Annual Financial Report

RNS Number : 8174A

Tullow Oil PLC

25 March 2013

 

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

25 March 2013

Annual Report and Accounts and Notice of Annual General Meeting

Following the release on 13 February 2013 of the Company's preliminary full year results announcement for the year ended 31 December 2012 (the "Preliminary Announcement"), the Company announces it has published its Annual Report and Accounts for 2012 (the "Annual Report and Accounts").

The Company's 2013 AGM will be held at Haberdashers' Hall, 18 West Smithfield, London EC1A 9HQ on Wednesday 8 May 2013 at 12 noon.

Copies of the Annual Report and Accounts and the Notice of the Annual General Meeting 2013 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 2013, the form of proxy in relation to the Annual General Meeting 2013 and the "Year in Review" for the year ending 31 December 2012 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

12 February 2013                    12 February 2013

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 47-51).

2013 Short-to-medium term risks and uncertainties

·      Receive appropriate approvals from Ugandan authorities, followed by commencement of the PoD;

·      Receive TEN PoD approval from the Ghanaian Government and commence development;

·      Successful management and mitigation of above-ground risk given local elections and political uncertainty in key African countries of operations; and

·      Successful delivery of exploration programme and asset monetisation options.

Long-term performance risks

We have identified a number of 'evergreen' risks to our longer-term performance and strategic delivery, which are in addition
to the shorter and medium-term principal risks that are specifically associated with the delivery of our business plan. We believe these risks could potentially adversely impact our employees, operations, performance and assets. Each year we critically review and evaluate the risks Tullow faces and refresh these to reflect the changes in our business and operational profile.

Our business risk systems, combined with the Board's ownership of strategic risks, ensures that risk management is embedded in the business, aligned with our business model and directly linked to the delivery of the Group's strategic priorities, as is clearly demonstrated in the table below. These risks are not set out in any order or priority. They represent the Board and Management's view of the most material and important risks to Tullow and as a result they do not comprise all the risks and uncertainties we face.

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Strategy fails to meet shareholder objectives

Strategic objective

Deliver substantial returns to shareholders.

Executive responsibility

Aidan Heavey Chief Executive Officer

Performance indicator

Long-term TSR

Impact

Ineffective or poorly-executed strategy fails to create shareholder value and to meet shareholder expectations, leading to a loss of investor confidence and a decline in the share price. This in turn reduces the Group's ability to access finance and increases vulnerability to a hostile takeover.

Policies and systems

Exploration-led growth strategy, ongoing portfolio management, three-year business plan, active Investor Relations programme, bi-annual investor survey, annual review of strategic objectives and monthly operational and financial reporting.

Mitigation process

Clear and consistent strategy execution, high-impact exploration and appraisal programme, selective development projects, asset monetisation across the value chain, resource growth, portfolio renewal and high-grading, strong balance sheet and financial flexibility, effective communication with all stakeholders, based on open and transparent dialogue.

_________________________________________________________________________________________________

Sustained exploration failure

Strategic priority 1

Execute selective high-impact exploration and appraisal programmes.

Executive responsibility

Angus McCoss Exploration Director

Performance indicators

Resources growth

Exploration success ratio

Portfolio renewal and high-grading

Impact

Failure to sustain exploration success is costly and limits replacement of reserves and resources, which impacts investor confidence in long-term delivery of the Group's exploration-led growth strategy.

Policies and systems

Clear exploration strategy based on core campaigns, GELT, competitive capital allocation process and annual high-impact E&A programme.

Mitigation process

Board approved 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. Application of technical excellence and appropriate technologies in exploration methodologies.

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Key operational or development failure

Strategic priority 2

Safely manage and deliver all major projects and production operations, increasing cash flow and commercial reserves.

Executive responsibility

Paul McDade Chief Operating Officer

Performance indicator

Operationally-based yearly targets, both base and stretch

Impact

Operational delivery fails to meet cost and schedule budgets or operational objectives, causing returns to be eroded.

Policies and systems

Development & Operations Leadership Team, project leadership team, asset specific PoD, EHS systems and policies, Delegation of Authority (DoA), Code of Business Conduct and asset delivery risk management.

Mitigation process

Technical, financial and Board approval required for all projects, and for all dedicated project teams. Risk evaluation and progress reporting initiated for all projects and reported on monthly.

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Insufficient liquidity, inappropriate financial strategy

Strategic priority 3

Manage financial and business assets to enhance our portfolio, replenish upside potential and support funding needs.

Executive responsibility

Ian Springett Chief Financial Officer

Performance indicators

Operating cash flow

Debt profile and capacity

Gearing

Impact

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.

Policies and systems

Financial strategy, cash flow forecasting and management and capital allocation processes.

Mitigation process

Prudent approach to debt and equity, with a balance maintained through refinancing, cash flow from operations and portfolio management activity. Board review and approval of financial strategy. Short-term and long-term cash forecasts reported on a regular basis to Senior Management and the Board. Strong banking and equity relationships maintained.

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Cost and capital discipline

Strategic priority 3

Manage financial and business assets to enhance our portfolio, replenish upside potential and support funding needs.

Executive responsibility

Ian Springett Chief Financial Officer

Performance indicators

Cash operating costs per boe

Finding costs per boe

Capital expenditure and cost management targets

Impact

Ineffective cost control leads to reduced margins and profitability, reducing operating cash flow and the ability to fund the business.

Policies and systems

DoA and budgeting and reporting processes, and project approval process for all significant categories of expenditure.   

Mitigation process

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.

_________________________________________________________________________________________________

Oil and gas price volatility

Strategic priority 3

Manage financial and business assets to enhance our portfolio, replenish upside potential and support funding needs.

Executive responsibility

Ian Springett Chief Financial Officer

Performance indicator

Realised commodity prices

Impact

Volatility in commodity prices impacts the Group's revenue streams, with an adverse effect on liquidity.

Policies and systems

Hedging strategy.

Mitigation process

Hedging strategy agreed by the Board, with monthly reporting of hedging activity.

______________________________________________________________________________________

Supply chain failure

Strategic priority 3

Manage financial and business assets to enhance our portfolio, replenish upside potential and support funding needs.

Strategic priority 5

Achieve strong governance across all Tullow activities and continue to build trust and reputation with all stakeholders.

Executive responsibility

Ian Springett Chief Financial Officer

Performance indicator

Timely delivery of projects

Impact

A delay in delivery of products or services results in project delivery delays, causing significant financial penalties and a loss of reputation with stakeholders.

Policies and systems

Group contracting and procurement procedures, post contract award procedures, market, contract and supplier due diligence and logistics standard operating procedures.

Mitigation process

Risk assessment and full due diligence of all suppliers carried out prior to award of the contract. Risk management embedded in the Group contracting and procurement procedures at all stages of the process. Comprehensive supplier monitoring undertaken to ensure that any issues are identified promptly and rectified to avoid significant issues.

_________________________________________________________________________________________________

EHS failure or security incident

Strategic priority 4

Ensure safe people, procedures and operations and minimise environmental impacts.

Executive responsibility

Paul McDade Chief Operating Officer

Performance indicator

EHS scorecard with nine indicators

Impact

Major event from drilling or production operations impacts staff, contractors, communities or the environment, leading to loss of reputation, revenue and/or shareholder value.

Policies and systems

Board-level EHS Committee, Group-wide EHS policies, Tullow Oil Environmental Standards (toes), EMS, crisis management procedures, EHS Strategy Forum, Tullow Security standard, Occupational Health programme, application of the UN's Voluntary Principles of Security and Human Rights (VPSHR).  

Mitigation process

Board-level commitment. EHS standards set and monitored 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. Over 100 EHS professionals embedded in the business.

_________________________________________________________________________________________________

Information and cyber security

Strategic priority 5

Achieve strong governance across all Tullow activities and continue to build trust and reputation with all stakeholders.

Executive responsibility

Angus McCoss Exploration Director

Performance indicator

Prevent cyber attacks

Increase in maturity level and reduction
in risk profile

Impact

Loss of sensitive proprietary information, financial fraud, reduction or halt in production

Policies and systems

Information security policy framework defines structure, risk methodology, levels of activity, Group policy and standards.

Mitigation process

The information security strategy integrates information, personnel and physical security. A collaborative cross-functional risk group provides governance and ensures both technical and non-technical solutions are both effective and proportionate. A Protect, Monitor, Analyse and Respond methodology recognises the ever changing threat landscape that drives investment in next generation technologies.

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Bribery and corruption

Strategic priority 5

Achieve strong governance across all Tullow activities and continue to build trust and reputation with all stakeholders.

Executive responsibility

Graham Martin General Counsel & Company Secretary

Performance indicator

Rollout of the Code of Conduct training

Percentage Code of Conduct certification

Impact

Corrupt actions or practices in the Group's activities leading to prosecutions or investigations, impacting on the Group's reputation and leading to loss of shareholder value.

Policies and systems

Code of Business Conduct and corporate responsibility policies and systems.

Mitigation process

Consistent ethical standards established and applied through the Code of Business Conduct, and through contract and procurement procedures. Conduct regular reviews of compliance requirements together with periodic Board reporting.

________________________________________________________________________________________________

Governance and legal risk

Strategic priority 5

Achieve strong governance across all Tullow activities and continue to build trust and reputation with all stakeholders.

Executive responsibility

Graham Martin General Counsel & Company Secretary

Performance indicator

TSR performance

Impact

Changes to the legal or fiscal regimes or contracts; modifications or expropriation can erode shareholder value.

Policies and systems

Stakeholder engagement enhanced; experienced legal and commercial teams; and comprehensive knowledge of contractual regimes and fair practice.

Mitigation process

Continuing to engage with all stakeholders to come to fair outcomes.

_________________________________________________________________________________________________

Loss of key staff and succession planning

Strategic priority 6

Build a strong unified team with excellent commercial, technical and financial skills and entrepreneurial flair.

Executive responsibility

Graham Martin General Counsel & Company Secretary

Performance indicator

Staff turnover

Recruitment for key roles

Impact

The loss of key staff and a lack of internal succession planning for key roles within the Group causes short and medium-term business disruption. Inability to recruit for key roles hinders performance.

Policies and systems

HR strategy, localisation, our values, HR function and policies, performance management and training and development. Talent management and external benchmarking.

Mitigation process

Clearly defined people strategy based on culture and engagement, talent development and reward and recognition, together with the continuing success of the Group.

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Political and social risk

Strategic priority 7

Nurture long-term relationships with local governments, communities and key stakeholders.

Executive responsibility

Aidan Heavey Chief Executive Officer

Performance indicator

TSR Performance

Impact

Changes in political regimes can lead to re-negotiation of licence and agreement terms or delays in grants of licences and approval of agreements. Erosion of social licence to operate leading to erosion of value of projects, possible local disruptions and delays in project schedule and increased project costs. Failure to understand political and social contexts can lead to insufficient planning, resourcing and costing of projects.

Policies and systems

Portfolio risk management tool including political and social risks, social performance standards and management system, issues management plans and host country resources including stakeholder and community engagement activity.

Mitigation process

Early identification and ongoing monitoring of political and social risks and opportunities. Management plans that address business risks and political and social impacts associated with existing or planned operations. Ensuring that Tullow has appropriate resourcing and competency to identify, analyse and advise on political and social risk management. Social investment projects targeted at managing social risks and at delivering opportunities to maximise our business benefits. Policy and management system for operating in sensitive areas.

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Appendix C: Related party transactions

The following related party transactions are extracted from the Annual Report and Accounts (page 166).

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

	2012 £m	2011 £m
Short-term employee benefits	9.1	8.7
Post employment benefits	1.1	1.1
Amounts awarded under long-term incentive schemes	2.9	3.7
Share-based payments	9.5	7.5
	22.6	21.0

Short-term employee benefits

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

Post employment benefits

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

Amounts awarded under long-term incentive schemes

These amounts relate to the shares granted under the annual bonus scheme that 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 98 to 114.

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