REG - Tullow Oil PLC Tullow Oil PLC - FP Tullow Oil PLC - NP - Annual Financial Report
25/03/2022 10:45
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RNS Number : 0666G Tullow Oil PLC 25 March 2022
TULLOW OIL PLC
ANNUAL REPORT AND ACCOUNTS
Tullow Oil plc ("Tullow" or "the Company")
25 March 2022 - Following the release on 9 March 2022 of the Company's full
year results announcement for the year ended 31 December 2021 (the
"Announcement"), 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 (http://www.tullowoil.com) . The Company is also
pleased to announce it has published its Sustainability Report and Climate
Risk and Resilience Report, which are also available on the Company's website:
www.tullowoil.com (http://www.tullowoil.com) .
It is anticipated that the Company's 2022 Annual General Meeting will take
place on Wednesday 25 May 2022 and the Notice of Meeting will be sent out in
due course.
In accordance with the Disclosure Guidance and Transparency Rule 6.3.5(2)(b)
and the Central Bank of Ireland's Transparency [Directive 2004/109/EC]
Regulations, additional information is set out in the appendices to this
announcement. The information is extracted in full unedited text from the
Annual Report and Accounts.
The Announcement included a set of condensed financial statements and a fair
review of the development and performance of the business and 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 https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
In addition, all of the above documents have been submitted to Euronext Dublin
and the Ghana Stock Exchange, and therefore will shortly be available for
inspection at Euronext Dublin (Exchange Buildings, Foster Place, Dublin 2) and
will be available to shareholders located in Ghana by contacting the Company's
registrar: Central Securities Depository (GH) Limited, 4th Floor, Cedi House,
PMB CT 465 Cantonments, Accra, Ghana (Telephone: +233 (0)302 906 576).
CONTACTS
Tullow Oil plc Camarco
(London) (+44 20 3781 9244)
(+44 20 3249 9000) Billy Clegg
Robert Hellwig (Investors) Monique Perks
Matthew Evans (Investors) Rebecca Waterworth
George Cazenove (Media)
Notes to editors
Tullow is an independent oil & gas, exploration and production group which
is quoted on the London, Irish and Ghanaian stock exchanges (symbol: TLW) and
is a constituent of the FTSE250 index. The Group has interests in over 30
exploration and production licences across eight countries. In March 2021,
Tullow committed to becoming Net Zero on its Scope 1 and 2 emissions by 2030.
For further information, please refer to our website at www.tullowoil.com
(http://www.tullowoil.com)
Follow Tullow on:
Twitter: www.twitter.com/TullowOilplc (http://www.twitter.com/TullowOilplc)
YouTube: www.youtube.com/TullowOilplc (http://www.youtube.com/TullowOilplc)
Facebook: www.facebook.com/TullowOilplc (http://www.facebook.com/TullowOilplc)
LinkedIn: www.linkedin.com/company/Tullow-Oil
(http://www.linkedin.com/company/Tullow-Oil)
APPENDICES
Appendix A: Directors' responsibility statement
The following directors' responsibility statement is extracted from the Annual
Report and Accounts (page 92).
Directors' responsibility statement required by Disclosure Guidance and
Transparency Rule 4.1.12R and the Central Bank of Ireland's Transparency
[Directive 2004/109/EC] Regulations 2007
The Directors confirm, to the best of their knowledge:
- that the consolidated Financial Statements, prepared in accordance with
UK-adopted international accounting standards and IFRSs adopted pursuant to
Regulation (EC) No. 1606/2002 as it applies in the European Union give a true
and fair view of the assets, liabilities, financial position and profit of the
Parent Company and undertakings included in the consolidation taken as a
whole;
- that the Annual Report, including the Strategic Report, includes a fair
review of the development and performance of the business and the position of
the Company and undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they
face; and
- that they consider the Annual Report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to
assess the Company's position, performance, business model and strategy.
By order of the Board
Rahul
Dhir
Les Wood
Chief Executive
Officer
Chief Financial Officer
8 March
2022
8 March 2022
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 36 to
42).
Risk oversight and governance
A risk focused culture and consistent risk management framework is embedded
across all levels at Tullow and is driven by the Board. The Board is
responsible for overseeing the risk identification, assessment and mitigation
process. To this end, the Board undertakes a bi-annual assessment of the risks
facing the Company, including those risks that could threaten our business
strategy, operating model, performance, solvency and liquidity. Emerging risks
are discussed by the Board and the Senior Leadership Team periodically
throughout the year.
The Board is responsible for ensuring Tullow maintains an effective risk
management and internal control system and works closely with Tullow's Senior
Leadership Team to ensure this is in place. The Senior Leadership Team is
collectively responsible and accountable for the risk management process in
place across the organisation, with individual members taking ownership for
risks that fall in their business area.
Tullow recognises that risk cannot be fully eliminated and that there are
certain risks the Board and/or the Senior Leadership Team accept when pursuing
strategic business opportunities. Acceptance of risk is made at an appropriate
authority level and within Tullow's defined risk appetite and tolerance
levels.
Risks identification and assessment
Each Business Head and Head of function is responsible, and accountable, for
managing risk and risk mitigation within their remit. The Extended Leadership
Team (ELT) reviews and reassesses risk on at least a quarterly basis to
evaluate the strength of existing controls and determine whether additional
risk reduction actions are needed to ensure the risk level is within the risk
appetite set by the Board.
Consolidation of business risks
To facilitate assessment of the main risks facing the business, Tullow's
leadership undertakes a bottom-up review of the key risks faced by the
business. The key risks in each area are identified by the Business Heads and
Heads of Functions, including mitigating actions and any emerging risks. These
are consolidated upwards into the Business Unit risk registers and assessed
according to their likelihood of occurring, and the potential consequences to
Tullow in terms of safety, reputational, financial, legal and regulatory
impact.
From this, the Senior Leadership Team identifies the principal and
enterprise-wide risks which can be either a single risk, or a set of
aggregated risks which, taken together, are significant for Tullow. Members of
the Senior Leadership Team have ownership and accountability for stewardship
of each of the principal and enterprise-wide risks. As a collective, the
Senior Leadership Team reviews and discusses the risks to understand whether
mitigations are being effectively executed within the agreed timeframe.
On a bi-annual basis the principal risks and mitigants are discussed by the
Board to provide 'top-down' challenge and support. The result of this review
is communicated back down to the Business Units to facilitate risk awareness
and effective decision making throughout the organisation.
Risk appetite
The Board sets Tullow's risk appetite and acceptable risk tolerance levels for
each of the principal risk categories. In considering Tullow's risk appetite,
the Board reviews the risk identification process, the assessment of
enterprise level risks, the existing controls and mitigating actions and the
residual risks. During this process, the Board articulates which risks Tullow
should not tolerate, which should be managed to an acceptable level and which
should be accepted in order to deliver our business strategy.
The risk appetite is reviewed at least annually by the Board to ensure that it
reflects the current external and market conditions. A revised risk appetite
was last reviewed by the Board in December 2021.
Evolution of Tullow's management of risk
During 2021, Tullow's risk framework has been simplified and realigned to
reflect the revised business structure and reporting lines. Senior risk owners
have been working to ensure a greater culture of risk awareness and challenge
is instilled throughout the business with an increased focus on mitigating
actions. Further consistency in risk identification, measurement and reporting
has been embedded across the organisation.
Tullow's risk profile
The Company risk profile has been closely monitored throughout the year, with
consideration given to the risks to delivering the revised Business Plan, as
well as whether external factors such as the COVID-19 pandemic and oil price
volatility have resulted in any new risks or changes to existing risks. The
impact of these factors has been considered and
managed across all principal risks. The following table represents the
Company's current principal risks.
Failure to deliver production targets (Commercial & Financial risk)
Risk details Risk mitigations
Tullow's Business Plan is anchored on production from the Jubilee and TEN • Robust control over Operations & Maintenance (O&M)
fields in Ghana and non-operated fields in Côte d'Ivoire and Gabon. A contractor as well as ongoing O&M transformation project
decline, or problems with the performance, of wells or facilities could result
in not meeting planned production levels which in turn would lead to a • Cross discipline integrated performance management including
reduction in revenue and cash flow ultimately impairing our ability to reduce clear KPIs and forums
leverage.
• Maintenance and integrity management plans covering all
equipment classes
• Management and oversight of JV Partners to ensure maintenance
and integrity plans are implemented effectively
A failure to grow the business via targeted investment in existing fields • Jubilee Expansion project, Jubilee South East, North East and TEN
and/or investment in new fields could ultimately impact our ability to meet Enhancement Projects
longer-term production targets.
• Exploration strategy focused on acreage close to existing
infrastructure, to enable discoveries to be converted to production quickly
• Continued investment in non-operated portfolio, including
accelerating projects where possible
• Mergers & Acquisitions (M&A), inorganic growth with a
focus on producing assets
Inability to secure associated gas offtake in Ghana could limit our ability to • Working with the Government of Ghana to secure temporary
produce oil and impact revenue and value. flaring permit
• Working to secure a long-term gas offtake commercialisation
contract in Ghana as agreed in principle by the Board
• Managing production processes to minimise production of gas
which needs to be exported from the fields
Risk of a Major EHS incident (EHS or security risk)
Risk details Risk mitigations
A major incident could potentially result in asset integrity failures and/or • Risk management processes embedded at all levels of the
extensive damage to facilities. This may in turn lead to a loss of life, organisation
environmental damage and potential for loss of production (and therefore
revenue), increased costs and reputational damage. • Asset and well integrity and maintenance programmes are in
place, including regular self-verification and external certification, audit
and assurance of integrity plans
• Root cause failure analysis processes in place for production
losses and EHS incidents to prevent recurrence and ensure lessons are learned
• Emergency Response Plans and Incident Management Framework to
aid in escalation when incidents do occur
Failure to unlock value (Stakeholder, Commercial & Financial risk)
Risk details Risk mitigations
Significant non-associated gas resource has been identified on current • A workstream has been established to assess commercialisation
licences and failure to secure gas market share could delay development of opportunities within Ghana and the region that will enable development of the
these resources. identified resources while playing an important role for the industrial
development of Ghana
Delay in approval of a revised Field Development Plan (FDP) by the Government • A revised FDP has been submitted to the Government of Kenya for
of Kenya could impact a final investment decision approval in line with the licence extension requirements.
• Continued engagement with the Government of Kenya and regulators
to ensure timely approval of the revised FDP
Failure to secure a strategic partner would impact our ability to progress the • The Kenya JV partners via an ongoing farm down process are
project t final investment decision and unlock value actively seeking a strategic partner to fund the next stage of development and
unlock value. Discussions are underway with potential bidders around a range
of commercial arrangements
The inability to successfully explore and add accretive upside value to • Close collaboration focused on fully leveraging geoscience
Tullow's assets through addition of reserves and resources around producing expertise to identify and mature reserves and resources which have the
assets could limit the return on the licences. potential to rapidly unlock value for producing assets
• This is reinforced by an Infrastructure-led exploration (ILX)
strategy to strengthen the portfolio, by focussing on opportunities near
producing assets, and create value through integration of assets, expertise
and regional knowledge
The inability to limit our capital exposure to historic exploration • A number of farm down processes are underway to limit capital
commitments in selective emerging basins of Guyana and Argentina may result in exposure on selective emerging basins by aiming to reduce our equity share.
having to divert capital from producing assets. This will ensure Tullow can participate at an equity consistent with our
capital allocation guidance
Failure to manage geopolitical risks (Stakeholder & Financial risk)
Risk details Key mitigations
Political instability in the West Africa region, where our producing assets • An extensive relationship management plan is in place, to
are concentrated, could delay and impact decision-making by host governments actively manage senior relationships with host governments, including an
and local partners and may also impact security arrangements. Advisory Board in Ghana
• We ensure alignment of our business plans with national
priorities and have developed a communication plan to educate stakeholders on
the positive impact of our activities on host nations and communities
Unreasonable fiscal or regulatory demands by host governments could obstruct • We have robust stabilisation clauses in all our Petroleum
efficient operations, delay implementation of our growth plans and cause Agreements and Production Sharing Contracts to protect us against unreasonable
increased costs and financial loss. demands.
Failure to manage climate change risks (Climate risk)
Risk details Key mitigations
Tullow recognises climate change as a material, risk for our business. • There is recognition and support from the Board that
decarbonisation required investment. We are implementing our Net Zero plan to
There is a potential for climate related risks, including regulatory achieve Net Zero (scope 1 and 2) by 2030, to reduce our emissions and offset
constraints, carbon pricing mechanisms, commodity market volatility or those hard to abate emissions
conditional access to capital, to affect Tullow's ability to implement our
strategy. • We stress test our portfolio to ensure core assets are
resilient in different oil and carbon price environments
Challenges to our business strategy and failure to align with broader energy
transition goals could result in reduced or conditional access to capital or • There is ongoing engagement with host countries to understand
shareholder/investor reluctance to invest. and align with their long-term energy transition strategies, including Paris
Nationally Determined Contributions
Failure to deliver on our commitment to eliminate flaring by 2025 and thereby
mitigate the carbon intensity of Tullow's business may lead to stakeholder
confidence erosion and impact our ability to attract and retain talent.
Risk of insufficient liquidity and funding capacity to sustain and grow the
business / failure to deliver a highly cash generative business (Financial
risk)
Risk details Key mitigations
Tullow remains exposed to erosion of its balance sheet and revenues due to oil • Business plan in place to deliver strong cash flow and
price volatility, unexpected operational incidents, ongoing costs associated deleveraging
with the COVID-19 pandemic and failure to deliver targeted farm downs of
exploration assets and Kenya. • Capital structure provides liquidity headroom through to
December 2024 even in a low oil price environment
Failure to deliver our Business Plan could have a material negative impact on
cash flow and our ability to reduce debt and strengthen the balance sheet, • Disciplined capital allocation prioritising high return and
which may affect our ability to meet our financial obligations when they fall short payback investments, and a strong focus on cost control
due.
• Material commodity hedging programme against the impact of a
sustained low oil price environment
Failure to develop, retain and attract capability (People risk)
Risk details Key mitigations
There is a risk that critical staff leave the organisation resulting in • A new Employee Value Proposition (EVP) was rolled out in 2021,
difficulty to deliver against our business plan. covering culture, working environment, remuneration, learning and development
and performance management
We operate a lean and agile structure and are dependent on a small number of
key and critical roles. Loss of staff would increase pressure on remaining • Employee engagement initiatives are in place, including an
colleagues and could lead to further deterioration in the wellbeing of our employee advisory panel, Tullow Townhalls, coffee mornings and employee
colleagues, a poor working environment and, potentially, further attrition. engagement surveys
• We have refreshed our inclusion and diversity (I&D) policy
and hosted a number of speakers during the year, to increase awareness and
reaffirm our focus on I&D
• Succession plans are in place for critical roles. We have
undertaken a leadership capability review of the extended leadership team, to
ensure a focus on development and ensuring the right capability is in the
organisation
Risk of a compliance or regulatory breach (Ethics & Conduct risk)
Risk details Key mitigations
The Company could be exposed to increased risk of non-compliance with bribery • Tullow maintains high ethical standards across the business.
and corruption legislation or contractual obligations along with other Strong anti-bribery and corruption (ABC) governance processes/procedures are
applicable business conduct requirements. in place as a core element of the Ethics and Conduct (E&C) programme
In particular, an unforeseen material compliance breach could lead to • A mandatory annual Code of Ethical Conduct eLearning and
regulatory action, an unsettled litigation/dispute or additional future acknowledgement / certification process is in place for all employees. Third
litigation that may result in unplanned cash outflow, penalty/fines, party due diligence procedures and assurance processes are in place
reputational damage and a loss of stakeholder confidence in Management.
• Investigation procedures and an associated Misconduct and Loss
Reporting Standard are in place
• Processes and controls are in place to deliver General Data
Protection Regulation (GDPR) compliance
• Anti-tax evasion risk assessments are undertaken with clear
mitigation actions identified, including targeted employee training
Risk of major cyber-attack (Cyber risk)
Risk details Key mitigations
The external cybersecurity threat environment is continuously evolving and • Security Incident Event Management (SIEM) system in place,
intensifying, therefore the risk of a major cyber-attack is an ongoing risk supported by an Advanced Security Operations Centre (SOC) providing 24/7
that requires constant monitoring and management. network and device monitoring, alerting and response
Tullow may suffer an external cyber-attack which could have far reaching • Security awareness programme in place supported by regular staff
consequences for the business. This could limit our ability to operate, impact susceptibility phishing training and testing. Annual mandatory security
production, expose the company to high ransomware demands or potentially awareness training for all staff
trigger a major incident. This could result in financial loss, loss of
stakeholder confidence, loss of production, or additional cost by way of fines • An independent technical assurance programme is in place
or resolution of service.
Viability statement
Assessment period
In accordance with the provisions of the UK Corporate Governance Code, the
Board has assessed the prospects and the viability of the Group over a longer
period than the 12 months required by the 'Going Concern' provision. The Board
assesses the business over a number of time horizons for different reasons,
including the following: Annual Corporate Budget (i.e. 2022), Corporate
Business Plan (5 years i.e. 2022-2026), long-term Business Plan (10 years).
During 2021 the Board revised its period of assessment for the purpose of the
Viability Statement, which was previously three years, to five years for the
following reasons:
i. during the first half of 2021 the Group
re-financed its near-term debt maturities with the issuance of Senior Secured
Notes due in May 2026 (2026 Notes). The Group's only other outstanding debt
are Senior Notes due in March 2025, and therefore all of the Group's debt
matures outside of three years but within five years;
ii. in September 2021 the Group provided guidance to
the market over a five-year period (2021-2025); and
iii. this period also aligns with the Corporate Business
Plan which targets an increase in production and operating cashflow generation
over the next five years.
Notwithstanding the assessment period selected for the Viability Statement the
Group will continue to assess the business over all time horizons noted above.
Assessment of the Group's principal risks
In order to make an assessment of the Group's viability, the Directors have
made a detailed assessment of the Group's principal risks, and the potential
implications these risks could have on the Group's business delivery and
liquidity over the assessment period. This assessment included, where
appropriate, detailed cash flow analysis, and the Directors also considered a
number of reasonably plausible downside scenarios, and combinations thereof,
together with associated supporting analysis provided by the Group's Finance
team. A summary of the key assumptions aligned to the Group's principal risks
and reasonably plausible downside scenarios can be found below. It should be
noted that some assumptions encompass multiple risks but have not been
repeated to avoid unnecessary duplication.
Principal risks Viability statement assessment Downside scenario
Failure to deliver production targets Production is assumed to be in line with the Corporate Business Plan. 5 per cent reduction in production in each year.
Failure to manage geopolitical risks The Group has included probable outflow associated with tax exposures (refer In addition to the exposure included in the base case the Group has included
to page 118 for a description of the Group's uncertain tax treatments). $56 million related to potential outflows which are currently not deemed to be
probable but whose likelihood is greater than remote.
Failure to manage climate change risks The key impact of climate change on the Group's portfolio of assets is The Directors have considered an oil price sensitivity in line with the IEA
reflected in the oil price assumptions. See below. "Net Zero by 2050 Scenario"; see below.
The Group has also assessed the impact of carbon pricing; refer to the TCFD
disclosure.
Risk of insufficient liquidity and funding capacity to sustain and grow the Oil price assumptions are based on the forward curve at 31 December 2021 for The Group has analysed two downside oil price scenarios; the
business / failure to deliver a highly cash generative business two years, followed by the Group's Corporate Business Plan assumption from
2024 onwards: 2022: $76/bbl; 2023: $71/bbl; 2024: $62/bbl; 2025: $64/bbl; first is based on the Directors' assessment of a reasonably
2026: $65/bbl.
plausible downside scenario: 2022: $60/bbl; 2023: $61/bbl; 2024: $62/bbl;
Operating costs and capital investment are assumed to be in line with the 2025: $64/bbl; 2026: $65/bbl. The second is in line with the IEA 'Net Zero by
Corporate Business Plan. 2050 Scenario': 2022: $62/bbl; 2023: $59/ bbl; 2024: $55/bbl; 2025: $52/bbl;
2026: $49/bbl.
12% increase in operating costs.
For detailed information on risk mitigation, assurance and progress in 2021
refer to the detailed discussion of risks on page 36.
For "Risk of an asset integrity breach", "Failure to unlock value", "Risk of a
major EHS accident and Security", "Risk of a compliance or regulatory breach",
"Failure to develop, retain and attract capability", and "Risk of major
cyber-attack" the Group has assessed that there is no reasonably plausible
scenario that can be modelled in isolation or in combination with other risks
from a cashflow perspective.
Conclusion
The Group has $2.4 billion notes outstanding, maturing in 2025 and 2026. The
Corporate Business Plan does not project sufficient free cash flow generation
to allow the Group to fully repay these notes when they fall due, and
therefore it will need to access debt markets within the viability assessment
period.
In the base case, net debt and gearing are forecast to reduce sufficiently
such that the Directors are confident that the Group will be able to secure
the funding required to maintain adequate liquidity headroom throughout the
viability assessment period.
Under the two downside scenarios, execution of a refinancing would be
challenging. Management is focussed on mitigating the risks around production,
operating cost increases and potential outflows associated with disputes in
order to reduce the likelihood of these risks materialising, or their impact
in the event these risks materialise. Furthermore, the Directors have
considered additional mitigating actions that may be available to the Group,
such as incremental commodity hedging executed in periods of higher oil
prices, alternative funding options, further rationalisation of the Group's
cost base including cuts to discretionary capital expenditure, M&A,
portfolio management and careful management of stakeholder relationships.
Based on the results of the analysis and the ability to mitigate some of the
risks associated with the downside scenarios, the Board of Directors has a
reasonable expectation that the Group will be able to continue in operation
and meet its liabilities, including through refinancing activities, as they
fall due over the five-year period of their assessment.
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