Tullow Oil plc ("Tullow" or the "Company")
24 March 2014
Annual Report and Accounts and Notice of Annual General Meeting
Following the release on 11 February 2014 of the Company's preliminary full year results announcement for the year ended 31 December 2013 (the "Preliminary Announcement"), the Company announces it has published its Annual Report and Accounts for 2013 (the "Annual Report and Accounts").
The Company's 2014 AGM will be held at Haberdashers' Hall, 18 West Smithfield, London EC1A 9HQ on Wednesday 30 April 2014 at 12 noon.
Copies of the Annual Report and Accounts and the Notice of the Annual General Meeting 2014 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 2014 Notice of Annual General Meeting and the form of proxy in relation to the 2014 Annual General Meeting has been submitted to the Financial Conduct 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: Central Securities Depository (Ghana) Limited, 4th Floor, Cedi House, PMB CT 465 Cantonments, Accra, Ghana (Telephone: +233 (0)302 689 3103 or +233 (0)302 689 314).
Appendices
Appendix A: Directors' responsibility statement
The following directors' responsibility statement is extracted from the Annual Report and Accounts (page 122).
Directors' responsibility statement required by DTR 4.1.12R
We confirm that to the best of our knowledge:
- The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
- The Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole together with a description of the principal risks and uncertainties that they face: and
- The Annual Report and Financial Statements, taken as a whole, are fair balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
By order of the Board
Aidan Heavey Ian Springett
Chief Executive Officer Chief Financial Officer
11 February 2014 11 February 2014
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 (page 43 and pages 73 -77).
2014 to 2016 Short-to-Medium Term Performance Risks
Each year Tullow identifies a number of key risks and uncertainties with regard to the successful delivery of the Group's business plan. These short-to-medium term risks are set out below, and indicate the principal risks associated with the 2014 to 2016 business plan period.
· Avoid sustained exploration failure and consistently deliver 200 mmboe Contingent Resources each year;
· Deliver major projects on time whilst ensuring safe operations;
· Resolve key commercial and tax issues in Uganda to allow progress to PoD approval;
· Ensure sufficient liquidity by reference to sustained operating cashflow, future capex plans and the delivery of portfolio activity; and
· Successful management and mitigation of above-ground risk given local elections and political uncertainty in key African countries of operations.
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. The tables below represent the Board and Management's view of the most material and important risks to Tullow. As a result they do not comprise all the risks and uncertainties we face.
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Strategy fails to meet shareholder objectives |
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Sustained |
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Key operational |
Strategic priority |
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Strategic objective |
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Execute selective high-impact exploration and appraisal programmes. |
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Safely manage and deliver all major projects and production operations, increasing cash flow and commercial reserves. |
Executive responsibility |
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Aidan Heavey |
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Angus McCoss |
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Paul McDade |
Performance indicator |
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· Long-term TSR |
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· Resources growth · Exploration success ratio · Portfolio renewal and high-grading · Finding costs |
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· Yearly operations targets · Timely delivery of projects · Production forecasts |
Impact |
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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 |
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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. |
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Operational delivery fails to meet cost and schedule budgets or operational objectives, causing returns to be eroded. |
Policies and systems |
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Exploration-led growth strategy, ongoing portfolio management, three-year business plan, active Investor Relations programme, bi-annual investor survey, annual review of strategic objectives |
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Clear exploration strategy based on core campaigns, GELT, competitive capital allocation process and annual high-impact E&A programme. |
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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 |
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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 |
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Board approved E&A programme. Monthly reporting to the Board on finding costs per boe and high-grading of Group's portfolio, with |
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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. |
Risk mitigation |
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· Reaffirmation of exploration-led growth strategy · Exploration success in Norway and Kenya · TEN development project under way following Government approval and award of key contracts · Meetings with 350 institutions · Market perception survey |
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· 100% exploration success rate in onshore Kenya with an updated estimate of discovered resources to over 600 mmbo · Basin-opening exploration success in Norway · Over 200 mmboe of Contingent Resources added |
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· Production for year 84,200 boepd, 6% increase on 2012 · TEN development project under way with key contracts awarded to deliver first oil in mid-2016 · Banda Field Development Plan approved by Government, progress to agree commercial contracts for full project sanction underway |
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Insufficient liquidity, inappropriate financial strategy |
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Cost & capital |
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Oil & gas |
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Strategic priority |
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Manage financial and business assets to enhance our portfolio, replenish upside potential and |
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Manage financial and business assets to enhance our portfolio, replenish upside potential and |
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Manage financial and business assets to enhance our portfolio, replenish upside potential and support funding needs. |
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Executive responsibility |
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Ian Springett |
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Ian Springett |
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Ian Springett |
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Performance indicator |
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· Operating cash flow · Debt profile and capacity · Gearing |
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· Cash operating costs per boe · Finding costs per boe · Capital expenditure and cost management targets |
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· Realised commodity prices |
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Impact |
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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 |
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Ineffective cost control leads to reduced margins and profitability, reducing operating cash flow and the ability to fund the business. |
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Volatility in commodity prices impacts the Group's revenue streams, with an adverse effect |
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Policies and systems |
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Financial strategy, cash flow forecasting and management |
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DoA and budgeting and reporting processes, and project approval process for all significant categories of expenditure. |
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Hedging strategy. |
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Mitigation process |
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Prudent approach to debt and equity, with a balance maintained through refinancing, cash flow |
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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. |
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Hedging strategy agreed by the Board, with monthly reporting of hedging activity. |
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Risk mitigation |
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· $650 million corporate · TEN farm-down in progress · Sale of Pakistan and Bangladesh assets agreed |
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· Capital expenditure for 2013 was $1.8 billion (2012: · Finding costs $5.1 per boe · Cash operating costs $16.5 per boe · Monitoring of expenditure integrated with quarterly Business Unit reviews of performance |
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· Realised oil price $105.7/bbl · Realised gas price 65.6 pence |
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Supply chain |
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EHS failure or |
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Information & |
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Strategic priority |
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Manage financial and business assets to enhance our portfolio, replenish upside potential and support funding needs. Achieve strong governance across all Tullow activities and continue to build trust and reputation with |
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Ensure safe people, procedures and |
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Achieve strong governance across all Tullow activities and continue to build trust and reputation with all stakeholders. |
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Executive responsibility |
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Graham Martin |
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Paul McDade |
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Angus McCoss |
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Performance indicator |
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· Timely delivery of projects · Due diligence checks · Contract management scorecard · Local Content Expenditure |
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· EHS scorecard |
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· Prevent cyber attacks and information security breaches |
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Impact |
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A delay in delivery of products or services results in project delivery delays, causing significant financial penalties and a loss of reputation |
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Major event from drilling or production operations impacts staff, contractors, communities or the environment, leading to loss of reputation, revenue and/or shareholder value. |
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Loss of sensitive proprietary information, financial fraud, reduction or halt in production. |
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Policies and systems |
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Group contracting and procurement procedures, post contract award procedures, market, contract and supplier due diligence, logistics standard operating procedures and Local Content policy. |
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Board-level EHS Committee, Group-wide EHS policies, Tullow Oil Environmental Standards (toes), |
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Information security policy framework defines structure, risk methodology, levels of activity, Group policy and standards. |
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Mitigation process |
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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. |
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Board-level commitment. EHS standards set and monitored across the Group through Business Unit performance reporting. Clear EHS standards, policies and procedures supported by strong leadership accountability and commitment throughout the organisation. |
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The information security strategy integrates information, personnel and physical security. A collaborative cross-functional risk group provides governance and ensures 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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Risk mitigation |
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· Independent review of · Supplier risk assessment and due diligence revised and risk management now embedded for pre and post award activities · Supplier monitoring integrated with Tullow supplier performance management procedures being rolled out · Training under way to improve contract holder capability in supplier management |
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· EHS and External Affairs teams integrated to enhance · EHS Management Standards implemented · Enhanced land transport policy and standard implemented · Board EHS Committee operational |
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· Information security training programme · rolled out · Multifunctional Information Security Committee established · Information security policy framework updated · UN Cyber Governance Health Check completed |
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Bribery & corruption |
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Governance & legal risk |
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Loss of key staff & |
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Strategic priority |
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Ensure adequate procedures are in place to minimise risks to bribery and corruption. |
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Achieve strong governance across all Tullow activities and continue to build trust and reputation with |
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Build a strong unified team with excellent commercial, technical and financial skills and entrepreneurial flair. |
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Executive responsibility |
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Graham Martin |
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Graham Martin |
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Graham Martin |
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Performance indicator |
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· Rollout of the Code of Conduct training and certification |
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· No material issues |
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· Staff turnover · Recruitment for key roles |
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Impact |
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Corrupt actions or practices in |
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Contractual or other liability |
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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 |
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Policies and systems |
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Code of Business Conduct and corporate responsibility policies |
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Stakeholder engagement. Ensure timely identification, resourcing and management of potential legal liability claims. |
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HR strategy, localisation, our values, HR function and policies, performance management and training and development. Talent management and external benchmarking. |
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Mitigation process |
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Consistent ethical standards established and applied through |
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Experienced legal and commercial teams integrated with business decision making process; comprehensive knowledge of contractual and regulatory regimes. |
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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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Risk mitigation |
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· Code of Conduct Certification process extended to all staff · Compliance team · Bribery and corruption · 2012 Good Corporation compliance review implemented · Confirmation of Code awareness programme conducted |
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· Established relationships with experienced local and international external counsel |
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· Staff turnover remains low · Succession planning under way for the key 100 roles within · New 'People' strategy roll out, including Executive travel to |
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Political risk |
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social risk |
Strategic priority |
Nurture long-term relationships with local governments, communities and key stakeholders. |
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Nurture long-term relationships with local governments, communities and key stakeholders. |
Executive responsibility |
Paul McDade |
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Paul McDade |
Performance indicator |
· No stoppages to our activities · No disturbances or force majeure events |
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· No stoppages to our activities · No disturbances or force |
Impact |
Changes in political regimes can
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Erosion of Tullow's social licence |
Policies and systems |
Portfolio risk management tool including review of political regimes and risks. |
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Group Social Performance |
Mitigation process |
Early identification and ongoing monitoring of political risks and opportunities. Management plans addressing political impacts associated with existing or planned operations. Ensuring that Tullow has appropriate resourcing and competency to identify, analyse and advise on political risk management. |
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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. Community engagement supported by grievance management processes. |
Risk mitigation |
· Political stakeholder mapping within key countries of operation · Identification of political risks and opportunities and appropriate planning and stakeholder engagement · Development of practical political risk guide for business units, to implement best practice processes, tools and governance models for political/risk identification and mitigation |
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· Doubled discretionary investment in social projects in Kenya · Strengthened attention on social performance in Environmental Social Impact Assessments · Piloted social performance and stakeholder engagement software management tool in East Africa · Recruited additional |
Appendix C: Related party transactions
The following related party transactions are extracted from the Annual Report and Accounts (page 159).
The Directors of Tullow Oil plc are considered to be the only key management personnel as defined by IAS 24 - Related party disclosures.
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2013 $m |
2012 $m |
Short-term employee benefits |
9.9 |
9.1 |
Post employment benefits |
1.1 |
1.1 |
Amounts awarded under long-term incentive schemes |
4.1 |
2.9 |
Share-based payments |
11.2 |
9.5 |
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26.3 |
22.6 |
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 115.
END