1–3
years
$m
(49.7)
(49.7)
2022
Total
$m
(211.8)
(211.8)
(24.2)
(8.2)
(32.4)
–
–
–
2021
Less than
1 year
$m
(56.7)
(56.7)
(24.3)
(24.3)
–
2021
1–3
years
$m
(66.5)
(66.5)
(32.4)
(32.4)
–
2021
Total
$m
(123.2)
(123.2)
(56.7)
(56.7)
–
(186.3)
(57.9)
(244.2)
(81.0)
(98.9)
(179.9)
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 (2021: 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 re-assessing 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.
146
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 18. Financial instruments continued
Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount is 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 2022
Derivative assets
Derivative liabilities
31 December 2021
Derivative assets
Derivative liabilities
Gross
amounts
offset
in Group
balance
sheet
$m
Net amounts
presented
in Group
balance
sheet
$m
–
–
–
(244.2)
Gross
amounts
offset
in Group
balance
sheet
$m
(0.2)
0.2
Net amounts
presented
in Group
balance
sheet
$m
–
(179.9)
Gross
amounts
recognised
$m
–
(244.2)
Gross
amounts
recognised
$m
0.2
(180.1)
Commodity price risk
The Group uses a number of derivatives to mitigate the commodity price risk associated with its underlying oil revenue. Such
commodity derivatives tend to be priced using benchmarks, such as Dated Brent, which correlate as far as possible to the underlying
oil revenue. There is an economic relationship between the hedged items and the hedging instruments due to a common underlying,
i.e. Dated Brent, between them. Forecast oil sales, which are based on Dated Brent, are hedged with options which have Dated Brent
as reference price. An increase in Dated Brent will cause the value of the hedged item and hedging instrument to move in opposite
directions. The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the commodity
derivatives is identical to the hedged risk components. To test the hedge effectiveness, the Group uses the hypothetical derivative
method and compares the changes in the fair value of the hedging instruments against the changes in fair value of the hedged items
attributable to the hedged risks. The Group hedges its estimated oil revenues on a portfolio basis, aggregating its oil revenues from
substantially all of its African oil interests.
As at 31 December 2022 and 31 December 2021, all of the Group’s oil derivatives have been designated as cash flow hedges. The Group’s
oil hedges have been assessed to be highly effective.
Financial risk management is adopted centrally for the Group. The Group adopts a risk component hedging strategy. This results from
designating the variability in all the cash flows attributable to the change in the benchmark price per the oil sales contracts where the
critical terms of the hedged item and hedging instrument match.
The following table demonstrates the timing, volumes and average floor price protected for the Group’s commodity hedges:
Hedging position as at 31 December 2022
Oil volume (bopd)
Average floor price protected ($/bbl)
Hedging position as at 31 December 2021
Oil volume (bopd)
Average floor price protected ($/bbl)
2023
33,095
55.0
2024
11,305
55.0
2022
2022
42,462
51.37
33,095
55.00
Tullow Oil plc
2022 Annual Report and Accounts
147
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 18. Financial instruments continued
The following table demonstrates the hedge position as at 31 December 2022:
2023 hedge position at 31 December 2022
Hedge structure
Collars
Zero cost dollars
Straight Puts
Total/weighted average
2024 hedge position at 31 December 2022
Hedge structure
Collars
Total/weighted average
Bopd
Bought put
(floor)
33,095
–
–
$55.00
–
–
Sold call
$74.62
–
–
33,095
$55.00
$74.62
Bopd
Bought put
(floor)
11,305
11,305
$55.00
$55.00
Sold call
$74.63
$74.63
Bought
call
–
–
–
–
Bought
call
–
–
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 2022
25%
(25%)
2022
$m
(464.4)
–
2021
$m
(416.2)
41.1
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.
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
2022
$m
(150.3)
(94.4)
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
Revaluation (losses)/gains arising in the year
Movement in current and deferred tax
At 31 December
2022
$m
(39.3)
288.5
(399.5)
–
(110.8)
(150.3)
2021
$m
(39.5)
(146.7)
2021
$m
4.8
112.3
(159.1)
2.7
(44.3)
(39.3)
148
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 18. Financial instruments continued
Hedge reserve summary
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 arising in the year
Movement in current and deferred tax
At 31 December
Reconciliation to sales revenue
Oil derivatives – transferred to sales revenue
Deferred premium paid
Net losses/(gain) from commodity derivatives in sales revenue (note 2)
2022
$m
(146.9)
30.8
21.7
–
52.5
(94.4)
2022
$m
288.5
30.8
319.3
2021
$m
(5.4)
40.7
(182.3)
0.1
(141.5)
(146.9)
2021
$m
112.3
40.7
153.0
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. During part of the financial year 2021, the Group was exposed to interest rate risk as it borrowed funds at both fixed and
floating interest rates. Following the debt refinancing in May 2021, all of the Group’s borrowings are fixed interest bearing. The Super
Senior Revolving Credit Facility is based on floating interest rates and remains undrawn as at 31 December 2022.
Fixed rate debt comprises 2025 Notes and 2026 Notes.
The interest rate profile of the Group’s financial assets and liabilities, excluding trade and other receivables and trade and other
payables, at 31 December 2022 and 2021, was as follows:
US$
Euro
Sterling
XAF
Other
2022
Cash and cash
equivalents
$m
578.1
0.3
16.3
38.8
2.8
2022
Fixed rate
debt
$m
(2,500.0)
–
–
–
–
2022
Total
$m
(1,921.9)
0.3
16.3
38.8
2.8
636.3
(2,500.0)
(1,863.7)
2021
Cash and cash
equivalents
$m
376.2
1.3
85.4
6.2
469.1
2021
Fixed rate
debt
$m
(2,600.0)
–
–
–
–
(2,600.0)
2021
Total
$m
(2,223.8)
1.3
85.4
–
6.2
(2,130.9)
Cash and cash equivalents consisted of $230.7 million (2021: $159.9 million) of deposits which earn interest at rates set in advance for
periods ranging from overnight to three months by reference to market rates.
The sensitivity of the Group’s financial instruments to reasonably possible movements in interest rates is considered not material.
Tullow Oil plc
2022 Annual Report and Accounts
149
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 18. Financial instruments continued
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 Group limits its counterparty credit risk on cash and cash equivalent balances by dealing only
with financial institutions with credit ratings of at least A or equivalent.
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 SSRCF. 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 2022 was $1,438.7 million (2021: $1,609.6 million).
Foreign currency risk
The Group conducts and manages its business predominantly in US dollars, the functional currency of the industry in which it operates.
The Group also purchases the functional currencies of the countries in which it operates routinely on the spot market. From time to
time the Group undertakes transactions denominated in other currencies arising from certain operating and capital expenditure
incurred in currencies other than US dollars; these exposures are often managed by executing foreign currency financial derivatives.
There were no foreign currency financial derivatives in place as at 31 December 2022 (2021: 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 2022, the only material monetary assets or liabilities of the Group that were not denominated in the functional
currency of the respective subsidiaries involved were $58.1 million in non-US dollar-denominated cash and cash equivalents
(2021: $46.9 million).
The following table demonstrates the sensitivity of the Group’s financial instruments to reasonably possible movements in US dollar
exchange rates:
US$/foreign currency exchange rates
US$/foreign currency exchange rates
Effect on profit before tax
Effect on equity
Market movement
20%
(20%)
2022
$m
9.7
(14.5)
2021
$m
(7.8)
11.7
2022
$m
9.7
(14.7)
2021
$m
(7.8)
11.7
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. The Group had $1.1 billion (2021: $0.9 billion) of total facility headroom and free cash as at
31 December 2022.
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.
150
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 18. Financial instruments continued
Foreign currency risk continued
Weighted
average
effective
interest rate
Less than
1 month
$m
1–3
months
$m
3 months
to 1 year
$m
31 December 2022
Non-interest bearing
Lease liabilities
Fixed interest rate instruments
Principal repayments
Interest charge
Total
31 December 2021
Non-interest bearing
Lease liabilities
Fixed interest rate instruments
Principal repayments
Interest charge
Total
n/a
7.1%
9.7%
Weighted
average
effective
interest rate
n/a
7.1%
9.7%
1–5
years
$m
47.0
746.3
5+
years
$m
–
10.5
Total
$m
166.8
1,066.4
2,400.0
464.0
–
–
2,500.0
689.0
548.5
3,657.3
10.5
4,422.2
93.5
27.3
–
–
120.8
–
57.1
–
28.0
85.1
26.3
225.2
100.0
197.0
Less than
1 month
$m
1–3
months
$m
3 months
to 1 year
$m
1–5
years
$m
71.9
44.4
–
–
116.3
18.6
52.7
–
28.0
99.3
26.0
217.2
100.0
207.0
550.2
71.3
950.3
2,500.0
689.0
4,210.6
5+
years
$m
5.7
16.4
Total
$m
193.5
1,281.0
–
–
2,600.0
924.0
22.1
4,998.5
Note 19. 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
Right-of-use assets (included within property, plant and equipment) and lease liabilities
Property leases
Oil and gas production and support equipment leases
Transportation equipment leases
Total
Current
Non-current
Total
Right-of-use assets
Lease liabilities
31 December
2022
$m
31 December
2021
$m
31 December
2022
$m
31 December
2021
$m
39.2
639.0
3.4
681.6
34.8
599.2
6.9
640.9
34.6
942.4
7.1
984.1
251.2
732.9
984.1
41.0
1,107.3
15.1
1,163.4
251.5
911.9
1,163.4
Additions to the right-of-use assets during the 2022 financial year were $63.5 million. Refer to note 10.
For ageing of lease liabilities, refer to note 18.
The Group’s leases balance includes TEN FPSO, classified as Oil and gas production and support equipment. As at 31 December 2022, the
present value of the TEN FPSO right-of-use asset was $596.9 million (2021: $561.6 million). The increase during the year is due to
additional interest in the FPSO following Ghana pre-emption, offset by the depreciation charge.
The present value of the TEN FPSO gross lease liability was $847.9 million (2021: $1,012.8 million).
A receivable from the Joint Venture Partners of $330.1 million (2021: $478.8 million) was recognised in other assets (note 11) to reflect
the value of future payments that will be met by cash calls from partners relating to the TEN FPSO lease. The present value of the
receivable from the Joint Venture Partners unwinds over the expected life of the lease and the unwinding of the discount is reported
within finance income.
Following discussions with the Joint Venture Partners, Tullow remeasured the Espoir FPSO lease liability to align the accounting
with the plan of the partnership to exercise the option to purchase the FPSO in March 2023 for a gross consideration of $20.0 million
($4.7 million net). This resulted in a decrease in the lease liability as at 31 December 2022 to $6.6 million (2021: $13.2 million), and the
in right of use asset to $nil (2021: $3.6 million) resulting in a gain on the lease remeasurement of $3.1 million recorded as Other gains
and losses in the income statement.
Tullow Oil plc
2022 Annual Report and Accounts
151
Financial statementsSupplementary informationStrategic ReportGovernance Report
Note 19. Leases continued
i) Amounts recognised in the balance sheet continued
On 2 April 2021, the Group contracted Maersk Venturer offshore drilling rig to undertake the drilling work programme for Jubilee and
TEN fields in Ghana. As at 31 December 2022, Tullow carries right-of-use assets of $31.2 million (2021: $25.8 million), and gross lease
liability of $64.9 million (2021: $59.9 million) as Tullow entered the lease on behalf of the Joint Venture. A receivable from Joint Venture
Partners of $32.0 million (2021: $33.0 million) has been recognised in other assets to reflect the value of future payments that will be
met by cash calls from the Joint Venture Partners. The lease was initially recognised for an 18-month term, in line with the early
termination option included in the contract and approvals received by the partners. In July 2022 the contract was extended for a
12-month term ending September 2023.
Carrying amounts of the lease liabilities and joint venture leases receivables and the movements during the period:
At 1 January 2021
Additions and changes in lease estimates
Payments/ (receipts)
Interest (expense)/income
At 1 January 2022
Additions and changes in lease estimates
Acquisitions1
Payments/ (receipts)
Interest (expense)/income
Currency translation adjustments
At 31 December 2022
1. This relates to an acquisition through business combination discussed in Note 15.
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
Total
Interest expense on lease liabilities (included in finance cost)
Interest income on amounts due from Joint Venture Partners
Expense relating to short-term leases
Expense relating to leases of low-value assets
Total
The total net cash outflow for leases in 2022 was $203.8 million (2021: $155.9 million).
Lease
liabilities
$m
(1,216.5)
(161.9)
298.3
(83.3)
(1,163.4)
(89.4)
–
342.0
(76.4)
3.1
984.1
Joint
Venture lease
receivables
$m
541.0
93.7
(142.4)
38.7
531.0
40.2
(86.6)
(138.2)
29.6
–
376.1
Total
$m
(675.5)
(68.2)
155.9
(44.6)
(632.4)
(49.2)
(86.6)
203.8
(46.8)
3.2
608.0
31 December
2022
$m
31 December
2021
$m
14.0
46.9
60.9
76.4
(29.6)
2.0
1.8
111.5
7.8
52.8
60.6
83.4
(38.8)
7.8
1.0
114.0
152
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 20. Provisions
Decommissioning
2022
$m
Notes
Other
provisions
2022
$m
Total
2022
$m
Decommissioning
2021
$m
Other
provisions
2021
$m
Total
2021
$m
At 1 January
New provisions, changes in estimates and
reclassifications
Acquisitions1
Payments
Unwinding of discount
Currency translation adjustment
15
5
At 31 December
Current provisions
Non-current provisions
498.7
228.8
727.5
696.1
154.6
850.7
(47.6)
24.8
(72.1)
6.0
(11.6)
398.1
87.7
310.4
(19.7)
36.8
(127.3)
–
(2.3)
116.3
11.1
105.2
(67.3)
61.6
(199.4)
6.0
(13.9)
514.4
98.8
415.6
(134.8)
–
(69.3)
7.6
(0.9)
498.7
101.2
397.5
90.0
–
(15.7)
–
(0.1)
228.8
195.3
33.5
(44.8)
–
(85.0)
7.6
(1.0)
727.5
296.5
431.0
1. This relates to an acquisition through business combination discussed in note 15.
Other provisions include non-income tax provisions of $68.3 million (2021: $52.8 million) and $48.0 million (2021: $176.0 million) of
disputed cases and claims. Management estimates non-current other provisions would fall due between two and five years.
Non-Current other provisions mainly relates to Bangladesh litigation. Refer to Uncertain Tax Treatments in Accounting Policies.
This also includes a provision relating to a potential claim arising out of historical contractual agreement. Further information is not
provided as it will be seriously prejudicial to the Company’s interest.
On 15 February 2022, an arbitration panel delivered an award against Tullow in respect to a historic contractual dispute in Norway
related to the acquisition of Spring Energy Norway AS (Spring) from HiTecVision V (HiTec). The Tribunal decided by way of split
decision that conditions under the Spring SPA in respect of the bonus payment had been met. The Tribunal ruled that Tullow should
pay $76 million to HiTec (an amount which includes interest and costs) and a further amount of $0.7 million in respect of Tribunal
costs. This balance was provided for as at 31 December 2021 and was settled in March 2022.
The decommissioning provision represents the present value of decommissioning costs relating to the European and African oil and
gas interests. The Group has assumed cessation of production as the estimated timing for outflow of expenditure. However expenditure
could be incurred prior to cessation of production or after and actual timing will depend on a number of factors including, underlying
cost environment, availability of equipment and services and allocation of capital.
In 2022, the Group has increased the decommissioning discount rate by 1.5-2% from 31 December 2021 due to movement in the risk-free
rate. This resulted in a decrease of the provision by $39.5 million in Ghana, $15.6 million in Côte d’Ivoire and $12.1 million in Gabon.
Côte d’Ivoire
Gabon
Ghana
Mauritania
UK
Inflation
assumption1
Discount
rate
assumption
2022
2%
2%
2%
n/a
n/a
3.5%
3.5%
3.5%
n/a
n/a
Cessation of
production
assumption
2022
2035
2025-2037
2036
2018
2018
Total
2022
$m
Discount rate
assumption
2021
Cessation of
production
2021
45.6
49.2
190.2
56.0
57.1
398.1
1.5%
2033
1.5-2% 2026-2036
1.5-2% 2035-2036
2018
2018
n/a
n/a
Total
2021
$m
61.7
61.9
193.3
61.6
120.2
498.7
1. Short term inflation rate assumption has increased from 2% to 4.7% in 2023 and to 2.5% in 2024. Medium and long-term rates of 2% remained unchanged from
31 December 2021.
The Group's decommissioning activities are ongoing in the UK and Mauritania and majority of the future costs is expected to be
incurred in 2023 ($87.4 million). The remaining activities are planned to continue through to 2027, with an associated expenditure
of $25.7 million.
Tullow Oil plc
2022 Annual Report and Accounts
153
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 21. Deferred taxation
Accelerated
tax
depreciation
$m
Decommissioning
$m
Other
temporary
differences
$m
Provision for
onerous
service
contracts
$m
Deferred
petroleum
revenue tax
$m
At 1 January 2021
Credit/(charge) to income statement
Transfer to disposals
Exchange differences
At 1 January 2022
Credit/(charge) to income statement
Acquired through business combination
(note 15)
Exchange differences
At 31 December 2022
(645.7)
46.8
0.6
–
(598.3)
184.0
(143.6)
(0.2)
(558.1)
Deferred tax liabilities
Deferred tax assets
Tax
losses
$m
335.7
(113.8)
–
–
221.9
(186.1)
–
–
105.6
(16.5)
(0.2)
(0.1)
88.8
(22.9)
–
–
(8.4)
(58.7)
0.7
–
(66.4)
(32.6)
–
–
21.7
–
–
–
21.7
(5.9)
–
–
65.9
35.8
(99.0)
15.8
Total
$m
(179.0)
(144.9)
1.1
(0.1)
(322.9)
(68.5)
(143.6)
(2.0)
(537.0)
2021
$m
(677.3)
354.4
(322.9)
12.1
(2.7)
–
–
9.4
(5.0)
–
(1.8)
2.6
2022
$m
(551.5)
14.5
(537.0)
The majority of the Group's deferred tax assets and liabilities are expected to be recovered over more than one year.
Deferred tax assets are recognised only to the extent it is considered probable that those assets will be recoverable. This involves
an assessment of when those deferred tax assets are likely to reverse, and a judgement as to whether or not there will be sufficient
taxable profits available to offset the tax assets when they do reverse. This requires assumptions regarding future profitability and is
therefore inherently uncertain. To the extent assumptions regarding future profitability change, there can be an increase or decrease
in the level of deferred tax assets recognised which can result in a charge or credit in the period in which the change occurs.
Note 22. Called-up equity share capital and share premium account
Allotted equity share capital and share premium
Ordinary shares of 10p each
At 1 January 2021
Issued during the year
Exercise of share options
At 1 January 2022
Issued during the year
Exercise of share options
At 31 December 2022
The Company does not have a maximum authorised share capital.
Equity share capital
allotted and fully paid
Share premium
Number
$m
$m
1,414,071,777
211.7
1,294.7
18,008,320
1,432,080,097
7,525,898
1,439,605,995
2.5
214.2
1.0
215.2
–
1,294.7
–
1,294.7
154
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 23. Share-based payments
Analysis of share-based payment charge
Tullow Incentive Plan
Employee Share Award Plan
2022 PDME Buyout Award
2021 Tullow Sharesave Plan
Expensed to operating costs
Expensed as administrative cost
Total share-based payment charge
Notes
4
4
2022
$m
3.9
1.2
0.5
0.2
5.8
0.4
5.4
5.8
2021
$m
8.1
3.0
0.5
–
11.6
0.5
11.1
11.6
The national insurance liability as at 31 December 2022 was $1.6 million (2021:$1.3 million)
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 TIP Awards
since 2018 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 73 to 97.
The weighted average remaining contractual life for TIP awards outstanding at 31 December 2022 was 4.9 years.
Employee Share Award Plan (ESAP)
Most Group employees are eligible to be granted nil exercise price options, that are 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 ESAP awards granted
since 2018 it was agreed 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 2022 was 6.7 years.
2010 Share Option Plan (2010 SOP)
Participation in the 2010 SOP 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.
Phantom options, providing a cash bonus equivalent to the gain that could be made from a share option, have also been granted under
the 2010 SOP in situations where the grant of share options was not practicable.
Outstanding options under the SOP at 31 December 2022 had exercise prices of 900p to 1,039p (2021: 900p to 1,294p) and remaining
contractual lives between 53 days and 219 days. The weighted average remaining contractual life is 0.3 years.
2020 PDMR Buyout Awards
On 5 August 2020, the Company granted the new Chief Executive Officer a number of Buyout Awards following the commencement
of their employment in order to compensate them for certain share arrangements forfeited upon leaving their former employer. The
grant of the awards was conditional on the CEO purchasing shares in the Company with a value of £350,000 (the ‘Purchased Shares’).
These awards will vest after five years from the date of joining subject to continued service and the retention of the Purchased Shares.
The awards comprise: a restricted share award in the form of a nil-cost option over 3,000,000 shares; a share option over 3,000,000
shares with a per share exercise price of £0.2566 (being equal to the market value of a share at the close of trading on the dealing date
immediately following the date on which the Purchased Shares were acquired); and a share option over 3,000,000 shares with a per
share exercise price of £0.5132 (being twice the exercise price for the above options).
The awards will ordinarily vest on 1 July 2025 and if they remain unexercised will expire on 1 July 2030. There are further details of the
2020 PDMR Buyout Awards in the Remuneration Report on pages 73 to 97.
The weighted average remaining contractual life for the PDMR Buyout Awards outstanding at 31 December 2022 was 7.5 years.
Tullow Oil plc
2022 Annual Report and Accounts
155
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 23. Share-based payments continued
2021 Tullow Sharesave Plan (SAYE)
UK based employees are eligible to participate in the SAYE scheme introduced in 2021. These are standard statutory HMRC approved
‘Save as you earn’ awards. To participate in the SAYE, employees choose how much money of their net salary to save each month
(subject to certain limits) for a period of three years. At the end of the period employees are entitled to purchase share using the funds
they have saved at a price 20% below the market price on the day before the invitation date. Alternatively, they can elect to take back
all their savings as cash. Only employees who remain in service and continue to pay monthly contributions will be eligible to purchase
shares. If they leave employment or choose to stop paying contributions before the end of the three-year period they will be refunded
the amount they have saved.
Outstanding SAYE awards at 31 December 2022 had exercise prices of 38p to 40p and remaining contractual lives between 2.4 years
and 3.4 years. The weighted average remaining contractual life is 2.8 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).
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, ESAP, 2010 SOP, 2020 buyout and SAYE.
2022 TIP –
2022 TIP –
2021 TIP –
2021 TIP –
2022 ESAP –
2022 ESAP –
2021 ESAP –
2021 ESAP –
2022 SOP –
2022 SOP –
2021 SOP –
2021 SOP –
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
WAEP
number of shares
WAEP
2022 Buyout Awards – number of shares
2022 Buyout Awards – WAEP
2021 Buyout Awards – number of shares
2021 Buyout Awards – WAEP
2022 SAYE –
2022 SAYE –
2021 SAYE –
2021 SAYE –
number of options
WAEP
number of options
WAEP
Outstanding
as at
1 January
Granted
during
the year
Exercised
during
the year
Forfeited/
expired during
the year
Outstanding
at
31 December
Exercisable
at
31 December
21,740,803
8,076,264
4,529,667
433,152 24,854,248
3,014,253
105.3
28,116,828
49.1
2,488,749
211.6
8,191,155
64.4
673,619
68.4
21,740,803
220.0
2,054,238
133.0
60.5
188.8
81.8
105.3
191.2
17,638,898
3,556,316
2,803,974
1,061,163
17,330,077
4,613,422
96.5
29,919,699
126.1
2,046,755
1,106.0
5,943,263
1,124.6
9,000,000
25.7
9,000,000
25.7
1,534,241
38.0
–
–
49.3
–
180.0
9,462,175
45.2
2,818,626
76.4
17,638,898
228.5
5,181,246
–
–
–
–
–
–
–
–
–
975,600
40.0
1,534,241
38.0
198.4
67.8
96.5
213.4
–
–
–
–
–
–
–
–
–
–
–
–
1,868,472
1,118.4
3,896,508
1,134.4
–
–
–
–
121,970
38.2
–
–
178,283
976.4
2,046,755
1,106.0
9,000,000
25.7
9,000,000
25.7
2,387,871
38.8
1,534,241
38.0
178,283
976.4
2,046,755
1,106.0
–
–
–
–
–
–
–
–
The options granted during the year were valued using a proprietary binomial valuation.
156
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 23. Share-based payments continued
The following table details the weighted average fair value of awards granted and the assumptions used in the fair value expense calculations.
2022 ESAP
2022 TIP
2021 TIP
2022 SAYE
2021 SAYE
Weighted average fair value of awards granted
49.3p
49.1p
60.5p
23.1p
34.8p
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
49.1p
0.0p
49.3p
0.0p
60.5p
0.0p
1.5% to 4.4% 1.5%/1.5% 0.1%/0.4%
101%/85%
101% to 102% 102%/85%
3.0/5.0
3.0/5.0
n/a
n/a
5%/0%
5%/0%
3.0
n/a
5%
38.4p
40.0p
4.3%
91%
3.6
0.0%
5%
53.6p
38.0p
0.7%
92%
3.6
0.0%
5%
1. Shows the assumption for 2022 and 2021 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.
The fair values of the 2022 ESAP and TIP Awards, and the 2021 TIP Awards are not affected by the assumption for the Company’s share price volatility.
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 2022 ESAP and TIP Awards as a dividend equivalent will be payable on the exercise of these awards.
Note 24. Commitments and contingencies
Capital commitments
Contingent liabilities
Performance guarantees
Other contingent liabilities
2022
$m
301.2
84.1
55.8
139.9
2021
$m
169.9
100.8
14.0
114.8
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.
The movement in capital commitments is predominantly due to certain equipment costs being classified as capital expenditure following
the transition of operatorship to Tullow on the Jubilee FPSO in 2022. These were previously recognised as operating expenses. In
addition, Tullow's equity interest increased following Ghana pre-emption.
Note 25. 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
Share-based payments
2022
$m
2.5
0.1
1.4
4.0
2021
$m
3.9
0.3
1.8
6.0
Short-term employee benefits
These amounts comprise fees paid to the Directors in respect of salary and benefits earned during the relevant financial year, plus
bonuses awarded for the year.
Post-employment benefits
These amounts comprise amounts paid into the pension schemes of the Directors.
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 73 to 97.
Tullow Oil plc
2022 Annual Report and Accounts
157
Financial statementsSupplementary informationStrategic ReportGovernance Report 26. Climate change and energy transition
In March 2021, Tullow announced its commitment to being Net Zero on our Scope 1 and Scope 2 emissions on a net equity basis
by 2030 supporting the goal of limiting global temperature rise to well below 2o C as per Article 2 of the Paris Agreement.
This note describes how Tullow has considered climate related impacts in some key areas of the financial statements and how this
translates into the valuation of assets and measurement of liabilities as Tullow make progress in the energy transition.
Note (ag) key sources of estimation uncertainties describes those uncertainties that have the potential to have a material effect on
the Group Balance Sheet in the next 12 months.
This note describes the key areas of climate impacts that potentially have short and longer-term effects on amounts recognised in
the Group Balance Sheet as at 31 December 2022. Where relevant this note contains references to other notes to the Group Financial
Statements and aims to provide an overarching summary.
Financial planning assumptions
Tullow targets being Net Zero scope 1 and 2 emissions by 2030, compared to 2020 levels on a net equity basis, and at least 40%
reduction in GHG by 2025 have been included in Tullow’s business plans. The financial statements are based on reasonable and
supportable assumptions that represent management’s current best estimate of the range of economic conditions that may exist in
the foreseeable future.
The Group has performed an assessment of the potential future impact of Climate Change on key elements of its Financial Statements
utilising three IEA scenarios (see page 23 for details). Tullow continues to assess the impact to operating cash flow (OCF) on our
currently producing assets using the oil price assumptions within the IEA scenarios. We focused our assessment on impacts to
OCF for our existing production portfolio over 1, 5, and 10 years consistent with our Viability Statement. It is clear from the oil price
trajectories in the revised APS and NZE scenarios that the IEA predicts a more challenging oil price environment should the
assumptions within these scenarios come to pass.
Tullow’s corporate oil price planning assumption is generally higher than the IEA Scenarios, with the exception of the STEPS
scenario from 2024 onward. Given the STEPS scenario is a conservative benchmark for future oil prices, reflecting global policies
and implementing measures adopted as of the end September 2022, we consider our current planning assumptions, informed
by a range of broker and consultant forecasts, to be a fair consideration of oil market conditions over the medium term.
We also assess acute and chronic physical climate impacts on our existing assets and incorporate meteorological and climate
conditions into operational design considerations, with support from external consultant- Verisk Maplecroft in 2019. This process
identified a potential exposure related to consumables stored at Ghana onshore facility, though the related financial impact was
deemed insignificant. The physical effects of climate change have also been taken into consideration for core operated asset
locations in Ghana, Guyana and Kenya. Analysis suggests exposure to physical risks is relatively minimal in comparison to historical
conditions, however there is risk of increasing extremes in cyclical precipitation and drought events onshore Kenya. We will continue
to monitor and assess our assets’ exposure to physical climate risks and will evolve our understanding of the potential transmission
pathways of climate-related risks and related costs which may affect our operations, strategy or performance including through our
supply chain.
Similarly, while carbon prices are projected to grow there is low likelihood that a compliance carbon pricing mechanism, such as a
carbon tax or emissions trading scheme, will be formalised in our core geographies, and not before Tullow’s Scope 1 and 2 emissions
have peaked (before 2025). Tullow reviewed and revised its internal shadow carbon price to $25/tCO2e in line with the NZE carbon
price for other emerging market and developing economies, which we see as a robust but realistic carbon price assumption for host
nations where we have producing assets. Based on the forecast emissions profile of our portfolio in 2030, the majority of which is
from emissions associated with our Ghana production assets, we calculate a potential annual carbon price sensitivity of $12.5 million.
To mitigate our residual, hard to abate emissions we are developing a nature based carbon offset project with the Forestry
Commission of Ghana. We will have more visibility of the future costs of the project as we progress towards FID in 2023. The carbon
price sensitivity or costs for nature based carbon offset projects are not included in the value in use calculation of the recoverable
amount of the Group CGUs as these are considered as corporate costs.
Pricing assumptions used will continue to be updated for changes in the economic environment and the pace of the energy transition.
Tullow will continue to use the “Net Zero Emissions by 2050 Scenario” to assess potential financial impacts to the following:
Intangible exploration and evaluation assets
The “Net Zero Emissions by 2050 Scenario” represents a challenging oil price environment for future exploration and development
investments, particularly post 2030 when the bulk of the cash flows would be generated from these types of projects. Therefore, this
could result in a potential write-off of all of the $253 million net book value if the assumptions within the NZE scenario were to arise.
Property, plant and equipment
The Group has included the costs in its impairment assessment directly attributable to CGU’s associated with its Net Zero plans.
The “Net Zero Emission by 2050 Scenario” would trigger reductions in cash flows of between 0–10%. Specifically, if the “Net Zero
emission by 2050 scenario” were to arise the Group would recognise an additional impairment of $654 million. As stated above the
Group does not expect a material impact on any other balance sheet line item as a result of the IEA scenarios.
158
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 26. Climate change and energy transition continued
Decommissioning provision
The energy transition could result in decommissioning taking place earlier than anticipated. The risk on the timing of
decommissioning activities is limited, supported by production plans to fully produce fields in the foreseeable future. The discount
rate used to discount decommissioning provision is between 10-15-years term in line with the average remaining life of our producing
assets. Under the "Net Zero Emission by 2050 Scenario" cessation of production assumptions would accelerate by; Ghana 0-7 years,
Gabon 0-8 years and Côte d’Ivoire 7 years.
Governmental and societal responses to climate change risks are still developing, and are interdependent upon each other, and
consequently financial statements cannot capture all possible future outcomes as these are not yet known.
Note 27. Events since 31 December 2022
Non adjusting events
Throughout 2021 and 2022, Tullow has received revised and new tax assessments from the Ghana Revenue Authority (GRA) resulting in
a combined potential exposure of c.$1 billion. Tullow believes these assessments are without merit and filed requests for arbitration
with the International Chamber of Commerce in London, in accordance with the dispute resolution process set out in the Petroleum
Agreements which govern Tullow Ghana Limited’s activities in Ghana. Notwithstanding this formal step, Tullow intends to continue to
engage with the Government of Ghana, including the GRA, with the aim of resolving these disputes on a mutually acceptable basis.
In March 2023, Tullow and its JV Partners submitted an updated Field Development Plan to the Ministry of Energy and Petroleum
and the Energy and Petroleum Regulatory Commission Authority in Kenya, for their approval. This is currently under review by the
relevant authorities.
In 2023, there were two new appointments:
Richard Miller appointed as Chief Financial Officer (CFO) from January 2023.
Roald Goethe appointed as independent non-executive Director from February 2023.
There have not been any other events since 31 December 2022 that have resulted in a material impact on the year end results.
Note 28. 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
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
Right-of-use asset additions
Movement in working capital
Movement in borrowings
Borrowings
Associated cash flows
Debt arrangement fees
Repayment of borrowings
Drawdown of borrowings
Non-cash movements/presented in other cash flow lines
Amortisation of arrangement fees and accrued interest
2022
$m
39.2
2021
$m
46.3
(42.6)
(86.1)
3.4
2022
$m
370.7
39.8
2021
$m
148.1
(263.8)
(150.4)
19.9
(63.5)
(63.3)
134.8
(73.5)
(59.0)
2022
$m
2021
$m
2020
$m
2022
Movement
2021
Movement
2,472.8
2,568.7
3,170.5
(95.9)
(601.8)
–
(100.0)
–
(56.6)
(2,379.9)
1,800.0
4.1
34.7
Note 29. Dividends
In 2022, the Board recommended that no interim or final dividend would be paid.
Tullow Oil plc
2022 Annual Report and Accounts
159
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 30. Tullow Oil plc subsidiaries
As at 31 December 2022
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% unless otherwise noted. The results of all undertakings listed below are fully
consolidated in the Group’s Financial Statements.
Company name
Hardman Oil and Gas Pty Ltd¹
Hardman Resources Pty Ltd
Tullow Chinguetti Production Pty Ltd
Tullow Petroleum (Mauritania) Pty Ltd
Tullow Uganda Holdings Pty Ltd²
Tullow Uganda Operations Pty Ltd
Eagle Drill Limited
Country of incorporation
Australia
Australia
Australia
Australia
Australia
Australia
British Virgin Islands
Tullow (EA) Holdings Limited
British Virgin Islands
Direct or
indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
(50%)
Indirect
DWT-T Company
Cayman Islands
Indirect
Planet Oil International Limited³
England and Wales
Indirect
Tullow Argentina Limited
England and Wales
Indirect
Tullow Comoros Limited
England and Wales
Indirect
Tullow Côte d’Ivoire Onshore 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 SPE Limited
England and Wales
Direct
Tullow Peru Limited
England and Wales
Indirect
Tullow Technologies Limited
England and Wales
Indirect
Tullow Uruguay Limited
England and Wales
Indirect
Tullow Oil Gabon SA
Gabon
Indirect
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
Akara Building, 24 De Castro Street, Wickhams Cay,
Road Town, Tortola, British Virgin Islands
Ritter House, Wickhams Cay, Tortola, VG1110,
British Virgin Islands
PO Box 32322, 4th Floor Century Yard, Cricket Square,
George Town, KY1-1209, Cayman 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
Quartier Tahiti, Immeuble Narval B.P. 9773,
Libreville, Gabon
160
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 30. Tullow Oil plc subsidiaries continued
As at 31 December 2022 continued
Company name
Country of incorporation
Tullow Gabon Limited
Tullow Oil (Mauritania) Ltd
Isle of Man
Guernsey
Tullow Oil Holdings (Guernsey) Ltd⁴
Guernsey
Tullow Oil Limited
Tullow Congo Limited
Ireland
Isle of Man
Tullow Gabon Holdings Limited
Isle of Man
Tullow Mauritania Limited
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
Isle of Man
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Netherlands
Direct or
indirect
Indirect
Indirect
Indirect
Direct
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 BA⁵ Netherlands
Indirect
Tullow Overseas Holdings BV
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
Indirect
Indirect
Tullow South Africa (Pty) Limited
South Africa
Indirect
T.U. S.A.
Uruguay
Indirect
1. Dissolved in October 2022.
2. Dissolved in October 2022.
3. Dissolved in December 2022.
4. Dissolved in March 2022.
5. Dissolved in January 2023.
Address of registered office
First Names House, Victoria Road, Douglas
IM2 4DF, Isle of Man
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
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
2022 Annual Report and Accounts
161
Financial statementsSupplementary informationStrategic ReportGovernance Report Note 31. Licence interests
Current exploration, development and production interests
Ghana
Licence/Unit area
Fields
Deepwater Tano
TEN Development Area 1
Jubilee, Wawa, Tweneboa,
Enyenra, Ntomme
Area
sq km
Tullow
interest
Operator
619
54.84%
Tullow
West Cape Three Points
Jubilee
150
25.66% Tullow
Other partners
Kosmos, KEGIN, GNPC,
Jubilee Oil Holdings, Petro SA
Kosmos, KEGIN, GNPC,
Jubilee Oil Holdings, Petro SA
Jubilee Field Unit Area2
Jubilee, Mahogany, Teak
38.97% Tullow
Kosmos, GNPC, Petro SA
1. GNPC has exercised its right to acquire an additional 5% in TEN. Tullow's interest is 54.84% after successfully pre-empting on Kosmos' purchase of Occidental
Petroleum's stake in both assets.
2. A unitisation agreement covering the Jubilee field was agreed by the partners of the West Cape Three Points and the Deepwater Tano licences. 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.
Non-operated
Licence/Unit area
Fields
Côte d’Ivoire
Area
sq km
Tullow
interest
Operator
CI-26 Special Area ‘E’
Espoir
235
21.33%
CNR
Other partners
Petroci
Avouma, South Tchibala
Ebouri
Echira
Etame, North Tchibala
52
15
76
49
7.50%
Vaalco
Addax (Sinopec), Sasol, PetroEnergy
7.50%
Vaalco
Addax (Sinopec), Sasol, PetroEnergy
40.00%
Perenco
Gabon Oil Company
7.50%
Vaalco
Addax (Sinopec), Sasol, PetroEnergy
5,626
8.57%
Maurel & Prom
5
54
6
17
17
5
57
4
96
44
16
46
7.50%
Maurel & Prom
40.00%
Perenco
7.50%
Maurel & Prom
7.50%
Maurel & Prom
7.50%
Maurel & Prom
7.50%
Maurel & Prom
24.31%
Perenco
7.50%
Maurel & Prom
40.00%
Perenco
10.00%
Perenco
7.50%
Maurel & Prom
7.50%
Maurel & Prom
315
57.50%
Perenco
30
40
25
18
25.00%
Perenco
25.00%
Perenco
25.00%
Perenco
27.50%
Perenco
Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
Gabon Oil Company
ONE-Dyas BV
ONE-Dyas BV
ONE-Dyas BV
Gabon Oil Company
Gabon
Avouma
Ebouri
Echira
Etame
Ezanga
Gwedidi
Limande
Mabounda
Maroc
Maroc Nord
Mbigou
M'Oba
Niembi
Niungo
Oba
Omko
Onal
Simba
Gwedidi
Limande
Mabounda
Maroc
Maroc Nord
Mbigou
M'Oba
Niembi
Niungo
Oba
Omko
Onal
Simba
Tchatamba Marin
Tchatamba Marin
Tchatamba South
Tchatamba South
Tchatamba West
Tchatamba West
Turnix
Turnix
162
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Group Financial Statements continuedYear ended 31 December 2022 Note 31. Licence interests continued
Kenya
Licence
Kenya
Block 10BA
Block 10BB
Block 12B
Block 13T
Fields
Area
sq km
Tullow
interest
Operator
Other partners
Amosing, Ngamia
6,172
50.00% Tullow
Africa Oil, TotalEnergies
11,569
50.00% Tullow
Centric Energy, TotalEnergies
6,200
100.00% Tullow
Ekales, Twiga
4,719
50.00% Tullow
Africa Oil, TotalEnergies
Exploration
Licence/Unit area
Fields
Area
sq km
Tullow
interest
Operator
Other partners
Argentina
Block MLO-114
Block MLO-119
Block MLO-122
Côte d’Ivoire
CI-524
CI-803
Guyana
Kanuku
Orinduik
5,942
4,546
40.00% Tullow
40.00% Tullow
4,420
100.00% Tullow
551
90.00% Tullow
1,345
90.00% Tullow
4,154
1,776
37.50% Repsol
60.00% Tullow
Pluspetrol, Wintershall Dea
Pluspetrol, Wintershall Dea
Petroci
Petroci
TOQAP
TOQAP, Eco Atlantic O&G
Tullow Oil plc
2022 Annual Report and Accounts
163
Financial statementsSupplementary informationStrategic ReportGovernance Report Notes
2022
$m
2021
Restated1
$m
1
4,863.7
4,863.7
4,700.6
4,700.6
3
4
5
5
5
7
7
9.1
54.5
63.6
544.8
74.1
618.9
4,927.3
5,319.5
(194.4)
(100.0)
(186.3)
(480.7)
(389.4)
(100.0)
(73.1)
(562.5)
(2,372.8)
(58.2)
(2,468.7)
(99.0)
(2,431.0)
(2,567.7)
(2,911.7)
(3,130.2)
2,015.6
2,189.3
215.2
1,294.7
194.5
671.5
(360.3)
214.2
1,294.7
194.5
671.5
(185.6)
2,015.6
2,189.3
Company balance sheet
As at 31 December 2022
ASSETS
Non-current assets
Investments
Current assets
Other current assets
Cash at bank
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Non-current liabilities
Borrowings
Derivative financial instruments
Total liabilities
Net assets
Capital and reserves
Called-up share capital
Share premium
Foreign currency translation reserve
Merger reserves
Retained earnings
Total equity
1. Refer to Note 1 for details on prior year restatement.
During the year the Company made a loss of $179.5 million (2021: $1,614.1 million profit).
Approved by the Board and authorised for issue on 7 March 2023.
Rahul Dhir
Chief Executive Officer
Richard Miller
Chief Financial Officer
7 March 2023
7 March 2023
164
Tullow Oil plc
2022 Annual Report and Accounts
Company statement of changes in equity
Year ended 31 December 2022
At 1 January 2021 (as previously reported)
Profit for the year (restated)
Exercising of employee share options
Share-based payment charges
As 1 January 2022 (as adjusted)
Loss for the year
Exercising of employee share options
Share-based payment charges
Share
capital
$m
211.7
–
2.5
–
214.2
–
1.0
–
Share
premium
$m
1,294.7
–
–
–
1,294.7
–
–
–
At 31 December 2022
215.2
1,294.7
Refer to Note 1 for details on prior year restatement.
Foreign
currency
translation
reserve
$m
194.5
–
–
–
194.5
–
–
–
194.5
Merger
reserves
$m
671.5
–
–
–
671.5
–
–
–
Retained
earnings
$m
(1,808.8)
1,614.1
(2.5)
11.6
(185.6)
(179.5)
(1.0)
5.8
Total
equity
$m
563.6
1,614.1
–
11.6
2,189.3
(179.5)
–
5.8
671.5
(360.3)
2,015.6
Tullow Oil plc
2022 Annual Report and Accounts
165
Financial statementsSupplementary informationStrategic ReportGovernance Report Company accounting policies
As at 31 December 2022
(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 Group.
(b) Basis of preparation
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); and
- 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.
During the year the Company made a loss of $179.5 million (2021: $1,614.1 million profit).
(c) Going concern
Refer to the Basis of preparation in the Accounting Policies section of the Group accounts.
(d) Foreign currencies
The US dollar is the functional and presentational 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.
166
Tullow Oil plc
2022 Annual Report and Accounts
(e) Share-based payments
The Company has applied the requirements of IFRS 2 Share-based Payments. The Company 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 Company’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.
(f) Investments
Investments in subsidiaries are accounted for at cost less any provision for impairment.
(g) 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 2022, 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.
(h) 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 their 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.
Borrowings and trade creditors fall under this category of financial instruments.
(i) Share issue expenses
Costs of share issues are written off against the premium arising on the issues of share capital.
(j) 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.
Tullow Oil plc
2022 Annual Report and Accounts
167
Financial statementsSupplementary informationStrategic ReportGovernance Report Company accounting policies continued
As at 31 December 2022
(k) 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.
(l) 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.
(m) 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.
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 and
subsequently applies additional country risk premium for all CGUs, an element of which is determined by whether the assets are
onshore or offshore. Refer to Notes 9 and 10 to the Group Financial Statements.
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 requires 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
cannot demonstrate the ability to repay the loan, if demanded at the reporting date, the Company calculates 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.
168
Tullow Oil plc
2022 Annual Report and Accounts
Notes to the Company Financial Statements
Year ended 31 December 2022
Note 1. Investments
Subsidiary undertakings
2022
$m
4,863.7
4,863.7
2021
Restated
$m
4,700.6
4,700.6
The movement in Company's investment in subsidiaries of $163.1 million (2021: $1,334.6 million) is due to additions of $665.6 million
(2021: $317.0 million) and impairment charge of $502.5 million (2021: $1,017.6 impairment reversal) which was recognised against the
Company’s investments in subsidiaries in relation to losses incurred by Group service companies and exploration companies and
underlying value of the Group’s production companies. (Refer to notes 9 and 10 in the Notes to the Group Financial Statements.)
Tullow Oil (Jersey) Limited
Tullow Oil SK Limited
Tullow Group Services Limited
Tullow Overseas Holdings B.V.
Tullow Oil SPE Limited
Tullow Gabon Holdings Limited
Tullow Oil Finance Limited
Total
Trigger for
2022
impairment
2022
Impairment
$m
2022
Remaining
recoverable
amount
$m
2021
Impairment/
(reversal)
Restated
$m
a
a
a
a,b
n/a
n/a
a
–
–
5.4
497.1
–
–
–
–
–
–
4,786.6
65.3
11.8
–
0.1
17.4
11.1
(1,106.2)
–
–
60.0
2021
Remaining
recoverable
amount
Restated
$m
–
–
–
4,623.5
65.3
11.8
–
502.5
4,863.7
(1,017.6)
4,700.6
a. Reduction in net asset value as a result of impairment of direct and indirect subsidiaries.
b.
Impact of loss making subsidiaries.
Comparative information in respect of impairment reversal and remaining recoverable amount has been restated in relation to the
recognition of an additional impairment reversal of investments in subsidiaries due to an error in the calculating the recoverable value
Tullow Oil Plc's investment in Tullow Overseas Holdings B.V. The investment in subsidiaries as at 31 December 2021 and impairment
reversal for the year ended 31 December 2021 was understated by $350.4 million. As a result of the correction, investment in subsidiaries
as at 31 December 2021 increased from $4.350.3 million to $4,700.6 million and Profit for the year increased from $1,263.8 million to
$1,614.1 million.
The Company’s subsidiary undertakings as at 31 December 2022 are listed on pages 160 to 161. The principal activity of all companies
relates to oil and gas exploration, development and production.
Sensitivities
The value of property, plant and equipment and E&E assets supporting the investment value will be affected by the potential future
changes to oil prices and discount rates. All impairment assessments are prepared on a VIU basis using discounted future cash flows
based on 2P reserves profiles. A reduction or increase in the two-year forward curve of $5/bbl, based on the approximate range of
annualised average oil price over recent history, and a reduction or increase in the medium and long-term price assumptions of
$5/bbl, based on the range of annualised average historical prices, are considered to be reasonably possible changes for the purposes
of sensitivity analysis. Decreases to oil prices specified in note 10 to the Group Financial Statements would increase the investment
impairment charge by $555.0, whilst increases to oil prices specified above would result in a credit to the investment impairment
charge of $527.3 million. A 1% change in the pre-tax discount rate would increase the impairment by $235.8 million. The Company
believes a 1% change in the pre-tax discount rate to be a reasonable possibility based on historical analysis of the Company’s and peer
group of companies’ impairments.
Climate change
The value of property, plant and equipment and E&E assets supporting the investment value will be affected by the potential future
impact of Climate Change. The Company estimates that the impact on oil and carbon prices as contained in the NZE scenarios on the
value of assets held by subsidiaries could result in a potential write off of investments of up to $2,810.2 million. Refer to note 26 to the
Group Financial Statements.
Note 2. Deferred tax
The Company has tax losses of $1,289.5 million (2021: $874.7 million) that are available indefinitely for offset against future non-ring-
fenced taxable profits in the Company. A deferred tax asset of $nil (2021: $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.
Tullow Oil plc
2022 Annual Report and Accounts
169
Financial statementsSupplementary informationStrategic ReportGovernance Report Notes to the Company Financial Statements continued
Year ended 31 December 2022
Note 3. Other current assets
Amounts falling due within one year
Other debtors
Due from subsidiary undertakings
2022
$m
4.9
4.2
9.1
2021
$m
7.3
537.5
544.8
The decrease in amounts due from subsidiary undertakings of $533.3 million is mostly due to a repayment of the interest bearing
loan from Tullow Overseas Holdings B.V (2021: $564.2 million). The loan incurred interest at SOFR plus 4.78% (2021: LIBOR plus 4.5%).
The remaining amounts due from subsidiaries accrue no interest. All amounts are repayable on demand. At 31 December 2022
a provision of $nil (2021: $26.7 million) was held in respect of the recoverability of amounts due from subsidiary undertakings.
Note 4. Trade and other payables
Amounts falling due within one year
Accrued interest
Accruals
Provisions
Due to subsidiary undertakings
Note 5. Borrowings
Current
Borrowings – within one year
10.25% Senior Secured Notes due 2026
Non-current
Borrowings – after one year but within five years
7.00% Senior Notes due 2025
10.25% Senior Secured Notes due 2026
Carrying value of total borrowings
2022
$m
40.9
9.0
–
144.5
194.4
2021
$m
42.2
1.2
1.6
344.4
389.4
2022
$m
2021
$m
100.0
100.0
100.0
100.0
792.8
1,580.0
2,372.8
2,472.8
792.1
1,676.6
2,468.7
2,568.7
The Company’s capital structure includes $1.7bn Senior Secured Notes due 2026 (2026 Notes), $800 million Senior Notes due 2025
(2025 Notes) and a $500 million Super Senior Revolving Credit Facility (SSRCF).
The 2026 Notes, maturing in May 2026, require an annual prepayment of $100 million, in May, of the outstanding principal amount plus
accrued and unpaid interest, with the balance due on maturity.
The 2025 Notes are due in a single payment in March 2025.
The SSRCF, maturing in December 2024, comprises of (i) a $500 million revolving credit facility and (ii) a $100 million letter of
credit facility. The revolving credit facility remains undrawn as at 31 December 2022. Letters of credit amounting to $44 million
(2021: $20 million) have been issued under the facility.
Unamortised debt arrangement fees for the 2026 Notes, the Senior Notes due 2025 and the SSRCF are $20.0 million, $7.0 million and
$4.8 million respectively.
The 2026 Notes and the SSRCF are senior secured obligations of Tullow Oil plc and are guaranteed by certain subsidiaries of the Group.
The Company or its affiliates may, at any time and from time to time, seek to retire or purchase outstanding debt through cash
purchases and/or exchanges, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or
exchanges, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market
conditions, liquidity requirements, contractual restrictions and other factors.
170
Tullow Oil plc
2022 Annual Report and Accounts
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 2022 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’s derivative carrying and fair values were as follows:
Assets/liabilities
Option market value
Oil derivatives
Deferred premium
Oil derivatives
Total assets
Total liabilities
2022
Less than
1 year
$m
2022
1–3 years
$m
2022
Total
$m
2021
Less than
1 year
$m
2021
1–3 years
$m
2021
Total
$m
(162.1)
(50.0)
(212.1)
(51.0)
(66.6)
(117.6)
(24.2)
(8.2)
(32.4)
(22.1)
(32.4)
(54.5)
–
–
–
–
–
–
(186.3)
(58.2)
(244.5)
(73.1)
(99.0)
(172.1)
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 (2021: 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 re-assessing 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
Oil derivatives
2022
$m
72.4
2021
$m
(172.1)
Cash flow and interest rate risk
The interest rate profile of the Company’s financial assets and liabilities, excluding trade and other receivables and trade and other
payables, at 31 December 2022 and 31 December 2021 was as follows:
US$
2022
Cash at bank
$m
2022
Fixed rate
debt
$m
2022
Total
$m
2021
Cash at bank
$m
2021
Fixed rate
debt
$m
2021
Total
$m
54.5
54.5
(2,500.0)
(2,445.5)
(2,500.0)
(2,445.5)
74.1
74.1
(2,600.0)
(2,525.9)
(2,600.0)
(2,525.9)
Cash and cash equivalents consisted of $50.0 million (2021: $20.8 million) of short-term deposits that are readily convertible to
known amounts of cash with insignificant risk of change in value. The Company only deposits cash with major banks of high-quality
credit standing.
Tullow Oil plc
2022 Annual Report and Accounts
171
Financial statementsSupplementary informationStrategic ReportGovernance Report Notes to the Company Financial Statements continued
Year ended 31 December 2022
Note 6. Financial instruments continued
Liquidity risk
The following table details the Company’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 Company can be required to pay.
31 December 2022
Non-interest bearing
Fixed interest rate instruments
Principal repayments
Interest charge
31 December 2021
Non-interest bearing
Fixed interest rate instruments
Principal repayments
Interest charge
Weighted
average
effective
interest rate
n/a
9.7%
Weighted
average
effective
interest rate
n/a
9.7%
Less than
1 month
$m
1–3
months
$m
3 months
to 1 year
$m
1–5
years
$m
5+
years
$m
–
–
–
–
18.7
175.7
–
–
28.0
46.7
100.0
197.0
472.7
2,400.0
464.0
2,864.0
–
–
–
0
Less than
1 month
$m
1–3
months
$m
3 months
to 1 year
$m
1–5
years
$m
5+
years
$m
–
–
–
–
18.7
370.7
–
–
28.0
46.7
100.0
207.0
677.7
2,500.0
689.0
3,189.0
–
–
–
–
Total
$m
194.4
2,500.0
689.0
3,383.4
Total
$m
389.4
2,600.0
924.0
3,913.4
Note 7. Called-up equity share capital and share premium account
Allotted equity share capital and share premium
At 1 January 2021
Issued during the year
Exercise of share options
At 1 January 2022
Issued during the year
Exercise of share options
At 31 December 2022
Equity share
capital allotted
and fully paid
Number
1,414,071,777
Share
capital
$m
211.7
Share
premium
$m
1,294.7
18,008,320
2.5
–
1,432,080,097
214.2
1,294.7
7,525,898
1.0
–
1,439,605,995
215.2
1,294.7
The Company does not have an authorised share capital. The par value of the Company’s shares is 10p.
172
Tullow Oil plc
2022 Annual Report and Accounts
Alternative performance 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, free cash flow, underlying operating cash
flow and pre-financing 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:
Changes to Decommissioning asset
estimates
Right-of-use asset additions
Lease payments related to capital
activities
Additions to administrative assets
Other non-cash capital expenditure
Capital investment
Movement in working capital
Additions to administrative assets
Cash capital expenditure
per the cash flow statement
2022
$m
370.7
2021
$m
148.1
39.2
46.3
(19.9)
63.5
(40.2)
2.0
50.4
354.1
(49.7)
2.0
(134.8)
73.5
(26.8)
1.6
17.7
263.2
(28.3)
1.6
306.4
236.5
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.
The value of the Group’s lease liabilities as at 31 December 2022 was
$251.2 million current and $732.9 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.
Borrowings
Non-cash adjustments
Less cash and cash equivalents
Net debt
2022
$m
2,472.8
27.2
(636.3)
2021
$m
2,568.7
31.3
(469.1)
1,863.7
2,130.9
Gearing and adjusted EBITDAX
Gearing is a useful indicator of the Group’s indebtedness,
financial flexibility and capital structure and can assist securities
analysts, investors and other parties to evaluate the Group.
Gearing is defined as net debt divided by adjusted EBITDAX.
Adjusted EBITDAX is defined as 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.
Profit/(Loss) from continuing activities
Adjusted for:
Income tax expense
Finance costs
Finance revenue
Gain on hedging instruments
Gain on bargain purchase
Depreciation, depletion and
amortisation
Share-based payment charge
Restructuring costs and provisions for
onerous contracts
Gain on disposal
Exploration costs written off
Impairment of property, plant and
equipment, net
Adjusted EBITDAX
Net debt
Gearing (times)
2022
$m
49.1
393.0
335.5
(42.9)
(0.8)
(196.8)
425.8
5.8
4.2
(0.4)
105.2
391.2
1,468.9
1,863.7
1.3
2021
Restated1
$m
(80.7)
295.6
356.1
(44.3)
–
-
378.9
11.6
61.8
(120.3)
59.9
54.3
972.9
2,130.9
2.2
1. Revenue from crude oil sales has been restated following a revision to the
Group's accounting policy. This resulted in an increase to the revenue for the
year ended 31 December 2022 of $21.4 million (2021: 12.2 million), and a
corresponding increase to the income tax expense. Refer to note 6.
Tullow Oil plc
2022 Annual Report and Accounts
173
Financial statementsSupplementary informationStrategic ReportGovernance Report Alternative performance measures continued
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, royalties and certain
other cost of sales. Underlying cash operating costs are divided
by production to determine underlying cash operating costs per
boe. In 2021 and 2022, Tullow incurred abnormal non- recurring
costs which are presented separately below. The adjusted
normalised cash operating costs are a helpful indicator to the
forward underlying costs of the business.
Underlying operating cash flow
This is a useful indicator of the Group’s assets ability to generate
cash flow to fund further investment in the business, reduce
borrowing and provide returns to shareholders. Underlying
operating cash flow is defined as net cash from operating
activities less repayments of obligations under leases plus
decommissioning expenditure.
Pre-financing free cash flow
This is a useful indicator of the Group’s ability to generate cash
flow to reduce borrowings and provide returns to shareholders
through dividends. Pre-financing free cash flow is defined as net
cash from operating activities, and net cash used in investing
activities, less repayment of obligations under leases and foreign
exchange gain.
Net cash from operating activities
Less:
Decommissioning expenditure
Lease payments related to capital
activities
Plus:
Repayment of obligations under
leases
Underlying operating cash flow
Net cash used in investing activities
Decommissioning expenditure
Lease payments related to capital
activities
Pre-financing free cash flow
2022
1,077.8
57.7
40.2
(203.8)
971.9
(356.2)
(57.7)
(40.2)
517.8
2021
786.9
52.8
26.8
(155.9)
710.6
(101.7)
(52.8)
(26.8)
529.3
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
Royalties
Other cost of sales
Underlying cash operating costs
Non-recurring costs
Total normalised cash operating
costs
Production (mmboe)
Underlying cash operating costs per
boe ($/boe)
Normalised cash operating costs per
boe ($/boe)
2022
$m
697.5
2021
$m
638.9
410.7
360.9
(46.3)
(20.0)
0.4
61.7
4.4
266.5
(14.7)
251.8
21.6
12.3
11.3
0.5
40.0
(11.7)
268.7
(7.9)
260.8
21.6
12.4
12.1
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, and foreign exchange gain.
Net cash from operating activities
Net cash used in investing activities
Repayment of obligations under leases
Finance costs paid
Debt arrangement fees
Foreign exchange gain
Free cash flow
2022
$m
1,059.8
(356.2)
(203.8)
(230.5)
—
(1.6)
267.2
2021
$m
786.9
(101.7)
(155.9)
(234.9)
(56.6)
6.9
244.7
174
Tullow Oil plc
2022 Annual Report and Accounts
Shareholder information
Financial calendar
2022 full year results announced
Annual General Meeting
AGM trading update
8 March 2023
24 May 2023
24 May 2023
Trading statement and operational update
12 July 2023
2023 half-year results announced
13 September 2023
November trading update
15 November 2023
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 registrar.
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 6ZY
Tel – UK shareholders: 0370 703 6242
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: 0370 703 0084
If you live outside the UK 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
Peel Hunt
120 London Wall, London EC2Y 5ET
Tullow Oil plc
2022 Annual Report and Accounts
175
Financial statementsSupplementary informationStrategic ReportGovernance Report Commercial reserves and contingent resources summary
(unaudited) working interest basis
Ghana
Non-Operated
Kenya
Exploration
Total
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas7
bcf
Petroleum
mmboe
Commercial reserves1
1 January 2022
Revisions3,4,6
Production
W.I. change
168.3
(4.5)
(16.2)
138.9
4.3
–
16.7
14.1
38.8
4.8
(5.8)
–
31 December 2022
164.3
157.3
37.8
Contingent resources2
1 January 2022
Revisions3,4,6
W.I. change
212.1
(47.8)
20.7
585.2
(77.1)
69.7
31 December 2022
185.0
577.8
29.7
6.3
–
36.0
7.1
(0.6)
(1.4)
–
5.1
0.9
7.7
–
8.6
–
–
–
–
–
231.4
–
–
231.4
Total
31 December 2022
349.3
735.1
73.8
13.7
231.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
54.5
–
–
54.5
54.5
–
–
–
–
–
–
–
–
–
–
207.1
0.4
(22.1)
145.9
3.8
(1.4)
231.4
1.0
(22.3)
16.7
14.1
19.0
202.1
162.4
229.1
527.6
(41.4)
20.7
586.1
(69.4)
69.7
625.4
(53.0)
32.3
506.9
586.4
604.6
709.0
748.8
833.7
1. Proven and Probable Reserves above are as audited and reported by independent third-party reserve auditors. The auditor was provided with all the significant data up
until 31 December 2022.
2. Proven and Probable Contingent Resources above are also as audited and reported by independent third-party auditors based on best available information as of
31 December 2022. Numbers represent the working interest net to Tullow.
3. Reserves and Resources revisions in Ghana relate to successful infill drilling and good field performance in Jubilee and the maturation of a number of projects including:
the Tweneboa Oil development, infill well on Ntomme and the Enyenra South extension development. This is balanced by a downward revision of Ntomme and Enyenra
reflecting field production performance and removal of reserves associated with the two (dry) TEN Riser Base wells drilled in 2022.
4. Reserves revisions in Gabon mainly relate to development progress in Tchatamba, and reserves in Etame.
5. Resource estimates for Kenya are from independent evaluation of resources by independent third-party reserve auditors.
6. A gas conversion factor of 6 Mscf/boe is used to calculate the total Petroleum Mmboe.
7. The Working Interest change in Ghana relates to the pre-emptive acquisition of Occidental's interest in Jubilee and TEN. This transaction increased Tullow’s equity
interests to 39.0% in the Jubilee field and to 54.8% in the TEN 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 219.6 mmboe at 31 December 2022
(31 December 2021: 222.0 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.
176
Tullow Oil plc
2022 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
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.
CBP017685
Tullow Oil plc’s commitment to environmental issues is reflected in this
Annual Report, which has been printed on Arena Smooth Extra White, an
FSC® certified material.
This document was printed by Pureprint Group using its environmental
print technology, with 99% of dry waste diverted from landfill, minimising
the impact of printing on the environment. The printer is a
CarbonNeutral® company.
Both the printer and the paper mill are registered to ISO 14001.
Tullow Oil plc
9 Chiswick Park
566 Chiswick High Road
London W4 5XT
United Kingdom
Email: info@tullowoil.com
Website: www.tullowoil.com