Annual Financial Report

RNS Number : 4262B

Tullow Oil PLC

16 April 2012

 

Tullow Oil plc ("Tullow" or the "Company")

16 April 2012

Annual Report and Accounts and Notice of Annual General Meeting

Following the release on 14 March 2012 of the Company's preliminary full year results announcement for the year ended 31 December 2011 (the "Preliminary Announcement"), the Company announces it has published its Annual Report and Accounts for 2011 (the "Annual Report and Accounts").

The Company's 2012 AGM will be held at Haberdashers' Hall, 18 West Smithfield, London EC1A 9HQ on Wednesday 16 May 2012 at 12 noon.

Copies of the Annual Report and Accounts and the Notice of the Annual General Meeting 2012 are available to view on the Company's website: www.tullowoil.com.

In accordance with Disclosure and Transparency Rule 6.3.5(2)(b) additional information is set out in the appendices to this announcement. This information is extracted in full unedited text from the Annual Report and Accounts.

The Preliminary Announcement included a set of condensed financial statements and a fair review of the development and performance of the business and the position of the Company and the group.

In accordance with Listing Rule 9.6.1, a copy of each of the Annual Report and Accounts, the Notice of the Annual General Meeting 2012, the form of proxy in relation to the Annual General Meeting 2012 and the "Year in Review" for the year ending 31 December 2011 has been submitted to the UK Listing Authority via the National Storage Mechanism and will be available for viewing shortly at www.hemscott.com. Those documents are also being submitted to the Irish Stock Exchange and the Ghana Stock Exchange.

In addition, all of the above documents will shortly be available for inspection at the Irish Stock Exchange (which is situated at: Irish Stock Exchange, 28 Anglesea Street, Dublin 2, Ireland) and will be available to shareholders located in Ghana by contacting the Company's registrar: Computershare Pan Africa Ghana Limited, 23 Eleventh Lane, Osu R.E., P.O. Box CT2215 Cantonments, Accra, Ghana (Telephone:  [phone] or [phone]).

Appendices

Appendix A: Directors' responsibility statement

The following directors' responsibility statement is extracted from the Annual Report and Accounts (page 112).

Directors' responsibility statement required by DTR4.1.12R

We confirm that to the best of our knowledge:

-     The financial statements, prepared in accordance with relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

-     The management report, which is incorporated into the Directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

Aidan Heavey                        Ian Springett

Chief Executive Officer             Chief Financial Officer

13 March 2012                       13 March 2012

Appendix B: A description of the principal risks and uncertainties that the Company faces

The following description of the principal risks and uncertainties that the Company faces is extracted from the Annual Report and Accounts

(pages [42-45])

2012 principal risks and uncertainties

As part of our 2012 to 2014 business plan we identified the following key risks and uncertainties in relation to the Group's financial and operational performance for the period:

-     Completion of the Ugandan farm-down (achieved February 2012), followed by delivery of a basin development plan and timely approvals for this from the Ugandan authorities;

-     E&A campaign associated risks (approximately 20 high-impact wells are planned in 2012);

-     Timely remediation of Jubilee production (2012/2013) and delivery of Group production targets;

-     Government relations/stakeholder engagement with particular reference to the 2012 Board objective to significantly improve political and economic risk information and country risk profiling;

-     Achieve the appropriate balance between cash flow from operations, equity/debt market opportunities and portfolio management activities; and

-     Manage shareholder expectations, particularly with regard to the Group's long-term strategy, production profile and funding.

Long-term performance risks

We group our risks into strategic, financial, operational and external risks, which we believe could potentially adversely impact our employees, operations, performance and assets.

Throughout the year we have critically reviewed and evaluated the risks the Group faces. This list is not exhaustive and it is likely to change as some risks assume greater importance than others during the course of the year.

Our business risk systems combined with the Board's ownership of strategic risks ensure that risk management is embedded in the business, aligned with our business model and is directly linked to strategic delivery.

Our assessment of the most significant risks and uncertainties which could impact the Group's long-term performance is outlined in this section of the report. These risks are not set out in any order or priority and they do not comprise all the risks and uncertainties we face.

Strategic risk
Risk	Impact	Mitigation process
Strategy fails to meet shareholder expectations	Ineffective or poorly-executed strategy fails to create shareholder value and to meet shareholder expectations, leading to a loss of investor confidence and a reduction in the share price. This in turn reduces the Group's ability to access finance and increases vulnerability to a hostile takeover.	Strategy focused on delivering Ghana and Uganda developments and selective high-impact exploration programme. Effective communication with all stakeholders, based on open and transparent dialogue.
Loss of key staff and succession planning	The loss of key staff and a lack of internal succession planning for key roles within the Group causes short- and medium-term disruption to the business.	Clearly defined people strategy based on culture and engagement, talent development and reward and recognition, together with the continuing success of the Group.
Sustained exploration failure	Failure to sustain exploration success limits replacement of reserves and resources, which impacts investor confidence in long-term strategic delivery.	Board approval of E&A programme. Monthly reporting to the Board on finding costs per boe and high-grading of Group's portfolio, with a view to measuring success of exploration spend. Continued use of appropriate technologies and technical excellence in exploration methodologies. South America discovery opens new hydrocarbon basin.

Financial risk
Risk	Impact	Mitigation process
Insufficient liquidity, inappropriate financial strategy	Asset performance and excessive leverage leads to the Group being unable to meet its financial obligations. This scenario, in the extreme, impacts on the Group's ability to continue as a going concern, or causes a breach of bank covenants.	Prudent approach to debt and equity, with balance maintained through refinancing, equity placing and portfolio management activity. Regular Board review and approval for financing options. Short-term and long-term cash forecasts reported on a monthly basis to Senior Management and the Board. Maintenance of strong banking and equity relationships.
Cost and capital discipline	Ineffective cost control leads to reduced margins and profitability, reducing operating cash flow and the ability to fund the business.	Comprehensive annual budgeting processes covering all expenditure are approved by the Board. Executive management approval is required for major categories of expenditure, and investment and divestment opportunities are ranked on a consistent basis, resulting in effective management of capital allocation.

Operational risk
Risk	Impact	Mitigation process
EHS failures and security incident	Major event from drilling or production operations impacts staff, contractors, communities or the environment, leading to loss of reputation and/or revenue.	EHS performance standards set and monitored regularly across the Group through Business Unit performance reporting. EHS management system implemented. Clear policies and procedures supported by strong leadership accountability and commitment throughout the organisation. Tullow Safety Rules launched.
Key development failure	Development projects fail to meet cost and schedule budgets or operational objectives, causing returns to be eroded.	Technical, financial and Board approval required for all projects, and for all dedicated project teams. Risk evaluation and progress reporting initiated for all projects.

External risk
Risk	Impact	Mitigation process
Corporate responsibility	The overall political, industry or market Environment negatively impacts the Group's ability to grow and manage its business.	Consistent ethical standards established and applied through the Code of Business Conduct, and through contract and procurement procedures. Regular review of compliance requirements with periodic Board reporting.
Country risk	Government regulations change rapidly, which can result in expropriation of assets and the introduction of burdensome tariffs or taxes. Political changes affect the competitive environment, with political instability and civil disturbances disrupting the Group's operations.	Successful relationships with Governments and other external stakeholders built and maintained. Through these relationships trust is grown, key issues identified and processes improved. Social Enterprise projects aligned with the needs of stakeholders and the business in support of creating shared prosperity.
Oil and gas price volatility	Volatility in commodity prices impacts the Group's revenue streams, with an adverse effect on liquidity.	Hedging strategy agreed by the Board, with monthly reporting of hedging activity.

Appendix C: Related party transactions

The following related party transactions are extracted from the Annual Report and Accounts (page 154).

The Directors of Tullow Oil plc are considered to be the only key management personnel as defined by IAS 24 - Related party disclosures.

	2011 £m	2010 £m
Short-term employee benefits	8.7	7.0
Post employment benefits	1.1	0.9
Amounts awarded under long-term incentive schemes	3.7	1.4
Share-based payments	7.5	5.6
	21.0	14.9

Short-term employee benefits

These amounts comprise fees paid to the Directors in respect of salary and benefits earned during the relevant financial year, plus bonuses awarded for the year.

Post employment benefits

These amounts comprise amounts paid into the pension schemes of the Directors.

Amounts awarded under long-term incentive schemes

These amounts relate to the shares granted under the annual bonus scheme that is deferred for three years under the Deferred Share Bonus Plan (DSBP).

Share-based payments

This is the cost to the Group of Directors' participation in share-based payment plans, as measured by the fair value of options and shares granted, accounted for in accordance with IFRS 2, Share-based Payments.

There are no other related party transactions. Further details regarding transactions with the Directors of Tullow Oil plc are disclosed in the Directors' remuneration report on pages 88 to 99.

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