REG - Tullow Oil PLC - 2016 Full Year Results <Origin Href="QuoteRef">TLW.L</Origin> - Part 2
08/02/2017 07:06
- Part 2: For the preceding part double click ID:nRSH2885Wa
Total liabilities (8,559.2) (8,173.1)
Net assets 2,242.5 3,174.7
EQUITY
Called up share capital 147.5 147.2
Share premium 619.3 609.8
Equity component of convertible bonds 48.4 -
Foreign currency translation reserve (232.2) (249.3)
Hedge reserve 128.2 569.9
Other reserves 740.9 740.9
Retained earnings 778.0 1,336.4
Equity attributable to equity holders of the Company 2,230.1 3,154.9
Non-controlling interest 12.4 19.8
Total equity 2,242.5 3,174.7
Condensed consolidated statement of changes in equity Year ended 31 December 2016
Called up share Share Equity component of convertible bonds$m Foreign currency translation reserve$m Hedge reserve$m Other reserves$m Retained earnings Total Non-controlling interest Total
capital premium $m $m $m Equity
$m $m $m
At 1 January 2015 147.0 606.4 - (205.7) 401.6 740.9 2,305.8 3,996.0 24.3 4,020.3
Loss for the year - - - - - - (1,034.8) (1,034.8) (2.1) (1,036.9)
Hedges, net of tax - - - - 168.3 - - 168.3 - 168.3
Currency translation adjustments - - - (43.6) - - - (43.6) - (43.6)
Issue of employee share options 0.2 3.4 - - - - - 3.6 - 3.6
Vesting of PSP shares - - - - - - (1.9) (1.9) - (1.9)
Share-based payment charges - - - - - - 67.3 67.3 - 67.3
Distribution to non-controlling interests - - - - - - - - (2.4) (2.4)
At 1 January 2016 147.2 609.8 - (249.3) 569.9 740.9 1,336.4 3,154.9 19.8 3,174.7
Loss for the year - - - - - - (599.9) (599.9) 2.6 (597.3)
Hedges, net of tax - - - - (441.7) - - (441.7) - (441.7)
Currency translation adjustments - - - 17.1 - - - 17.1 - 17.1
Issue of convertible bonds - - 48.4 - - - - 48.4 - 48.4
Issue of employee share options 0.3 9.5 - - - - - 9.8 - 9.8
Vesting of PSP shares - - - - - - (9.4) (9.4) - (9.4)
Share-based payment charges - - - - - - 50.9 50.9 - 50.9
Distribution to non-controlling interests - - - - - - - - (10.0) (10.0)
At 31 December 2016 147.5 619.3 48.4 (232.2) 128.2 740.9 778.0 2,230.1 12.4 2,242.5
1. The foreign currency translation reserve represents exchange gains and
losses arising on translation of foreign currency subsidiaries, monetary items
receivable from or payable to a foreign operation for which settlement is
neither planned nor likely to occur, which form part of the net investment in
a foreign operation, and exchange gains or losses arising on long-term foreign
currency borrowings which are a hedge against the Group's overseas
investments.
2. The hedge reserve represents gains and losses on derivatives classified
as effective cash flow hedges.
3. Other reserves include the merger reserve and the treasury shares reserve
which represents the cost of shares in Tullow Oil plc purchased in the market
and held by the Tullow Oil Employee Trust to satisfy awards held under the
Group's share incentive plans.
Condensed consolidated cash flow statement Year ended 31 December 2016
Notes 2016$m 20151$m
Cash flows from operating activities
Loss before taxation (908.3) (1,297.3)
Adjustments for:
Depreciation, depletion and amortisation 466.9 580.1
Loss on disposal 3.4 56.5
Goodwill impairment 164.0 53.7
Exploration costs written off 10 723.0 748.9
Impairment of property, plant and equipment, net 11 167.6 406.0
Provision for onerous service contracts, net 15 114.9 185.5
Payments under onerous service contracts 15 (132.0) -
Provisions for inventory - 22.2
Decommissioning expenditure 15 (23.0) (40.8)
Share-based payment charge 43.9 48.7
(Gain)/loss on hedging instruments (18.2) 58.8
Finance revenue (26.4) (4.2)
Finance costs 198.2 149.0
Operating cash flow before working capital movements 774.0 967.1
Increase in trade and other receivables (99.4) (26.5)
(Increase)/decrease in inventories (47.8) 9.0
(Decrease)/increase in trade payables (29.8) (6.3)
Cash flows from operating activities 597.0 943.3
Income taxes (paid)/received (84.5) 34.9
Net cash from operating activities 512.5 978.2
Cash flows from investing activities
Proceeds from disposals 62.8 55.8
Purchase of intangible exploration and evaluation assets (275.2) (647.6)
Purchase of property, plant and equipment (756.0) (1,092.0)
Interest received 1.2 4.2
Net cash used in investing activities (967.2) (1,679.6)
Cash flows from financing activities
Net proceeds from issue of share capital 9.9 3.5
Debt arrangement fees (31.7) (25.7)
Repayment of bank loans (769.1) (191.8)
Drawdown of bank loans 1,187.5 1,168.8
Issue of convertible bonds 300.0 -
Repayment of obligations under finance leases (3.3) (3.3)
Finance costs paid (284.0) (203.6)
Distribution to non-controlling interests (10.0) (2.4)
Net cash generated by financing activities 399.3 745.5
Net (decrease) /increase in cash and cash equivalents (55.4) 44.1
Cash and cash equivalents at beginning of year 355.7 319.0
Foreign exchange loss (18.4) (7.4)
Cash and cash equivalents at end of year 281.9 355.7
1. An amount of $372.8 million has been re-presented between movements in
trade payables and purchase of property, plant and equipment related to
movements in capital accruals. This reduced the cash outflow for the purchase
of property, plant and equipment in 2015 from $1,464.8m to $1,092.0m, with a
corresponding adjustment to the cash flow from changes in trade payables,
resulting in the net cash inflow from increases in trade payables of $366.5m
becoming a net cash outflow from decreases in trade payables of $6.3m.
Notes to the preliminary financial statements
Year ended 31 December 2016
1. Basis of Accounting and Presentation of Financial Information
Whilst the financial information in this preliminary announcement has been
prepared in accordance with International Financial Reporting Standards (IFRS)
and International Financial Reporting Interpretation Committee (IFRIC)
interpretations adopted for use by the European Union, with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS and with the
requirements of the United Kingdom Listing Authority (UKLA) Listing Rules,
this announcement does not contain sufficient information to comply with IFRS.
The Group will publish full financial statements that comply with IFRS in
March 2017.
The financial information for the year ended 31 December 2016 does not
constitute statutory accounts as defined in sections 435 (1) and (2) of the
Companies Act 2006. Statutory accounts for the year ended 31 December 2015
have been delivered to the Registrar of Companies and those for 2016 will be
delivered following the Company's annual general meeting. The auditor has
reported on these accounts; their reports were unqualified, did not include a
reference to any matters to which the auditor drew attention by way of
emphasis of matter and did not contain a statement under section 498 (2) or
(3) of the Companies Act 2006.
The accounting policies applied are consistent with those adopted and
disclosed in the Group's financial statements for the year ended 31 December
2015. There have been a number of amendments to accounting standards and new
interpretations issued by the International Accounting Standards Board which
were applicable from 1 January 2016, however these have not had a material
impact on the accounting policies, methods of computation or presentation
applied by the Group.
2. Loss per Share
Basic loss per ordinary share amounts are calculated by dividing net loss for
the year attributable to ordinary equity holders of the parent of $599.9
million (2015: $1,034.8 million, loss), by the weighted average number of
ordinary shares outstanding during the year of 911.9 million (2015: 911.3
million).
Diluted loss per ordinary share amounts are calculated by dividing net loss
for the year attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year plus
the weighted average number of ordinary shares that would be issued if
employee and other share options or the convertible bonds were converted into
ordinary shares. The diluted weighted average number of ordinary shares
increased by 96.6 million (2015: 25.1 million) in respect of employee share
options, resulting in a diluted weighted average number of shares of 1,033.0
million (2015: 936.3 million). Due to losses made in 2016 and 2015 all
potential ordinary shares are antidilutive.
3. Dividends
In view of current capital allocation priorities, the Board is again
recommending that no dividend is paid. At a time when Tullow is focusing on
capital allocation, financial flexibility and cost reductions, the Board
believes that Tullow and its shareholders are better served by retaining funds
in the business.
4. 2016 Annual Report and Accounts
The Annual Report and Accounts will be mailed in March 2017 only to those
shareholders who have elected to receive it. Otherwise, shareholders will be
notified that the Annual Report and Accounts is available on the Group's
website (www.tullowoil.com). Copies of the Annual Report and Accounts will
also be available from the Company's registered office at Building 9, Chiswick
Park, 566 Chiswick High Road, London W4 5XT.
5. Annual General Meeting
Tullow's AGM will take place on 26 April 2017 at 12pm at Tullow Oil plc,
Building 9, Chiswick Park, 566 Chiswick High Road, London, W4 5XT.
6. Segmental reporting
The information reported to the Group's Chief Executive Officer for the
purposes of resource allocation and assessment of segment performance is
focused on three Business Delivery Teams, West Africa (including non-operated
producing European assets), East Africa and New Ventures. Therefore the
Group's reportable segments under IFRS 8 are West Africa; East Africa; and New
Ventures. The following tables present revenue, loss and certain asset and
liability information regarding the Group's reportable business segments for
the years ended 31 December 2016 and 31 December 2015.
West Africa East Africa New Ventures Unallocated Total
$m $m $m $m $m
2016 1,269.9 - - - 1,269.9
Sales revenue by origin
Other operating income - lost production insurance proceeds - - - 90.1 90.1
Segment result 269.9 (341.0) (512.3) (39.2) (622.6)
Loss on disposal of other assets (3.4)
Unallocated corporate expenses (128.7)
Operating loss (754.7)
Gain on hedging instruments 18.2
Finance revenue 26.4
Finance costs (198.2)
Loss before tax (908.3)
Income tax credit 311.0
Loss after tax (597.3)
Total assets 7,701.7 2,383.5 467.2 249.3 10,801.7
Total liabilities (3,200.9) (157.6) (142.0) (5,058.7) (8,559.2)
Other segment information
Capital expenditure:
Property, plant and equipment 817.0 0.3 0.4 0.8 818.5
Intangible exploration and evaluation assets 9.9 137.4 144.1 - 291.4
Depreciation, depletion and amortisation (450.4) (0.9) (1.0) (14.6) (466.9)
Impairment of property, plant and equipment, net (167.2) - (0.4) - (167.6)
Exploration costs written off (7.7) (341.0) (374.3) - (723.0)
Goodwill impairment - - (164.0) - (164.0)
6. Segmental reporting contd.
West Africa East Africa New Ventures Unallocated Total
$m $m $m $m $m
2015 1,606.6 - - - 1,606.6
Sales revenue by origin
Segment result (189.7) (28.3) (461.2) (123.6) (802.8)
Loss on disposal of other assets (56.5)
Unallocated corporate expenses (234.4)
Operating loss (1,093.7)
Loss on hedging instruments (58.8)
Finance revenue 4.2
Finance costs (149.0)
Loss before tax (1,297.3)
Income tax credit 260.4
Loss after tax (1,036.9)
Total assets 7,510.5 2,601.6 1,011.2 224.5 11,347.8
Total liabilities (3,085.8) (341.4) (331.8) (4,414.1) (8,173.1)
Other segment information
Capital expenditure:
Property, plant and equipment 1,245.0 0.5 1.5 11.2 1,258.2
Intangible exploration and evaluation assets 23.1 399.6 203.6 - 626.3
Depreciation, depletion and amortisation (553.2) (1.1) (1.2) (24.6) (580.1)
Impairment of property, plant and equipment, net (406.0) - - - (406.0)
Exploration costs written off (380.0) (28.3) (340.6) - (748.9)
Goodwill impairment - - (53.7) - (53.7)
Unallocated expenditure and net liabilities include amounts of a corporate
nature and not specifically attributable to a reportable segement. The
liabilities comprise the Group's external debt and other non attributable
corporate liabilities.
7. Operating loss
Notes 2016$m 2015$m
Cost of sales
Operating costs 377.2 406.3
Operating lease payments 21.0 -
Depletion and amortisation of oil and gas assets 11 448.5 551.2
Underlift, overlift and oil stock movements (76.5) (1.5)
Share-based payment charge included in cost of sales 2.7 0.8
Other cost of sales 40.2 58.5
Total cost of sales 813.1 1,015.3
Administrative expenses
Share-based payment charge included in administrative expenses 41.2 47.9
Depreciation of other fixed assets 11 18.4 28.9
Relocation costs associated with major simplification project (0.5) 5.9
Other administrative costs 57.3 110.9
Total administrative expenses 116.4 193.6
Restructuring costs 15 12.3 40.8
8. Insurance proceeds
During 2016 the Group issued insurance claims in respect of the Jubilee turret
remediation project. Insurance proceeds of $145.0 million were recorded in the
year ended 31 December 2016 (2015: $nil). Proceeds related to lost production
under the Business Interruption insurance policy of $90.1 million (2015: $nil)
were recorded as other operating income - lost production insurance proceeds
in the income statement. Proceeds related to compensation for incremental
operating costs under the Business Interruption and Hull and Machinery
insurance policies of $31.8 million (2015: $nil) were recorded within the
operating costs line of cost of sales. Proceeds related to compensation for
capital costs under the Hull and Machinery insurance policy of $23.1 million
(2015: $nil) were recorded within additions to property, plant and equipment.
9. Taxation on loss on ordinary activities
a. Analysis of tax credit for the year
2016$m 2015$m
Current tax
UK corporation tax 67.3 (3.5)
Foreign tax (18.5) 94.9
Total corporate tax 48.8 91.4
UK petroleum revenue tax (1.1) (0.3)
Total current tax 47.7 91.1
Deferred tax
UK corporation tax 9.4 6.9
Foreign tax (369.8) (354.0)
Total deferred corporate tax (360.4) (347.1)
Deferred UK petroleum revenue tax 1.7 (4.4)
Total deferred tax (358.7) (351.5)
Total tax credit (311.0) (260.4)
b. Factors affecting tax credit for period
The tax rate applied to profit on ordinary activities in preparing the
reconciliation below is the UK corporation tax rate applicable to the Group's
non-upstream UK profits. The difference between the total current tax credit
shown above and the amount calculated by applying the standard rate of UK
corporation tax applicable to UK profits of 20% (2015: 20%) to the loss before
tax is as follows:
2016$m 2015$m
Group loss on ordinary activities before tax (908.3) (1,297.3)
Tax on Group loss on ordinary activities at the standard UK corporation (181.7) (259.5)
tax rate of 20% (2015: 20%)
Effects of:
Non-deductible exploration expenditure 25.8 114.7
Other non-deductible expenses 22.7 97.7
Derecognition of deferred tax previously recognised 30.2 -
Impairment of goodwill 127.9 10.7
Utilisation - tax losses not previously recognised (9.5) -
Net losses not recognised 61.7 15.8
Petroleum revenue tax (PRT) (6.7) (4.4)
UK corporation tax deductions for current PRT - 2.2
Adjustment relating to prior years (2.1) (14.9)
Adjustments to deferred tax relating to change in tax rates (0.8) (1.0)
Higher rate of taxation on Norway income (286.4) (132.7)
Other tax rates applicable outside the UK and Norway (86.8) (164.6)
PSC income not subject to corporation tax (1.6) (28.5)
Uganda capital gains tax - 108.2
Tax incentives for investment (3.7) (4.1)
Group total tax credit for the year (311.0) (260.4)
The Finance Act 2016 further reduced the main rate of UK corporation tax
applicable to all companies subject to corporation tax, except for those
within the oil and gas ring fence, to 19% from 1 April 2017 and 17% from 1
April 2020. These changes were substantively enacted on 6 September 2016 and
hence the effect of the change on the deferred tax balances has been included,
depending upon when deferred tax is expected to reverse.
The Group's profit before taxation will continue to arise in jurisdictions
where the effective rate of taxation differs from that in the UK. Furthermore,
unsuccessful exploration expenditure is often incurred in jurisdictions where
the Group has no taxable profits, such that no related tax benefit arises.
Accordingly, the Group's tax charge will continue to vary according to the
jurisdictions in which pre-tax profits and exploration costs written off
arise.
The Group has tax losses of $2,844.0 million (2015: $1,802.0 million) that are
available for offset against future taxable profits in the companies in which
the losses arose. Deferred tax assets have not been recognised in respect of
these losses as they may not be used to offset taxable profits elsewhere in
the Group due to uncertainty of recovery.
No deferred tax liability is recognised on temporary differences of $8.2
million (2015: $8.5 million) relating to unremitted earnings of overseas
subsidiaries as the Group is able to control the timing of the reversal of
these temporary differences and it is probable that they will not reverse in
the foreseeable future.
Tax relating to components of other comprehensive income
During 2016, $108.8 million (2015: $42.3 million) of tax has been recognised
through other comprehensive income of which $107.8 million (2015: $43.2
million) is current and $0.9 million (2015: $0.9 million) is deferred tax
relating to all credits (2015: charges) on cash flow hedges arising in the
year.
Current tax assets
As at 31 December 2016, current tax assets were $138.3 million (2015: $127.6
million) of which $90.0 million (2015: $55.0 million) relates to Norway, where
78% of exploration expenditure is refunded as a tax refund in the year
following the incurrence of such expenditure.
10. Intangible exploration and evaluation assets
2016$m 2015$m
At 1 January 3,400.0 3,660.8
Additions 291.4 626.3
Disposals - (5.2)
Amounts written off (723.0) (748.9)
Write-off associated with Norway contingent consideration (36.5) -
Transfer to assets held for sale (912.3) -
Transfer to property, plant and equipment - (63.6)
Currency translation adjustments 6.2 (69.4)
At 31 December 2,025.8 3,400.0
Included within 2016 additions is $50.2 million of capitalised interest (2015:
$49.7 million). The Group only capitalises interest in respect of intangible
exploration and evaluation assets where it is considered that development is
ongoing.
The below table provides a summary of the exploration costs written-off on a
pre-and post-tax basis by country.
Country CGU Rationale for 2016 2016 2016 2016 2016 2016Remaining recoverable amount $m
write-off Current year expenditure written-off Prior year expenditure written-off $m Post-tax Pre-tax
$m write off write off
$m $m
Ethiopia Country b 1.9 - 1.9 1.9 -
Gabon Arouwe licence b 1.0 - 1.0 1.6 -
Ghana New Ventures f 2.3 - 2.3 3.5 -
Guinea Country b 5.6 - 5.6 5.6 -
Greenland Country b 1.0 - 1.0 1.0 -
Kenya Blocks 10A & L8 b (2.6) - (2.6) (2.6) -
Madagascar Country b, d 4.1 21.5 25.6 25.6 -
Mauritania Blocks C6, C7 & C18 b, c 0.2 9.3 9.5 9.5 -
Mozambique Country b (1.0) - (1.0) (1.0) -
Netherlands Licence E18 & F16 b 0.8 - 0.8 1.5 49.0
Norway Country a, b, c, d, e 17.8 61.0 78.8 286.9 7.1
Pakistan Kup well a 1.9 8.8 10.7 10.7 -
Suriname Block 31 & Coronie b, c 1.3 18.0 19.3 19.3 -
Uganda Country e - 247.8 247.8 330.4 453.1
Other Various b 4.9 - 4.9 4.9 -
New Ventures Various f 18.4 - 18.4 24.2 -
Total write-off 57.6 366.4 424.0 723.0
a. Current year unsuccessful drilling results
b. Current year expenditure or actualisation of accruals associated with CGUs
previously written off
c. Licence relinquishments
d. Country exit
e. Revision of value based on disposal/farm-down activities
f. New Ventures expenditure is written off as incurred
.
11. Property, plant and equipment
2016Oil and gas assets 2016Other fixed assets 2016Total 2015Oil and gas assets 2015Other fixed assets 2015Total
$m $m $m $m $m $m
Cost
At 1 January 10,439.9 289.5 10,729.4 9,240.3 283.7 9,524.0
Additions 816.9 1.6 818.5 1,235.1 23.1 1,258.2
Disposals (276.1) (2.7) (278.8) (6.2) (3.6) (9.8)
Transfer from intangible assets - - - 63.6 - 63.6
Currency translation adjustments (208.2) (36.5) (244.7) (92.9) (13.7) (106.6)
At 31 December 10,772.5 251.9 11,024.4 10,439.9 289.5 10,729.4
Depreciation, depletion and amortisation
At 1 January (5,360.0) (165.0) (5,525.0) (4,489.1) (147.9) (4,637.0)
Charge for the year (448.5) (18.4) (466.9) (551.2) (28.9) (580.1)
Impairment loss (184.3) (0.4) (184.7) (467.2) - (467.2)
Reversal of impairment loss 10.9 - 10.9 61.2 - 61.2
Disposal 276.1 2.6 278.7 6.4 3.6 10.0
Currency translation adjustments 205.0 20.5 225.5 79.9 8.2 88.1
At 31 December (5,500.8) (160.7) (5,661.5) (5,360.0) (165.0) (5,525.0)
Net book value at 31 December 5,271.7 91.2 5,362.9 5,079.9 124.5 5,204.4
The 2016 additions include capitalised interest of $88.6 million in respect of
the TEN development project (2015: $110.4 million). The carrying amount of the
Group's oil and gas assets includes an amount of $17.8 million (2015: $27.4
million) in respect of assets held under finance leases. The currency
translation adjustments arose due to the movement against the Group's
presentation currency, USD, of the Group's UK and Dutch assets which have
functional currencies of GBP and EUR respectively. The 2016 income statement
impairment charge includes $6.2 million of insurance proceeds.
Trigger for 2016 2016Impairment$m Pre-tax discount Short-term Mid-term price assumption Long-term price assumption
impairment rate assumption price
assumption
UK GCUd a 48.0 n/a n/a n/a n/a
Limande CGUe (Gabon) a 3.1 13% 2yr forward curve $70/bbl $90/bbl
Echira CGUe (Gabon) a 2.2 13% 2yr forward curve $70/bbl $90/bbl
Etame CGUe (Gabon) a 1.5 13% 2yr forward curve $70/bbl $90/bbl
Oba (CGU)e (10.9) 15% 2yr forward curve $70/bbl $90/bbl
M'boundi (Congo) a 6.4 12% 2yr forward curve $70/bbl $90/bbl
Espoir (Côte d'Ivoire) a 12.3 10% 2yr forward curve $70/bbl $90/bbl
TEN (Ghana) a 97.0 10% 2yr forward curve $70/bbl $90/bbl
Jubilee (Ghana) c 3.7 n/a n/a n/a n/a
Chinguetti (Mauritania) b 10.1 10% 2yr forward curve $70/bbl $90/bbl
Impairment 173.4
a. Delay in estimated step up to oil and gas mid-term and long-term price
assumptions.
b. Increase in decommissioning estimate.
c. Impairment of a component of the asset which is covered by insurance
proceeds.
d. The fields in the UK are grouped into one CGU as all fields within those
countries share critical gas infrastructure.
e. The Limande, Echria, Etame and Oba CGUs in Gabon comprise a number of
fields which share export infrastructure.
All impairment assessments are prepared on a Value In Use basis using
discounted future cash flows based on 2P reserves profiles. The principal
assumptions are oil price and the pre-tax discount rate which is nominal. Oil
prices stated above are benchmark prices to which an individual field price
differential is applied.
Based on the approximate volatility of the 2016 oil price, a reduction in the
forward curve of $20/bbl is considered to be a reasonably possible change for
the purposes of sensitivity analysis. This would increase the impairment
charge by $487.8 million. A $15/bbl reduction in both the mid-term and the
long-term price assumption assumed, which is based on the range seen in
external oil price market forecasts, would increase the impairment charge by
$744.4 million.
A 1% increase in the pre-tax discount rate would increase the impairment by
$129.3 million. The Group believe a 1% increase in the pre-tax discount rate
to be a reasonable possibility based on historical analysis of the Group's and
a peer group of companies impairment discount rates.
12. Other assets
2016$m 2015$m
Non-current
Amounts due from joint venture partners 127.3 161.8
Uganda VAT recoverable 35.9 50.3
Other non-current assets 12.5 11.3
175.7 223.4
Current
Amounts due from joint venture partners 560.4 584.4
Underlifts 34.9 2.4
Prepayments 26.3 77.9
VAT recoverable 5.7 9.2
Other current assets 211.6 89.3
838.9 763.2
The decrease in amounts due from joint venture partners relates to the
decrease in operated current liabilities, which are recorded gross with the
corresponding debit recognised as an amount due from joint venture partners,
in Kenya and Ghana. Other current assets have increased due to accrued
insurance proceeds.
13. Assets held for sale
On 9 January 2017, Tullow announced that it had agreed a substantial farm-down
of its assets in Uganda to Total. Under the Sale and Purchase Agreement,
Tullow has agreed to transfer 21.57% of its 33.33% Uganda interests to Total
for a total consideration of $900 million. Upon completion, the farm-down will
leave Tullow with an 11.76% interest in the upstream and pipeline projects.
This is expected to reduce to a 10% interest in the upstream project when the
Government of Uganda formally exercises its right to back-in. Although it has
not yet been determined what interests the Governments of Uganda and Tanzania
will take in the pipeline project, Tullow expects its interests in the
upstream and pipeline projects to be aligned.
The consideration is split into $200 million in cash, consisting of $100
million payable on completion of the transaction, $50 million payable at FID
and $50 million payable at first oil. The remaining $700 million is in
deferred consideration and represents reimbursement by Total in cash of a
proportion of Tullow's past exploration and development costs. The deferred
consideration is payable to Tullow as the upstream and pipeline projects
progress and these payments will be used by Tullow to fund its share of the
development costs. Tullow expects the deferred consideration to cover its
share of upstream and pipeline development capex to first oil and beyond.
Completion of the transaction is subject to certain conditions, including the
approval of the Government of Uganda, after which Tullow will cease to be an
operator in Uganda. The disposal is expected to complete in 2017.
The estimated fair value of the consideration is $829.7 million which when
compared to the carrying value of the Group's interest in Uganda resulted in
an exploration write-off of $330.4 million. The fair value of the deferred
consideration was calculated using expected timing of receipts based on
management's best estimate of the expected capital profile of the project
discounted at Total's cost of borrowing. This represents a level 3 financial
asset.
The divestment of the Norway business is progressing well with two deals
completed before year-end and one in January 2017. Four licences, including
the Wisting oil discovery, have been sold to Statoil, eight licences,
including the Oda asset, have been sold to Aker BP ASA and two further
licences have been sold to ConocoPhillips. A further two sales were executed
in December 2016 with two separate parties. These sales, covering a further 13
licences, and which include the 2016 Cara oil and gas discovery, are on track
to complete in the first quarter of 2017. In aggregate, the Norway asset sales
are expected to yield proceeds of up to $0.2 billion. Once completed, the
Group will no longer hold any licences on the Norwegian Continental Shelf.
Combined with the transactions that completed in 2016, transfer to assets held
for sale of the Norwegian assets was $82.6 million of which $7.4 million
remained as held for sale at 31 December 2016.
The major classes of assets and liabilities comprising the assets classified
as held for sale are as follows:
Uganda Norway Total
2016 2016 2016
$m $m $m
Intangible exploration and evaluation assets 829.7 7.4 837.1
Total assets classified as held for sale 829.7 7.4 837.1
Total liabilities associated with assets classified as held for sale - - -
Net assets of disposal groups 829.7 7.4 837.1
14. Trade and other payables
Current liabilities
2016 2015
$m $m
Trade payables 46.9 24.0
Other payables 124.6 61.2
Overlifts 6.9 3.7
Accruals 721.2 993.3
VAT and other similar taxes 14.6 26.9
Current portion of finance lease 1.9 1.5
916.1 1,110.6
Payables related to operated joint ventures (primarily related to Ghana and
Kenya) are recorded gross with the debit representing the partners' share
recognised in amounts due from joint venture partners (note 12). The increase
in trade payables and in other payables predominantly represent timing
differences.
Non-current liabilities
2016 2015
$m $m
Other non-current liabilities 87.7 72.8
Non-current portion of finance lease 24.6 26.5
112.3 99.3
Trade and other payables are non-interest bearing except for finance leases.
15. Provisions
Decommissioning2016$m Other provisions2016$m Total2016 Decommissioning2015$m Other provisions2015$m Total2015
$m $m
At 1 January 1,008.8 243.3 1,252.1 1,192.9 67.5 1,260.4
New provisions and changes in estimates 57.1 71.4 128.5 (147.4) 177.1 29.7
Disposals - - - 0.8 0.3 1.1
Payments (23.0) (132.0) (155.0) (40.8) - (40.8)
Transfer to accruals - (35.0) (35.0) - - -
Unwinding of discount 25.1 - 25.1 28.3 0.1 28.4
Currency translation adjustment (53.6) (3.5) (57.1) (25.0) (1.7) (26.7)
At 31 December 1,014.4 144.2 1,158.6 1,008.8 243.3 1,252.1
Current provisions 49.0 2.9 51.9 - 187.0 187.0
Non-current provisions 965.4 141.3 1,106.7 1,008.8 56.3 1,065.1
Included within other provisions is provision for onerous service contracts
and provision for restructuring costs. Due to the reduction in planned future
work programmes the Group has identified a number of onerous service
contracts. The expected unutilised capacity has been provided for in 2015 and
2016 resulting in an income statement charge of $114.9 million (2015: $185.5
million). During 2016, the Group incurred $12.3 million (2015: $44.9 million)
in respect of restructuring costs. A provision in respect of contingent
consideration due on the acquisition of Spring Energy has been released in
2016 ($43.5 million) as the Group concluded that payment of such consideration
is not probable.
15. Provisions contd.
The decommissioning provision represents the present value of decommissioning
costs relating to the European and African oil and gas interests.
Inflation assumption Discount rate assumption Cessation of production assumption 2016 2015
$m $m
Congo 2% 3% 2027 18.3 15.2
Cote d'Ivoire 2% 3% 2026 48.1 53.3
Equatorial Guinea 2% 3% 2028-2029 130.0 126.2
Gabon 2% 3% 2021-2034 54.2 61.0
Ghana 2% 3% 2034-2036 267.6 257.7
Mauritania 2% 3% 2017 130.9 121.4
Netherlands 2% 3% 2020-2036 100.7 90.5
UK 2% 3% 2015-2018 264.6 283.5
1,014.4 1,008.8
16. Commercial Reserves and Contingent Resources summary (unaudited) working
interest basis
West Africa East Africa New Ventures TOTAL
Oilmmbbl Gasbcf Oilmmbbl Gasbcf Oilmmbbl Gasbcf Oilmmbbl Gasbcf Petroleummmboe
COMMERCIAL RESERVES
1 January 2016 287.6 205.8 - - - - 287.6 205.8 321.8
Revisions 13.8 (0.2) - - - - 13.8 (0.2) 13.8
Transfer from contingent resources (7.4) - - - - - (7.4) - (7.4)
Disposals - - - - - - - - -
Production (21.9) (15.9) - - - - (21.9) (15.9) (24.5)
31 December 2016 272.1 189.7 - - - - 272.1 189.7 303.7
CONTINGENT RESOURCES
1 January 2016 115.8 724.9 628.8 42.6 101.5 4.2 846.1 771.7 974.7
Revisions 4.8 5.6 3.7 - - - 8.5 5.6 9.5
Additions - - - - - - - - -
Disposals - - - - (101.5) - (101.5) - (101.5)
Transfers to commercial reserves 7.4 - - - - - 7.4 - 7.4
31 December 2016 128.0 730.5 632.5 42.6 0.0 4.2 760.6 777.3 890.1
TOTAL
31 December 2016 400.1 920.2 632.5 42.6 0.0 4.2 1,032.7 967.0 1,193.8
1. Proven and Probable Commercial Reserves are as audited and reported by an
independent engineer. Reserves estimates for each field are reviewed by the
independent engineer based on significant new data or a material change with a
review of each field undertaken at least every two years, with the exception
of minor assets contributing less than 5% of the Group's reserves.
2. Proven and Probable Contingent Resources are as audited and reported by
an independent engineer. Resources estimates are reviewed by the independent
engineer based on significant new data received following exploration or
appraisal drilling.
3. The West Africa revisions to reserves relate to Jubilee, Tchatamba,
Ezanga, Espoir, M'Oba, and an equity revision for certain Gabonese fields.
4. The West Africa transfers relate to the Etame and MBoundi fields which
were transferred to Contingent Resources.
5. The West Africa revision to gas contingent resources relates to the
relinquishment of the Pelican field in Mauritania.
6. New Ventures disposals to contingent resources relate to the Norway
country exit and Zaedyus license relinquishment.
The Group provides for depletion and amortisation of tangible fixed assets on
a net entitlements basis, which reflects the terms of the Production Sharing
Contracts related to each field. Total net entitlement reserves were 283.2
mmboe at 31 December 2016 (31 December 2015: 299.1 mmboe).
Contingent Resources relate to resources in respect of which development plans
are in the course of preparation or further evaluation is under way with a
view to future development.
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