Download Tullow Oil plc 2017 Annual Report / PDF 6MB PDF

TitleTullow Oil plc 2017 Annual Report / PDF 6MB
LanguageEnglish
File Size6.0 MB
Total Pages188
Document Text Contents
Page 1

Dwww.tullowoil.com

AFRICA’S LEADING
INDEPENDENT OIL
COMPANY

TULLOW OIL PLC 2017 ANNUAL REPORT & ACCOUNTS

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AFRICA’S LEADING
INDEPENDENT OIL COMPANY

1
STRATEGIC REPORT
Our Group highlights 1

Our operations 4

Chairman’s foreword 6

Chief Executive Officer’s foreword 8

Chief Financial Officer’s foreword 10

Executive Team overview 12

Market outlook 14

Our strategy 16

Our business model 18

Key performance indicators 20

Creating value 24

Operations review 26

Finance review 31

Responsible Operations 36

Governance & Risk management 38

Board of Directors 40

Principal Risks 42

Organisation & Culture 50

Shared Prosperity 52

2
CORPORATE GOVERNANCE
Directors’ report 56

Audit Committee report 67

Nominations Committee report 73

EHS Committee report 76

Remuneration report 78

Other statutory information 101

3
FINANCIAL STATEMENTS
Statement of Directors’ responsibilities 108

Independent auditor’s report for the
Group Financial Statements 109

Group Financial Statements 117

Company Financial Statements 153

Five-year financial summary 162


Supplementary information
Shareholder information 163

Licence interests 164

Commercial reserves and resources 168

Transparency disclosure 169

Sustainability data 176

Tullow Oil plc subsidiaries 179

Glossary 181

Tullow Oil is a leading independent oil and gas
exploration and production company.

Our focus is on finding and monetising oil in Africa and South America.

Our key activities include targeted Exploration and Appraisal, selective
development projects and growing our high-margin production.

We have a prudent financial strategy with diverse sources of funding.

Our portfolio of 90 licences spans 16 countries and is organised into three
Business Delivery Teams. We are headquartered in London and our shares

are listed on the London, Irish and Ghana Stock Exchanges.

You can find this report and additional information about Tullow Oil on our website: www.tullowoil.com

Cover: TEN FPSO, Prof. John Evans Atta Mills, offshore Ghana

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CORPORATE GOVERNANCE

Tullow Oil plc 2017 Annual Report and Accounts92

Material contracts
There have been no other contracts or arrangements during
the financial year in which a Director of the Company was
materially interested and/or which were significant in relation
to the Group’s business.

Payments to past Directors
As previously announced on 9 December 2015, Graham Martin
informed the Board that he would retire as an Executive
Director at the 2016 Annual General Meeting. Mr Martin also
resigned as Company Secretary effective 1 January 2016. Mr
Martin’s appointment as an Executive Director and his
employment with Tullow therefore ended on 28 April 2016.

As previously reported Mr Martin received his salary, benefits and
personal allowance in respect of his employment until
28 April 2016. As Mr Martin worked for part of the 2016 financial
year, the Committee determined that he would remain eligible
to receive the cash part of the Tullow Incentive Plan in respect
of the portion of the year worked; a cash bonus of £162,025 was
paid to Mr Martin on 25 February 2017.

Payments for loss of office
Aidan Heavey stepped down as CEO on 26 April 2017 and was
appointed as non‑executive Chairman for a transition period of
up to two years. Aidan continued to receive his CEO
remuneration including all benefits for a period of six months.
This will include an amount payable in February 2018 as the
equivalent to the Tullow Incentive Plan award Aidan would have
received for the six‑month period had he remained employed
as the CEO. This amount was determined to be appropriate by
the Committee in consideration of (i) Aidan’s service as
Chairman of the Board; (ii) compensation for abridging his
contractual notice period with the Group; and (iii) Aidan being
available on an exclusive and full‑time basis for this six‑month
period. With effect from the expiry of the six‑month period,
Aidan’s fee for the provision of services as non‑executive
Chairman will be £280,000 per annum in line with the reduced
Chairman’s fee in effect as at 1 January 2017.

Ian Springett went on extended medical leave on 4 January 2017
and on 20 June 2017 the Company announced that he had
resigned from the Board with immediate effect. Ian received full
pay, benefits and pension allowance for seven months to 31 July
2017. Under Ian’s service contract, Tullow maintained
insurance cover to provide income protection in the event that

REMUNERATION REPORT CONTINUED

Ian was unable to return to work for an indefinite period of
time. A claim was accepted on 1 August 2017 and cover
affirmed from this date. Ian has since received regular
payments under this insurance policy in line with his existing
service agreement with the Company. The Remuneration
Committee awarded Ian a TIP award over £245,381 in cash and
a deferred TIP share award to the same cash value for his
service to the Company and will treat his existing awards under
TIP and other incentive plans as being tantamount to ‘good
leaver’ status.

Details of variable pay earned in the year
Determination of 2018 TIP award based on performance to 31
December 2017 (audited)
The Group’s progress against its corporate scorecard is tracked
during the year to assess our performance against our strategy.
The corporate scorecard is made up of a collection of Key
Performance Indicators (KPIs) which indicate the Company’s
overall health and performance across a range of operational,
financial and non‑financial measures. The corporate scorecard
is central to Tullow’s approach to performance management
and the 2017 indicators were agreed with the Board and focus
on targets that were deemed important for the year. Each KPI
measured has a percentage weighting and financial indicators
have trigger, base and stretch performance targets. Following
the end of the 2017 financial year, the corporate scorecard KPI
performance was 39.7 per cent of the maximum and the
Committee awarded Executive Directors a total TIP award
equating to 158.8 per cent of base salary. This will be payable
50 per cent in cash and 50 per cent in shares deferred for five
years (i.e. vesting in 2023). Details of the performance targets
which operated and performance against those targets are as
follows:

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93www.tullowoil.com

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Performance metric Performance

% of award
(% of salary
maximum) Actual

Strategic Financing
Key targets relating
to ensuring sufficient
liquidity and executing
a long‑term strategic
solution to deleverage
and rebase the
balance sheet

Ensuring sufficient liquidity to deliver the business plan was achieved
by successfully refinancing our RBL at $2.5 billion and extending the
Rolling Corporate Facility by one year.
The Q1 Rights Issue and generation of free cash flow from our low cost,
producing assets have resulted in a significant reduction in our debt since the
end of 2016. As a result we were able to deleverage the balance sheet and
reduce our debt ratio to 2.6 debt:EBITDAX.
As part of the review of our Strategic Financing targets, the Board considered
our capital structure, scale of funding, timing and related costs before arriving
at a score of 9.5%.

10%
(40%)

9.5%
(38%)

Safe & Efficient
Business Operations
Quantitative targets
relating to Production,
Opex, Net G&A and
Capex and SSEA targets
focused on delivering
business activities
safely whilst minimising
environmental impacts
and delivering
sustainable benefits

Production

Production Trigger target Base target Stretch target
2017

performance

mboepd 71.7 77.1 82.5 87.3
Payout 0% 50% 100% 100%

The above production numbers exclude the lost production covered by
business interruption insurance. Including the impact of insured barrels from
the Jubilee field, Group working interest production is 94,700 boepd.

Opex/boe

Opex/boe Trigger target Base target Stretch target
2017

performance

$/boe 14.2 13.3 12.4 11.1
Payout 0% 50% 100% 100%

The operating costs are net of insurance proceeds.

Net G&A

Net G&A Trigger target Base target Stretch target
2017

performance

Net G&A ($) 123.1 115 107 95
Payout 0% 50% 100% 100%

Capex

Capex Trigger target Base target Stretch target
2017

performance

Capex 373 348 324 225
Payout 0% 50% 100% 100%

The capex numbers have been adjusted to remove Uganda. Decommissioning
capex is not included above and is $34 million (budget: $61 million).

SSEA
Tullow’s SSEA targets are focused on reducing process safety events; making
improvements to our asset integrity; occupational health and safety focused on
Lost Time Injury Frequency (LTIF) and malaria prevention; and sustainability,
including metrics such as environmental and social performance.
In 2017 there were no Tier 1 process safety incidents; process safety targets
were partially achieved for TEN and Jubilee; our LTIF rate rose to 0.37 as a
consequence of four Lost Time Injuries reported in the year (2016: nil). There
were no serious malaria cases reported, our ESIA obligations were met and
there were no significant environment regulatory non‑compliances. We met
most of our local content expenditure targets in Ghana, Kenya and Uganda.
In view of the above performance the Committee determined a 3.4%
achievement out of a maximum 5% allocation.

12%
(48%)

10.4%
(41.6%)

Page 187

This report is printed on mixed source paper
which is FSC® certified (the standards
for well-managed forests, considering
environmental, social and economic issues).

Printed by Pureprint Group

Page 188

Tullow Oil plc
9 Chiswick Park

566 Chiswick High Road
London W4 5XT
United Kingdom

Tel: +44 20 3249 9000

Fax: +44 20 3249 8801

Email: [email protected]

Website: www.tullowoil.com

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