REG - Tullow Oil PLC Tullow Oil PLC - FP Tullow Oil PLC - NP - Full Year Results <Origin Href="QuoteRef">TLW.L</Origin> - Part 2
07/02/2018 07:05
- Part 2: For the preceding part double click ID:nRSG1466Ea
1.0 (114.9)
Operating profit/(loss) 22.4 (754.7)
(Loss)/gain on hedging instruments (11.8) 18.2
Finance revenue 6 42.0 26.4
Finance costs 6 (351.7) (198.2)
Loss from continuing activities before tax (299.1) (908.3)
Income tax credit 8 110.6 311.0
Loss for the year from continuing activities (188.5) (597.3)
Attributable to:
Owners of the Company (189.5) (599.9)
Non-controlling interest 1.0 2.6
(188.5) (597.3)
Loss per ordinary share from continuing activities ¢ ¢
Basic 2 (14.7) (55.8)
Diluted 2 (14.7) (55.8)
Comparative basic and diluted loss per ordinary share from continuing activities have been re-presented as a result of the Rights IssueGroup statement of comprehensive income and expenseYear ended 31 December 2017
2017$m 2016$m
Loss for the year (188.5) (597.3)
Items that may be reclassified to the income statement in subsequent periods
Cash flow hedges
Gain/(loss) arising in the year 6.7 (135.3)
Reclassification adjustments for items included in loss on realisation (161.8) (415.2)
Exchange differences on translation of foreign operations 9.0 17.1
Other comprehensive loss (146.1) (533.4)
Tax relating to components of other comprehensive loss 24.3 108.8
Net other comprehensive loss for the year (121.8) (424.6)
Total comprehensive expense for the year (310.3) (1,021.9)
Attributable to:
Owners of the Company (311.3) (1,024.5)
Non-controlling interest 1.0 2.6
(310.3) (1,021.9)
Group balance sheet
As at 31 December 2017
Notes 2017 2016
$m $m
ASSETS
Non-current assets
Intangible exploration and evaluation assets 9 1,933.4 2,025.8
Property, plant and equipment 10 5,254.7 5,362.9
Investments 1.0 1.0
Other non-current assets 11 789.8 175.7
Derivative financial instruments 0.8 15.8
Deferred tax assets 724.5 758.9
8,704.2 8,340.1
Current assets
Inventories 168.0 155.3
Trade receivables 171.4 118.4
Other current assets 11 768.3 838.9
Current tax assets 57.7 138.3
Derivative financial instruments 1.8 91.7
Cash and cash equivalents 284.0 281.9
Assets classified as held for sale 12 873.1 837.1
2,324.3 2,461.6
Total assets 11,028.5 10,801.7
LIABILITIES
Current liabilities
Trade and other payables 13 (1,025.6) (916.1)
Provisions 14 (230.8) (51.9)
Borrowings - (591.5)
Current tax liabilities (45.0) (83.1)
Derivative financial instruments (53.1) (5.9)
(1,354.5) (1,648.5)
Non-current liabilities
Trade and other payables 13 (1,422.6) (112.3)
Borrowings (3,606.4) (4,388.4)
Provisions 14 (801.6) (1,106.7)
Deferred tax liabilities (1,101.2) (1,292.4)
Derivative financial instruments (25.8) (10.9)
(6,957.6) (6,910.7)
Total liabilities (8,312.1) (8,559.2)
Net assets 2,716.4 2,242.5
EQUITY
Called up share capital 208.2 147.5
Share premium 1,326.8 619.3
Equity component of convertible bonds 48.4 48.4
Foreign currency translation reserve (223.2) (232.2)
Hedge reserve (2.6) 128.2
Other reserves 740.9 740.9
Retained earnings 607.5 778.0
Equity attributable to equity holders of the Company 2,706.0 2,230.1
Non-controlling interest 10.4 12.4
Total equity 2,716.4 2,242.5
Group statement of changes in equity Year ended 31 December 2017
Called up share Share Equity component of convertible bonds$m Foreign currency translation reserve¹$m Hedge reserve²$m Other reserves³$m Retained earnings Total Non-controlling interest Total
capital premium $m $m $m Equity
$m $m $m
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 1 January 2017 147.5 619.3 48.4 (232.2) 128.2 740.9 778.0 2,230.1 12.4 2,242.5
Loss for the year - - - - - - (189.5) (189.5) 1.0 (188.5)
Hedges, net of tax - - - - (130.8) - - (130.8) - (130.8)
Currency translation adjustments - - - 9.0 - - - 9.0 - 9.0
Rights Issue 60.0 693.8 - - - - - 753.8 - 753.8
Issue of employee share options 0.7 13.7 - - - - - 14.4 - 14.4
Vesting of PSP shares - - - - - - (15.2) (15.2) - (15.2)
Share-based payment charges - - - - - - 34.2 34.2 - 34.2
Distribution to non-controlling interests - - - - - - - - (3.0) (3.0)
At 31 December 2017 208.2 1,326.8 48.4 (223.2) (2.6) 740.9 607.5 2,706.0 10.4 2,716.4
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.
Group cash flow statement Year ended 31 December 2017
Notes 2017$m 2016$m
Cash flows from operating activities
Loss before taxation (299.1) (908.3)
Adjustments for:
Depreciation, depletion and amortisation 592.2 466.9
Loss on disposal 1.6 3.4
Goodwill impairment - 164.0
Exploration costs written off 9 143.4 723.0
Impairment of property, plant and equipment, net 10 541.1 167.6
Provision for onerous service contracts, net 14 (1.0) 114.9
Payments under onerous service contracts 14 - (132.0)
Decommissioning expenditure 14 (25.7) (23.0)
Share-based payment charge 33.9 43.9
Loss/(gain) on hedging instruments 11.8 (18.2)
Finance revenue 6 (42.0) (26.4)
Finance costs 6 351.7 198.2
Operating cash flow before working capital movements 1,307.9 774.0
Decrease/(increase) in trade and other receivables 122.0 (99.4)
Increase in inventories (20.8) (47.8)
Decrease in trade payables (251.4) (29.8)
Cash flows from operating activities 1,157.7 597.0
Income taxes received/(paid) 65.2 (84.5)
Net cash from operating activities 1,222.9 512.5
Cash flows from investing activities
Proceeds from disposals 8.0 62.8
Purchase of intangible exploration and evaluation assets (189.7) (275.2)
Purchase of property, plant and equipment (117.8) (756.0)
Interest received 3.1 1.2
Net cash used in investing activities (296.4) (967.2)
Cash flows from financing activities
Net proceeds from issue of share capital 768.1 9.9
Debt arrangement fees (56.4) (31.7)
Repayment of bank loans (1,613.6) (769.1)
Drawdown of bank loans 305.0 1,187.5
Issue of convertible bonds - 300.0
Repayment of obligations under finance leases (62.6) (3.3)
Finance costs paid (265.4) (284.0)
Distribution to non-controlling interests (3.0) (10.0)
Net cash (used in)/provided by financing activities (927.9) 399.3
Net decrease in cash and cash equivalents (1.4) (55.4)
Cash and cash equivalents at beginning of year 281.9 355.7
Foreign exchange gain/(loss) 3.5 (18.4)
Cash and cash equivalents at end of year 284.0 281.9
Notes to the preliminary financial statements
Year ended 31 December 2017
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 2018.
The financial information for the year ended 31 December 2017 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 2016
have been delivered to the Registrar of Companies and those for 2017 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
2016. 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 2017, 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 by the weighted
average number of ordinary shares outstanding during the year.
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. Due to losses incurred in 2017 and 2016 all potential
ordinary shares are antidilutive.
Comparative basic and diluted earnings per share and weighted average number
of shares have been re-presented as a result of the Rights Issue. The shares
in issue have been amended by an adjustment factor to reflect the bonus
element inherent in a discounted Rights Issue, and to allow meaningful
comparison between periods.
3. 2017 Annual Report and Accounts
The Annual Report and Accounts will be mailed in March 2018 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.
4. 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 2017 and 31 December 2016.
West Africa East Africa New Ventures Unallocated Total
$m $m $m $m $m
2017 1,722.5 - - - 1,722.5
Sales revenue by origin
Other operating income - lost production insurance proceeds - - - 162.1 162.1
Segment result 86.9 (2.2) (133.9) 183.0 133.8
Loss on disposal of other assets (1.6)
Unallocated corporate expenses (109.8)
Operating profit 22.4
Loss on hedging instruments (11.8)
Finance revenue 42.0
Finance costs (351.7)
Loss before tax (299.1)
Income tax credit 110.6
Loss after tax (188.5)
Total assets 7,857.2 2,585.2 306.0 280.1 11,028.5
Total liabilities (4,295.6) (169.2) (97.1) (3,750.2) (8,312.1)
Other segment information
Capital expenditure:
Property, plant and equipment 43.1 1.1 0.3 5.6 50.1
Intangible exploration and evaluation assets 5.5 257.5 56.0 - 319.0
Depreciation, depletion and amortisation (577.1) (0.5) - (14.6) (592.2)
Impairment of property, plant and equipment, net (539.1) - - - (539.1)
Exploration costs written off (6.9) (2.3) (134.2) - (143.4)
Capital expenditure on property, plant, and equipment excludes the addition of
the TEN FPSO right of use asset of $837.6 million.
West Africa East Africa New Ventures Unallocated Total
$m $m $m $m $m
2016 1,269.9 - - - 1,269.9
Sales revenue by origin
Other operating income - lost production insurance proceeds - - - 90.1 90.1
Segment result 269.9 (341.0) (512.3) (39.2) (622.6)
Loss on disposal of other assets (3.4)
Unallocated corporate expenses (128.7)
Operating loss (754.7)
Gain on hedging instruments 18.2
Finance revenue 26.4
Finance costs (198.2)
Loss before tax (908.3)
Income tax credit 311.0
Loss after tax (597.3)
Total assets 7,701.7 2,383.5 467.2 249.3 10,801.7
Total liabilities (3,200.9) (157.6) (142.0) (5,058.7) (8,559.2)
Other segment information
Capital expenditure:
Property, plant and equipment 817.0 0.3 0.4 0.8 818.5
Intangible exploration and evaluation assets 9.9 137.4 144.1 - 291.4
Depreciation, depletion and amortisation (450.4) (0.9) (1.0) (14.6) (466.9)
Impairment of property, plant and equipment, net (167.2) - (0.4) - (167.6)
Exploration costs written off (7.7) (341.0) (374.3) - (723.0)
Goodwill impairment - - (164.0) - (164.0)
Unallocated expenditure and net liabilities include amounts of a corporate
nature and not specifically attributable to a reportable segment. The
liabilities comprise the Group's external debt and other non-attributable
corporate liabilities.
5. Other costs
Notes 2017$m 2016$m
Cost of sales
Operating costs 386.2 377.2
Operating lease payments 62.5 21.0
Depletion and amortisation of oil and gas assets 10 574.3 448.5
Underlift, overlift and oil stock movements (2.3) (76.5)
Share-based payment charge included in cost of sales 1.1 2.7
Other cost of sales 47.5 40.2
Total cost of sales 1,069.3 813.1
Administrative expenses
Share-based payment charge included in administrative expenses 32.8 41.2
Depreciation of other fixed assets 10 17.9 18.4
Relocation costs associated with major simplification project 1.6 (0.5)
Other administrative costs 43.0 57.3
Total administrative expenses 95.3 116.4
Restructuring costs 14.5 12.3
6. Net financing costs
2017$m 2016$m
Interest on bank overdrafts and borrowings 290.7 304.7
Interest on obligations under finance leases 46.1 1.8
Total borrowing costs 336.8 306.5
Less amounts included in the cost of qualifying assets (66.5) (138.8)
270.3 167.7
Finance and arrangement fees 2.8 5.4
Other interest expense 1.8 -
Foreign exchange losses 57.1 -
Unwinding of discount on decommissioning provisions 19.7 25.1
Total finance costs 351.7 198.2
Interest income on amounts due from joint venture partners for finance leases (21.0) -
Other finance revenue (21.0) (26.4)
Total finance revenue (42.0) (26.4)
Net financing costs 309.7 171.8
7. Insurance proceeds
During 2017 the Group continued to issue insurance claims in respect of the
Jubilee turret remediation project. Insurance proceeds of $220.9 million were
recorded in the year ended 31 December 2017 (2016: $145.0 million). Proceeds
related to lost production under the Business Interruption insurance policy of
$162.1 million (2016 $90.1 million) 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 $50.9 million (2016:
$31.8 million) were recorded within the operating costs line of cost of sales
(see note 5). Proceeds related to compensation for capital costs under the
Hull and Machinery insurance policy of $7.9 million (2016: $23.1 million) were
recorded within additions to property, plant and equipment (see note 10).
8. Taxation on loss on ordinary activities
a. Analysis of tax credit for the year
2017$m 2016$m
Current tax
UK corporation tax 30.1 67.3
Foreign tax 6.2 (18.5)
Total corporate tax 36.3 48.8
UK petroleum revenue tax (2.1) (1.1)
Total current tax 34.2 47.7
Deferred tax
UK corporation tax (8.7) 9.4
Foreign tax (114.6) (369.8)
Total deferred corporate tax (123.3) (360.4)
Deferred UK petroleum revenue tax (21.5) 1.7
Total deferred tax (144.8) (358.7)
Total tax credit (110.6) (311.0)
b. Factors affecting tax credit for period
The tax rate applied to profit on ordinary activities in preparing the
reconciliation below is the UK corporation tax rate applicable to the Group's
non-upstream UK profits. The difference between the total tax credit shown
above and the amount calculated by applying the standard rate of UK
corporation tax applicable to UK profits of 19% (2016: 20%) to the loss before
tax is as follows:
2017$m 2016$m
Group loss on ordinary activities before tax (299.1) (908.3)
Tax on Group loss on ordinary activities at the standard UK corporation (56.8) (181.7)
tax rate of 19% (2016: 20%)
Effects of:
Non-deductible exploration expenditure 21.6 25.8
Other non-deductible expenses 12.6 22.7
Derecognition of deferred tax previously recognised - 30.2
Recognition of deferred tax previously unrecognised (21.5) -
Impairment of goodwill - 127.9
Utilisation of tax losses not previously recognised (0.3) (9.5)
Net losses not recognised 18.4 61.7
Petroleum revenue tax (PRT) - (6.7)
Adjustment relating to prior years 1.9 (2.1)
Adjustments to deferred tax relating to change in tax rates 12.6 (0.8)
Higher rate of taxation on Norway losses 13.1 (286.4)
Other tax rates applicable outside the UK and Norway (88.0) (86.8)
PSC income not subject to corporation tax (15.4) (1.6)
Tax incentives for investment (2.8) (3.7)
Other income not subject to corporation tax (6.0) -
Group total tax credit for the year (110.6) (311.0)
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, such as
Ghana (35%), Gabon (55%), and Equatorial Guinea (35%). 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 $3,642.0 million (2016: $2,844.0 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.
The Group has recognised deferred tax assets of $530.0 million (2016: $535.0
million) in relation to tax losses only to the extent of anticipated future
taxable income or gains in relevant jurisdictions.
No deferred tax liability is recognised on temporary differences of $7.9
million (2016: $8.2 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 2017 $24.3 million (2016: $108.8 million) of tax has been recognised
through other comprehensive income
of which $24.9 million (2016: $107.8 million) is current and $0.6 million
(2016: $1.0 million) is deferred tax relating to all debit (2016: credits) on
cash flow hedges arising in the year.
Current tax assets
As at 31 December 2017, current tax assets were $57.7 million (2016: $138.3
million) of which $44.6m relates to the UK (2016: $29.0 million) and $3.1
million relates to Norway (2016: $90.0 million), where 78% of exploration
expenditure is refunded as a tax refund in the year following the incurrence
of such expenditure.
9. Intangible exploration and evaluation assets
2017$m 2016$m
At 1 January 2,025.8 3,400.0
Additions 319.0 291.4
Disposals (40.0) -
Amounts written off (143.4) (723.0)
Write-off associated with Norway contingent consideration - (36.5)
Transfer to assets held for sale (43.4) (912.3)
Transfer to property, plant and equipment (188.7) -
Currency translation adjustments 4.1 6.2
At 31 December 1,933.4 2,025.8
Included within 2017 additions is $66.5 million of capitalised interest (2016:
$50.2 million). The Group only capitalises interest in respect of intangible
exploration and evaluation assets where it is considered that development is
ongoing.
Transfers to property, plant, and equipment related to the Greater Jubilee
Full Field Development plan of development approval and the cost associated
with the Mahogany and Teak discoveries.
The below table provides a summary of the exploration costs written-off on a
pre-and post-tax basis by country.
Country CGU Rationale 2017 2017 2017Remaining recoverable amount $m
for 2017 Pre-tax write-off /(reversal) Post-tax write-off /(reversal)
write-off $m $m
Kenya Country a 2.3 2.3 1,058.2
Madagascar Various d (4.0) (4.0) -
Mauritania Blocks C6, C10 & C18 b,c 71.1 71.1 22.4
Netherlands Licence E18 & F16 e 6.2 3.2 -
Pakistan Various e 36.1 36.1 5.5
Suriname Block 31 & Coronie a 10.3 10.3 30.7
Other Various b 4.3 2.8 -
New Ventures Various f 17.1 17.1 -
Total write-off 143.4 138.9
a.Current year unsuccessful drilling results.
b.Current year expenditure and 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.
10. Property, plant and equipment
2017Oil and gas assets 2017Other fixed assets 2017Total 2016Oil and gas assets 2016Other fixed assets 2016Total
$m $m $m $m $m $m
Cost
At 1 January 10,772.5 251.9 11,024.4 10,439.9 289.5 10,729.4
Additions 880.7 7.0 887.7 816.9 1.6 818.5
Disposals (362.6) (1.6) (364.2) (276.1) (2.7) (278.8)
Transfer from intangible assets 188.7 - 188.7 - - -
Currency translation adjustments 113.3 22.4 135.7 (208.2) (36.5) (244.7)
At 31 December 11,592.6 279.7 11,872.3 10,772.5 251.9 11,024.4
Depreciation, depletion and amortisation
At 1 January (5,500.8) (160.7) (5,661.5) (5,360.0) (165.0) (5,525.0)
Charge for the year (574.3) (17.9) (592.2) (448.5) (18.4) (466.9)
Impairment loss (584.5) - (584.5) (184.3) (0.4) (184.7)
Reversal of impairment loss 43.4 - 43.4 10.9 - 10.9
Disposal 300.0 1.7 301.7 276.1 2.6 278.7
Currency translation adjustments (109.1) (15.4) (124.5) 205.0 20.5 225.5
At 31 December (6,425.3) (192.3) (6,617.6) (5,500.8) (160.7) (5,661.5)
Net book value at 31 December 5,167.3 87.4 5,254.7 5,271.7 91.2 5,362.9
The 2017 additions include capitalised interest of $nil (note 6) in respect of
the TEN development project (2016: $88.6 million). The carrying amount of the
Group's oil and gas assets includes an amount of $816.7 million (2016: $17.8
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 2017 income statement
impairment charge includes $2.0 million of insurance proceeds (2016: $6.2
million).
Trigger for 2017 2017 Pre-tax discount rate assumption
impairment/(reversal) Impairment/(reversal)
$m
Limande and Turnix CGU (Gabon) a 23.5 13%
Echira, Niungo, and Igongo CGU (Gabon) b (12.8) 15%
M'boundi (Congo) c (16.1) n/a
Espoir (Côte d'Ivoire) a 18.3 10%
Ceiba and Okume (Equatorial Guinea) b (7.0) 10%
TEN (Ghana) a,c 535.4 10%
Jubilee (Ghana) d (2.0) n/a
Netherlands CGU e 7.2 n/a
UK "CGU" f b (7.4) n/a
Impairment 539.1
a.Decrease to long-term price assumptions (refer to accounting policy on
significant estimates).
b.Increase to short-term price assumptions (Dated Brent forward curve)
c.Change to decommissioning estimate.
d.Impairment of a component of the asset which is covered by insurance
proceeds. This cash item does not impact the
carrying value of property, plant, and equipment.
e.Revision of value based on disposal/farm-down activities.
f. The fields in the UK are grouped into one CGU as all fields within those
countries share critical gas infrastructure.
During 2017 and 2016 the Group applied the following nominal oil price
assumptions for impairment tests:
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 onwards
2017 Forward curve Forward curve $59/bbl $66/bbl $68/bbl $75/bbl inflated at 2%
2016 Forward curve Forward curve $70/bbl $70/bbl $70/bbl $90/bbl
$90/bbl
The prices assumed in 2017 decreased due to downward revisions by expert
forecasters. Oil prices stated above are benchmark prices to which an
individual field price differential is applied. All impairment assessments are
prepared on a value-in-use basis using discounted future cash flows based on
2P reserves profiles.
11. Other assets
2017$m 2016$m
Non-current
Amounts due from joint venture partners 731.7 127.3
Uganda VAT recoverable 34.9 35.9
Other non-current assets 23.2 12.5
789.8 175.7
Current
Amounts due from joint venture partners 567.8 560.4
Underlifts 37.1 34.9
Prepayments 38.2 26.3
VAT recoverable 5.4 5.7
Other current assets 119.8 211.6
768.3 838.9
The increase in amounts due from joint venture partners relates to the
recognition of the TEN FPSO finance lease. Other current assets have decreased
due to the increased timeliness of the receipt of funds from insurers.
12. Assets held for sale
In 2017, Tullow announced that it had agreed a substantial farm-down of its
assets in Uganda. Under the Sale and Purchase Agreement, Tullow has agreed to
transfer 21.57% of its 33.33% Uganda interests for a total consideration of
$900 million. CNOOC subsequently exercised its pre-emption rights under the
joint operating agreements to acquire 50% of the interests being transferred
on the same terms and conditions. This led to Tullow signing pre-emption
documents with its Joint Venture Partners. 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 back-in right. 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 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. Following signature of the pre-emption documents by the Joint Venture
Partners, the Government of Uganda was officially notified of the transaction
and its approval was sought. The disposal is expected to complete in
mid-2018.
The estimated fair value of the consideration was $829.7 million on
recognition which, when compared to the carrying value of the Group's interest
in Uganda, resulted in an exploration write-off of $330.4 million in 2016. 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 the relevant counterparty's cost of
borrowing. Additions to this value have been recognised in relation to
capitalised interest. The present value of the consideration will be
determined on completion and assessed against the carrying value of the net
assets of the disposal group. This represents a level 3 financial asset.
The divestment of the Norway business was completed during 2017 with $7.3
million of assets held for sale at 31 December 2016 being disposed in full
during 2017. Consequently, there were no Norwegian assets held for sale at 31
December 2017.
The divestment of the Netherlands business was completed during 2017 with
$113.1 million of assets held for sale at 30 June 2017 being disposed in full.
Consequently, there were no Netherlands assets held for sale at 31 December
2017.
The major classes of assets and liabilities comprising the assets classified
as held for sale as at 31 December 2017 were as follows:
Uganda Total Uganda Norway Total
2017 2017 2016 2016 2016
$m $m $m $m $m
Intangible exploration and evaluation assets 873.1 873.1 829.7 7.4 837.1
Total assets classified as held for sale 873.1 873.1 829.7 7.4 837.1
Net assets of disposal groups 873.1 873.1 829.7 7.4 837.1
13. Trade and other payables
Current liabilities
2017 2016
$m $m
Trade payables 83.3 46.9
Other payables 114.5 124.6
Overlifts 30.4 6.9
Accruals 552.0 721.2
VAT and other similar taxes 17.3 14.6
Current portion of finance lease 228.1 1.9
1,025.6 916.1
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 11). The change in
trade payables and in other payables predominantly represents timing
differences and levels of work activity.
Non-current liabilities
2017 2016
$m $m
Other non-current liabilities 105.1 87.7
Non-current portion of finance lease 1,317.5 24.6
1,422.6 112.3
The Group's finance leases are the TEN FPSO and the Espoir FPSO (2016: Espoir
FPSO). The finance lease for the TEN FPSO met the criteria for recognition on
1 August 2017. A finance lease liability has been recorded at a gross value of
$1,521.0 million as Tullow entered the lease on behalf of the TEN Joint
Venture. The present value of the lease liability unwinds over the expected
life of the lease and is
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