Annual Report & Notice of AGM
Tuesday 15 March, 2016
Tullow Oil PLC
Annual Report and Notice of AGM
Tullow Oil plc ("Tullow" or the "Company")
Following the release on 10 February 2016 of the Company's preliminary full year results announcement for the year ended 31 December 2015 (the "Preliminary Announcement"), the Company announces it has published its Annual Report and Accounts for this period (the "Annual Report and Accounts").
The Company's 2016 AGM will be held at the Company's registered address at 9 Chiswick Park, 566 Chiswick High Road, London, W4 5XT on Thursday 28 April 2016 at 12 noon.
Copies of the Annual Report and Accounts and the Notice of the Annual General Meeting 2016 are available to view on the Company's website: http://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 its group.
In accordance with Listing Rule 9.6.1, a copy of each of the Annual Report and Accounts, the 2016 Notice of Annual General Meeting and the form of proxy in relation to the 2016 Annual General Meeting has been submitted to the Financial Conduct Authority via the National Storage Mechanism and will be available for viewing shortly at http://www.morningstar.co.uk/uk/nsm. 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 (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)302 689 313 or +233 (0)302 689 314).
For further information, please contact:
Tullow Oil plc (London) (+44 (0) 20 3249 9000)
· Chris Perry (Investor Relations)
· James Arnold (Investor Relations)
· George Cazenove (Media Relations)
Appendices
Appendix A: Directors' responsibility statement
The following directors' responsibility statement is extracted from the Annual Report and Accounts (page 114).
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
9 February 2016 9 February 2016
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 55 to 63).
Principal Risks
Tullow's principal risks are listed in the following tables. Internally, the Group monitors and mitigates a more substantive list of risks, but those listed are the risks currently considered to be the most important because of their likelihood, the magnitude of their potential impact, frequency on the Executive's agenda, or a combination of these reasons.
|
Risk and Executive Responsibility |
Link to business model |
Potential Impact |
Mitigation and assurance |
2015 outcomes and ongoing actions |
|
STRATEGIC |
||||
|
(1) Strategy not fully achievable in sustained low oil prices
Aidan Heavey, Chief Executive Officer |
Sustainable long-term value growth |
· Tullow may be unable to deliver value growth during a period of sustained low oil price · Inability to deleverage the business |
· Robust planning of strategy and business plan which is reviewed and approved by the Board · Business plan includes options/alternatives for lower oil prices that underpin the agreed strategy · Strict capital allocation process in line with agreed business plan · Rigorous monthly performance management and reporting to track delivery · Regular investor meetings with Executive to gain feedback and challenge |
· Improved Group capital allocation process and reporting · Continued review of cost structure post MSP · Test and retain options for increased EBITDA delivery · Focus on deleveraging options |
|
(2) Inability to progress major portfolio management options
Ian Springett, Chief Financial Officer |
Finance & Portfolio Management |
· Inability to execute strategic farm downs or divest non-core assets · Potential over concentration of risk in some areas · Increased exposure to capex and decommissioning costs · Write down on acquired assets, over-investment in mature assets for low returns, using capital that could be better invested elsewhere · Reputational harm |
· Maintain a highly competent transaction capability · Conduct regular portfolio assessments with the Board as part of the annual strategy review · Adhere to relevant commercial and investment appraisal standards, and review of all major acquisition or divestment proposals · Follow approval process with the Executive Directors and the Board for any major decisions and new country entry to ensure a suitable amount of screening, challenge and justification · Conduct post-transactions reviews, whether completed or aborted |
· Initiated bi-annual portfolio reviews with Business Delivery Teams · Portfolio review is part of the Board's agendas · Improve quality of portfolio analysis · Execute current strategic portfolio plan · Progress and operate current operations efficiently in order to gain maximum value |
|
(3) Impact on TEN expected value due to border dispute between Ghana and Côte d'Ivoire
Paul McDade, Chief Operating Officer |
Development & Production |
· Loss of some of TEN reserves/ facilities and contractual rights if ITLOS decision moves maritime border and part of the field is in Côte d'Ivoire waters |
· Regularly monitor the ITLOS case, analysing claims with expert counsel assistance · Work closely with the Government of Ghana to fully understand the potential impacts of movement in border and encouraging continued dialogue between both countries · Providing technical support and materials as requested · Identifying other uses for rigs to avoid periods of inactivity |
· Case progressed in line with schedule defined by ITLOS · Scenario analysis · Alternative projects for planned rig usage |
|
(4) Impact on TEN expected value due to delayed delivery
Paul McDade, Chief Operating Officer |
Development & Production |
· Delay in production start up and revenue build up which impacts financial performance and reputation |
· Effective project management driven by execution plan and competent professional project team · Assurance plans and stage gated project delivery system in place, including delivery of independent operations readiness and assurance audits · Regular project meetings with Tullow leadership and major contractors |
· Project over 85% complete in February 2016, on track and on budget · Continued tracking of project plan progress with necessary interventions · Series of workshops with TEN team and major contractors · Continually identifying and mitigating new risks if they occur · Bi-monthly project steering group meetings · Business transition plan |
|
(5) Failure to adequately manage stakeholder relationships
Aidan Heavey, Chief Executive Officer |
Responsible Operations
Shared Prosperity |
· Restrictions to operations, leading to significant variances in financial forecasts · Contractual or regulatory change could impact the viability of projects · Portfolio of assets affected by licence withdrawals or expropriation · Reputational damage and loss of social licence to operate · Fines, penalties or criminal prosecution |
· Non-Technical Risk Standard sets minimum requirements for stakeholder management · A quarterly political risk driver analysis is completed in partnership with the Business Units · Country Strategy Papers, alongside stakeholder engagement plans, provide context and a framework · Skilled, experienced and competent staff are embedded in Business Units and the Corporate Centre provides strategic advice and assurance · Safety, Sustainability and External Affairs (SSEA) scorecard monitors certain leading and lagging indicators of effectiveness such as work stoppage man hours/total man hours, % closure of grievances |
· Fully embedded Non-Technical Risk Standard · Develop 'landscape level solution' plans that map and articulate integrated solutions for complex risks · Develop an approach and plan to obtain agreements with communities · Develop a system to manage Group Regulatory and non-Supply Chain (SC) agreement compliance aligned to the Non-SC Agreement Management Standard |
|
FINANCIAL |
||||
|
(6) Insufficient liquidity and funding capability
Ian Springett, Chief Financial Officer |
Finance & Portfolio Management |
· Excessive leverage could lead to the Group being unable to meet its financial obligations · Constrains ability to raise further debt |
· Prudent approach to diversified debt and equity, with a balance maintained through business planning and performance management processes · Finance standard in place to ensure debt funding is optimised for all assets and projects · The Board reviews and approves the financial strategy, the funding position and policy targets · Short-term and long-term cash forecasts are reported to Senior Management and to the Board on a regular basis · Regular monitoring of maturities of facilities, and relationships with lending banks and debt capital investors continually developed · Significant hedging policy adopted to protect against oil price volatility |
· $450 million additional bank commitments secured in 2015 · Strength of assets retained debt capacity despite fall in oil prices · 2015 year end facility headroom and free cash of $1.9 billion; net debt of $4 billion · Mark-to-market value of hedging instruments $623 million at end 2015 · 2016 financing initiatives in progress; discussions under way with commercial banks to consider possible refinancing/ amendments to the RBL and RCF facilities · Capital allocation process implemented to meet funding targets |
|
(7) Failure to manage oil price risk
Ian Springett, Chief Financial Officer |
Finance & Portfolio Management |
Commodity price volatility could reduce cash flow and asset value by reduced:
· Revenues · EBITDA · Debt capacity · Funding to support investment programme |
· Board approved hedge programme to protect against low oil prices · Programme is monitored monthly and communicated to the Board · Hedging programme must be executed in accordance with the policy, with approvals sought ahead of execution |
· Mark-to-market value of hedges at the end of 2015 was $623 million · Approximately 52 per cent (64 per cent post-tax) of 2016 entitlement oil production hedged at an average floor price of $75/bbl · Value of hedges support EBITDA and contribute to debt capacity under the RBL |
|
OPERATIONAL |
||||
|
(8) Loss of production revenue from Jubilee
Paul McDade, Chief Operating Officer |
Development & Production |
· Loss of some or all of Jubilee production revenue for an extended period of time due to the failure of critical equipment |
· Ongoing Production Loss Reporting and Root Cause Analysis to identify actions and prevent issues reoccurring · Integrity, operations and competency systems in place, supported by critical spares and strategy and competency certification for all core crew · External and internal assurance programme · Appropriate standards and plans in place · Weekly review of maintenance, fortnightly Asset Integrity Improvement Steering Committee, monthly Asset Integrity Management meetings and analysis by both Business Unit and Group Operations |
· 2015 gross production averaged 102,600 bopd · Ongoing analysis of FSPO systems to strive for top quartile reliability · Jubilee Asset Integrity Audit completed in 2015 · Implementation of Asset Integrity Improvement Plan · Improvements to Competency Assessments · Purchase of critical spare equipment as per agreed spares strategy |
|
(9) Major operational incident
Paul McDade, Chief Operating Officer |
Development & Production |
Major failure in Tullow operated asset results in:
· multiple fatalities or serious injuries · environmental damage or pollution · asset damage or remediation · mitigation costs and compensation · reputational damage |
During exploration and appraisal: · Early well design and planning screening for new exploration opportunities · Well risk profiles reviewed by Senior Management · Well design, process and equipment in accordance with Well Design and Operations Standard, Well Control Standard and associated procedures During development and · Minimum asset integrity, maintenance and planning requirements mandated through Production Operations Standard and associated procedures · Use of computer-based maintenance systems and leading corrosion management application system · Independently verified Safety Case and Cases to Operate procedure Overall: · Vigorous assurance processes both internally and externally · Operations risk insurance coverage · Jubilee Asset Integrity Project Improvement Steering Committee meets fortnightly · In case of incident, contingency/containment plans e.g. emergency response procedures, with contracts in place for third-party support |
· Jubilee Asset Integrity Audit completed in 2015 · Group-wide Well Delivery Process Audit completed · Ongoing compilation of Asset Integrity Action Plans · Competency reviews and regular monitoring of key data and procedures to identify gaps or losses · Identify and action improvements to Competency Assessments · Ongoing audit of implementation and effectiveness of mitigation controls and actions |
|
(10) Inability to replenish exploration portfolio
Angus McCoss, Exploration Director |
Exploration & Appraisal |
Failure to replenish exploration acreage or fund new ventures results in:
· poor or no queue of drill-ready prospects · failure to deliver key element of growth strategy |
· New opportunities are considered against existing portfolio to maintain diversity of prospects · Funding is limited and exploration portfolio reviewed annually · BDTs, in particular New Ventures, tasked with actively seeking and pursuing opportunities · Exploration and Appraisal Values Controls Standard in place · Exploration and Development Geosciences Executive team work with BDTs and Commercial team on portfolio planning · Corporate Centre assurance programme and central store of all exploration data · Twice-yearly review of exploration prospect inventory and tracking of net prospective risked resources |
· New licence granted in Guyana · Farm-down of licences in Suriname, Norway, Mauritania · Review of New Ventures strategy · Geoscientists focused on seismic interpretation to decipher best prospects · Ongoing farm-downs to reduce Tullow equity earlier in licence cycle to gain carries and reduce costs |
|
(11) Major cyber or information security incident
Angus McCoss, Exploration Director |
Governance & Risk Management |
A compromise could lead to:
· disruption to or halt of critical business systems · loss or theft of confidential information, competitive advantage and intellectual property · financial and/or reputational harm |
· Advanced Security Operations Centre (ASOC) provides global monitoring, analysis, alerting and incident response · Bespoke advanced security equipment is used at key operations sites which are continually updated with relevant intelligence · Active member of Cyber Information Sharing Partnership (CISP) and maintain key government relationships which provide alerts or response to hidden threats · Third-party specialists analyse potential areas of weakness and provide network assurance activities · Group-wide awareness training, aligned with Information Security Standard, conducted across Tullow's business and operations |
· Ongoing Group-wide awareness training, with additional bespoke training for higher risk areas · Ongoing improvement of network infrastructure resilience · Specialist external assurance of TEN and Jubilee industrial control systems |
|
(12) Failure to retain or develop key staff
Aidan Heavey, Chief Executive Officer |
Organisation & Culture |
· Key skills and experience are not available internally, impacting delivery of the business plan · Staff turnover increases resulting in recruitment costs and possible buy-in of short-term contractors · Disengaged workforce not aligned with culture of efficiency, performance management and cost consciousness · Localisation and organisational plans may not be delivered, affecting relationships with national governments · Competitors recruit Tullow staff |
• Bi-annual performance and development cycle, with functions and BDTs responsible for their employees' development and career progression · Succession planning, localisation and diversity objectives are set and being actively progressed and key targets monitored · Nominations Committee focus on diversity plan · Organisation structure designed for HR Business Partner to report key staff data including resignations through the line to BDT and functional discipline and to the HR function · Monthly reporting to Executives of HR analytics · Organisation Strategy & Effectiveness (OSE) VP attends weekly Operations Committee meetings · Key people data reported to monthly and quarterly performance management meetings · A staff engagement plan is agreed with HR, Communications and Executives, with key deliverables set each year · Annual Employee Engagement Survey · Annual review of reward package |
· Revised organisation design with clear accountabilities · Embedded performance management framework · Increased focus on staff engagement to embed culture · Implementation of employee engagement plan · Re-structured HR Delivery & Reward team to ensure higher level of capability and experience · Review of total reward for all employees planned in 2016 and one-off Exceptional Share Award made in 2015 · Diversity plan defined with actions in place for 2016 |
|
COMPLIANCE |
||||
|
(13) Major breach of business or ethical conduct standards
Aidan Heavey, Chief Executive Officer
Ian Springett, Chief Financial Officer |
Governance & Risk Management |
· Unethical behaviour breaches anti-corruption laws · Investigations result in reputational damage · Cost impact through investigation costs and fines · Senior Officers liable under UK Bribery Act |
· Implementation of the Tullow Code of Ethical Conduct, with annual certification process carried out with all staff · Gifts and Hospitality (G&H) Standard adhered to and maintained, with online G&H register available to all staff · Other relevant Ethics & Compliance standards, policies and procedures in place, adhered to and maintained · Leadership leading by example and advocating good behaviour · Dedicated Ethics & Compliance Advisors in Key Business Units · Appropriate due diligence carried out in relation to service providers, contractors and other counter-parties · Appropriate anti-bribery and corruption provisions in agreements with service providers, contractors and other counter-parties |
· Updated Code of Ethical Conduct · Established Ethics & Compliance Board sub-committee · Ongoing development of a monitoring and assurance plan to be used by Business Units · Planned development of an e-learning solution to continue to promote the Code of Ethical Conduct · Fraud Risk Awareness provided to 591 staff · Achieved 100 per cent completion of the self-certification of compliance with the Code of Ethical Conduct |
Appendix C: Related party transactions
The following related party transactions are extracted from the Annual Report and Accounts (page 153).
The Directors of Tullow Oil plc are considered to be the only key management personnel as defined by IAS 24 - Related Party Disclosures.
|
|
2015 ($m) |
2014 ($m) |
|
Short-term employee benefits |
10.0 |
9.5 |
|
Post-employment benefits |
1.1 |
1.2 |
|
Amounts awarded under long-term incentive schemes |
4.2 |
3.3 |
|
Share-based payments |
5.7 |
10.4 |
|
|
21.0 |
24.4 |
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) and Tullow Incentive Plan (TIP).
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 90 to 106.
[END]
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