REG - Tullow Oil PLC Tullow Oil PLC - FP Tullow Oil PLC - NP - Annual Financial Report & Accounts

Tullow OilAnnouncement

06/03/2018 14:05

RNS Number : 8367G
Tullow Oil PLC
06 March 2018
6 March, 2018
Tullow Oil PLC
Annual Report and Accounts
Tullow Oil plc ("Tullow" or the "Company")
Following the release on 7 February 2018 of the Company's preliminary full year results announcement for the year ended 31 December 2017 (the"PreliminaryAnnouncement"), the Company announces it has published its Annual Report and Accounts for this period (the "Annual Report and Accounts").
A copy of the Annual Report and Accounts is available to view on the Company's website: www.tullowoil.com
The Company's 2018 AGM will be held at the Company's registered address at 9Chiswick Park, 566 Chiswick High Road, London, W4 5XT on Wednesday 25 April 2018 at 12 noon. The Notice of Annual General Meeting 2018 will be sent separately to shareholders in the coming weeks, and will also be available to view on the Company's website. A separate announcement will be made when the Notice of Annual General Meeting is available.
In accordance with Disclosure Guidance 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 the Annual Report and Accounts 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.
This document is also being submitted to the Irish Stock Exchange and the Ghana Stock Exchange, and therefore 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)302 972 312544).
For further information, please contact:
Tullow Oil plc (London) (+44 (0) 20 3249 9000)
Investor Relations

Media Relations
 Chris Perry

 George Cazenove
 Nicola Rogers

 Anna Brog
Appendices
Appendix A: Directors' responsibility statement
The following directors' responsibility statement is extracted from the Annual Report and Accounts (page 108).
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 the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
 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 position and performance, business model and strategy.
By order of the Board
Paul McDade
Chief Executive Officer
6 February 2018
Les Wood
Chief Financial Officer
6 February 2018
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 to 49).
Principal Risks
On pages 44 to 49 we have identified the principal risks that we see as most relevant to Tullow at this time. There may be other risks that could emerge in the future. If these risks are not successfully managed, our cash flow, operating results, financial position, business and reputation could be materially adversely affected.
Strategic
Principal risks
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
1. Strategy not fully achievable in sustained low oil price environment
Executive responsibility
Paul McDade
Chief Executive Officer
Link to KPI/scorecard
Strategic Financing
Safe, Sustainable
and Efficient Operations
Business Development and Growth
 Low oil price environment due to global supply/demand balances and shift to alternative energy sources as a result of climate change
 Inability to deleverage the business
 Inability to monetise chosen assets
 Capital committed to suboptimal projects
 Overheads not matched to asset base
 Portfolio not optimised to sustain long-term strategy
 Robust planning of strategy
 Business plan reviewed by the Executive Team and approved annually by the Board
 Strict capital allocation process in line with the business plan
 Track delivery through rigorous regular performance management and reporting
 Board Strategy Day portfolio reviews
 Improved Group capital allocation process and reporting
 Optimised 2018 planned capital spend
 Tested and retained options for increased EBITDA delivery
 Improved focus on overheads
 Focused on deleveraging options
 Detailed portfolio review
2. Inability to progress major portfolio options
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Strategic Financing
 Reduction in market appetite for E&P assets
 Uncertainty around projects
 Inability to monetise chosen assets and deleverage balance sheet
 Write-downs on acquired assets
 Failure to exit mature assets with low returns
 Exposure to decommissioning costs
 Regular portfolio assessments by the Board
 Meet relevant commercial and investment appraisal standards
 Review all major acquisition or divestment proposals
 Approval process for all major decisions and new country entry proposals
 Implemented a new Corporate Centre Acquisition & Divestments role to increase deal expertise
 Improved portfolio analysis
 Biannual portfolio reviews with Business Delivery Teams
 Portfolio reviewed by the Board
 Executing current strategic portfolio plan
 Focus on securing maximum value in current operations
 Clear identification of level of commitments in new licences
 Successful farm-down of Uganda and disposal of non-core/mature assets
3. Disruption to business due to community/political/ regulatory influence
Executive responsibility
Sandy Stash
EVP - Safety, Operations, Engineering & External Affairs
Link to KPI/scorecard
Safe, Sustainable
and Efficient Operations
Business Development and Growth
 Fiscal pressures on Government as a result of reduced revenues due to low oil price
 Local currency exchange rate challenges
 Uncertainty arising from changes in Government leadership
 Pace of national content requirements
 Government inability to deliver infrastructure on time for projects and provide security for critical infrastructure
 Significant variance to plans due to delayed regulatory approvals/lack of support
 Regulatory and tax changes affecting profitability and viability of projects/operations
 Inability to achieve community support for new projects due to opposition/loss of licence to operate
 Unplanned costs due to community unrest/opposition
 Significant security risk to Tullow employees and contractors
 Inability to execute commercial transactions
 Non-technical risk standard sets minimum requirements for stakeholder management
 Country strategy papers and stakeholder engagement plans, supported by experienced staff to manage developments
 Social investment projects mapped to business development plans
 Plans to increase local content incorporated into contracting strategy
 Fully embedded non-technical risk standard
 Mapped and set out integrated solutions for complex risks
 Negotiated TEN gas sales/delivery agreements and delivered TEN successfully
 Negotiated settlement of tax disputes
 Improved stakeholder strategy
 Developed an approach and plan to obtain agreements with communities
 Landscape level approach to development adopted
Financial
Principal risks
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
4. Insufficient liquidity & funding capacity
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Strategic Financing
 Oil price downturn
 Lack of capital discipline and unsuccessful portfolio management
 Reduced asset quality limiting ability to raise debt
 Reduced bank/DCM appetite for E&P sector
 Significant unplanned cash outflows and elevated leverage
 Inability to finance strategic objectives
 Ability to raise further debt constrained
 Inability to fund capital investment/projects
 Prudent approach to diversified debt and equity, with a balance maintained through business planning and performance management processes
 Board-approved funding policy targets in place
 Optimisation of debt capital structure
 Good relationships with banks and capital market investors
 Regular funding and liquidity projections reported to management and periodic financing strategy review carried out
 Financing standard in place to ensure optimal funding
 $750 million Rights Issue enabled stepped reduction in debt
 Completed $2.5 billion RBL refinancing and one year tenor extension of RCF
 2017 year-end facility headroom and free cash of $1.1 billion; net debt of $3.5 billion
 YE2017 Net Debt/EBITDAX 2.6x
 Strength of assets retained of debt capacity despite fall in low oil price environment
5. Failure to manage oil price risk
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Strategic Financing
 Low oil price environment due to global supply/demand balances and shift to alternative energy sources as a result of climate change
 Reduced cash flows, revenue, EBITDA, asset value and debt capacity
 Insufficient funding to support investment programme
 Board-approved hedge programme to protect against low oil prices
 Programme monitored regularly and communicated to the Board
 Hedging programme executed and approved in accordance with the policy
 Regular review of hedge strategy, position and effectiveness
 2017 Net hedge receipts of $110 million
 Approximately 60 per cent of 2017 entitlement oil production hedged at an average floor price of $60.32/bbl
Operational
Principal risks
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
6. Major process safety/equipment/EHS failure
Executive responsibility
Gary Thompson
EVP - West Africa
Mark MacFarlane
EVP - East Africa
Ian Cloke
EVP - New Ventures
Link to KPI/scorecard
Safe, Sustainable
and Efficient Operations
 Inadequate maintenance of safety critical equipment on board Jubilee/TEN FPSOs
 Loss of wells, subsea equipment or FPSO systems
 Error in well design, equipment selection or programme
 Ineffective standards and procedures, improper work practices or lack of training
 Loss of rig position
 Multiple fatalities
 Serious environmental or asset damage
 Serious financial/reputational damage
 Significant loss of production, injection or export capacity and disruption to business operations
 Independently verified safety cases to demonstrate risks reduced to ALARP and EHS management system in place
 Minimum asset integrity, well integrity requirements, maintenance and planning requirements mandated
 Analysis of key FPSO systems (power, gas, water, etc.) to support top quartile reliability and computerised maintenance management system (CMMS) to manage asset integrity
 All wells designed, constructed and operated in accordance with appropriate standards and procedures
 Comprehensive all-risk insurance package including business interruption and construction risk programmes
 Third-party well assurance
 Safety case verification by industry experts
 Competency gaps/losses identified
 Assurance against production operations standards
 Assurance against Production Well Integrity Procedure
 Original turret manufacturer and JV Partners input to Case to Operate, with external assurance
 Asset Integrity and Reliability Plan in place
 Well integrity management system, FPSO performance standards and assurance and verification criteria implemented
 Insurance process in place
 Frequent review of well engineering management system to ensure well control risk effectively addressed
 Rig HSE case and third-party equipment audits carried out
 Training and competency matrix and asset integrity and reliability plan in place
7. Inability to replenish exploration portfolio
Executive responsibility
Angus McCoss
Exploration Director
Link to KPI/scorecard
Business Development
and Growth
 Lack of/under investment in portfolio high-grading activities
 Lack of dedicated resources to identify new business activities
 Failure to encourage entrepreneurial/ creative exploration innovation or demotivation of key staff
 Failure to generate a quality drill-ready prospect queue
 Loss of reputation and exploration value from share price
 Sustained exploration failure results in poor or no drill-ready prospects and diminished future development options and production ramp-up
 New opportunities are considered against existing portfolio to maintain diversity of prospects
 Exploration portfolio is reviewed at least annually
 An Exploration and Appraisal Values Controls Standard is in place
 Exploration and Development Geosciences Executive team
works across the business on portfolio planning
 Four new PSCs granted in Cte d'Ivoire supporting replenishment of the exploration portfolio in an oil-prone area
 Major 3D seismic campaigns in Uruguay (block 15), Guyana (Orinduik and Kanuku licences) and Mauritania (C3 and C18), a 2D programme in Jamaica and an FTG survey in Zambia all complete in 2017 to create campaign options for 2018/19
 Farm-down of Namibia PEL37 to manage risk exposure at drilling stage
Operational
Principal risks
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
8. Major cyber or information security incident
Executive responsibility
Angus McCoss
Exploration Director
Link to KPI/scorecard
Safe, Sustainable
and Efficient Operations
 External cyber-attack resulting in network compromise or disruptive/ destructive impact to Industrial Control Systems
 Deliberate or accidental internal theft/loss of confidential information
 Disruption to or halt of critical business systems resulting in stopped production, explosion or loss of life
 Loss or theft of confidential information
 Loss of competitive advantage and intellectual property
 Reputational damage
 Advanced Security Operations Centre (ASOC) provides global monitoring, analysis, alerting and incident response
 Bespoke advanced security equipment used at key operations sites
 Automated vulnerability scans matched with published threat information
 Third-party specialists analyse vulnerabilities and provide network assurance activities
 Second annual distribution of enterprise-wide information security awareness training and certification
 Ongoing bespoke training for higher risk areas
 Ongoing work to embed cyber security standards across TEN and Jubilee Industrial Control Systems
9. Failure to have a balanced, diverse workforce & attractive employee proposition
Executive responsibility
Claire Hawking
EVP - Organisation Strategy
& Company Performance
Link to KPI/scorecard
Organisation
 Tullow culture and values not embedded
 Staff do not support our current operating model
 Lack of confidence in strategy and senior leadership
 Diversity and localisation plans not effectively implemented
 Ineffective staff development and reward programmes
 Loss of key personnel/lack of succession and increased staff turnover
 Lack of in-house skills and requirement to buy in short-term contractors increase costs
 Negative relations with the Government due to failure to implement localisation plans
 Reputational damage
 Succession planning, localisation and diversity objectives are set and key targets monitored
 Diversity plan approved by the Board
 Periodic reporting to Executives of HR data
 Staff engagement plan is agreed with HR, Communications and Executives, with key actions
 Annual employee engagement survey and annual review of reward package
 Further embedded organisation operating model with clear accountabilities
 Embedded performance management framework
 Implemented Action Plan from 2016 employee survey
 Reviewed and revised reward packages aligned with Tullow's Remuneration Policy
 Implementation of Diversity & Inclusion Plan
 Set up Project LEAP, which focuses on talent development and agile working
Compliance
Principal risks
Causes
Potential impact
Risk mitigation and assurance
2017 outcomes and ongoing actions
10. Major breach of business or ethical conduct standards
Executive responsibility
Les Wood
Chief Financial Officer
Link to KPI/scorecard
Organisation
 Insufficient staff understanding of compliance
 Poor leadership behaviour
 Insufficient 'speaking up' culture
 Lack of compliance monitoring in Business Units and failure to adequately respond to non-compliance
 Unethical behaviour
 Breach of anti-corruption laws
 Tullow investigated resulting in reputational damage/fines
 Senior officers prosecuted under
anti-corruption laws
 Strong oversight and leadership from the Board
 E-learning training modules for Code of Ethical Conduct, with annual certification for all staff
 Ethics & Compliance standards, policies and procedures in place
 Dedicated Ethics & Compliance Advisers in key Business Units
 Appropriate due diligence carried out in relation to service providers, contractors and other counterparties
 Delivered a revised e-learning module across Tullow to promote the Code of Ethical Conduct. 100 per cent of staff completed the training
 Achieved 100 per cent completion of the self-certification of compliance with the Code of Ethical Conduct
 Received and investigated 60 'speak up' cases
 Continued local fraud awareness training
Appendix C:  Related party transactions
The following related party transactions are extracted from the Annual Report and Accounts (page 151).
The Directors of Tullow Oil plc are considered to be the only key management personnel as defined by IAS 24 - Related Party Disclosures.

2017 ($m)
2016 ($m)
Short-term employee benefits
6.7
8.9
Post-employment benefits
0.8
1.0
Amounts awarded under long-term incentive schemes
2.6
3.7
Share-based payments
2.5
2.6

12.6
16.2
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 78 to 100.
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