Annual Financial Report

RNS Number : 5402E

Tullow Oil PLC

07 April 2011

 

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

7 April 2011

Annual Report and Accounts and Notice of Annual General Meeting

Following the release on 9 March 2011 of the Company's preliminary full year results announcement for the year ended 31 December 2010 (the "Preliminary Announcement"), the Company announces it has published its Annual Report and Accounts for 2010 (the "Annual Report and Accounts").

Copies of the Annual Report and Accounts and the Notice of the Annual General Meeting 2011 are available to view on the Company's website: www.tullowoil.com

The Company's 2011 AGM will be held at Haberdashers' Hall, 18 West Smithfield, London EC1A 9HQ on Thursday 12 May 2011 at 11.00 a.m.

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 2011 and the Form of Proxy in relation to the Annual General Meeting 2011 have also been submitted to the UK Listing Authority via the National Storage Mechanism and will shortly be available for viewing at www.hemscott.com/nsm.do These documents will also shortly be available for inspection at the Irish Stock Exchange which is situated at:

Irish Stock Exchange
28 Anglesea Street
Dublin 2
Ireland

In addition, a copy of the "Year in Review" for the year ended 31 December 2010 has been submitted to the UK Listing Authority via the National Storage Mechanism and also the Irish Stock Exchange. The "Year in Review" has been sent to those shareholders who no longer receive a hard copy of the Annual Report and Accounts.

Appendices

Appendix A: Directors' responsibility statement

The following directors' responsibility statement is extracted from the Annual Report and Accounts (page 100).

Directors' responsibility statement required by DTR4.1.12R

We confirm that to the best of our knowledge:

·      The financial statements, prepared in accordance with International Financial Reporting Standards, 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

8 March 2011                        8 March 2011

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 44-47)

2011 principal risks and uncertainties

We have identified the following principal risks and uncertainties in relation to the Group's financial and operational performance in 2011:

·      Risks associated with Jubilee production ramp-up;

·      Timely approvals from Ugandan authorities to progress drilling and development operations; and

·      Exploration programme risk with high-impact wells planned in our 2011 E&A programme in Africa and South America.

In addition the Board has a 2011 objective with regard to major corporate risks as set out on page 73.

Long-term performance risks

We group risk into strategic, financial, operational and external risks, which we believe could potentially adversely impact employees, operations, performance and our 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 risk assumes greater importance than others during the course of the year.

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 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 the following table. 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
Strategy fails to meet shareholder expectations	Ineffective or poorly-executed strategy fails to create shareholder value. It also fails 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 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 to 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, performance management and reward and recognition; together with the continuing success of the Group.

Financial risk
Risk	Impact	Mitigation
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 M&A activity. Regular Board review and approval for financing options. Short-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 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
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.
Key development failure	Development projects fail to meet cost and schedule budgets, 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. Project milestone KPIs established for Ghana and Uganda.
Key development failure	Failure to sustain exploration success limits replacement of reserves and resources, which impacts investor confidence on long-term strategic delivery.	Board approval of E&A programme. Monthly reporting to Board on full finding costs per barrel 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.

External risk
Risk	Impact	Mitigation
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 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, resulting in expropriation of the Group's 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 adverse effect on liquidity.	Hedging strategy agreed by Board, with monthly reporting of hedging activity.
Hostile acquisition	Hostile acquisition if not handled correctly causes major distraction and value erosion.	Robust defence strategies against hostile acquisitions. Effective investor engagement and ongoing open and transparent communications programmes.

Appendix C: Related party transactions

The following related party transactions are extracted from the Annual Report and Accounts (page 139).

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

	2010 £m	2009 £m
Short-term employee benefits	7.0	6.8
Post employment benefits	0.9	0.5
Amounts awarded under long-term incentive schemes	1.4	1.9
Share-based payments	5.6	4.4
	14.9	13.6

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 Remuneration Report on pages 86 to 94.

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