2011 Annual Report PDF - Tullow Oil plc

The principal accounting policies adopted by the Group are
set out below.
(e) Basis of consolidation
The consolidated financial statements incorporate the
financial statements of the Company and entities controlled by
the Company (its subsidiaries) made up to 31 December each
year. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee entity
so as to obtain benefits from its activities.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group’s equity
therein. Non-controlling interests consist of the amount
of those interests at the date of the original business
combination (see below) and the non-controlling share of
changes in equity since the date of the combination. Losses
within a subsidiary are attributed to the non-controlling
interest even if that results in a deficit balance.
The results of subsidiaries acquired or disposed of during the
year are included in the Group income statement from the
transaction date of acquisition, being the date on which the
Group gains control and will continue to be included until the
date that control ceases.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies
used into line with those used by the Group.
All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
Business combinations
The acquisition of subsidiaries is accounted for using the
purchase method. The consideration of the acquisition is
measured at the aggregate of the fair values, at the date of
exchange, of assets given, liabilities incurred or assumed and
equity instruments issued by the Group in exchange for control
of the acquiree. Acquisition costs incurred are expensed and
included in administration expenses. The acquiree’s
identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 are
recognised at their fair value at the acquisition date, except for
non-current assets (or disposal groups) that are classified as
held for sale in accordance with IFRS 5 non-current assets
held for sale and discontinued operations, which are
recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of the cost of the
business combination over the Group’s interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the Group’s
interest in the net fair value of the acquiree’s identifiable
assets, liabilities and contingent liabilities exceeds the cost
of the business combination, the excess is recognised
immediately in the income statement or in income or expense.
Joint ventures
The Group is engaged in oil and gas exploration, development
and production through unincorporated joint ventures. The
Group accounts for its share of the results and net assets of
these joint ventures as jointly controlled assets. In addition,
where Tullow acts as operator to the joint venture, the gross
liabilities and receivables (including amounts due to or from
non-operating partners) of the joint venture are included in
the Group balance sheet.
(f) Non-current assets held for sale
Non-current assets (or disposal groups) classified as held
for sale are measured at the lower of carrying amount and
fair value less costs to sell. Non-current assets and disposal
groups are classified as held for sale if their carrying amount
will be recovered through a sale transaction rather than
through continuing use. This condition is regarded as met only
when the sale is highly probable and the asset (or disposal
group) is available for immediate sale in its present condition.
Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within
one year from the date of classification.
(g) Revenue
Sales revenue represents the sales value, net of VAT and
overriding royalties, of the Group’s share of liftings in the year
together with tariff income. Revenue is recognised when goods
are delivered and title has passed.
Revenues received under take-or-pay sales contracts in
respect of undelivered volumes are accounted for as
deferred income.
Interest income is accrued on a time basis, by reference to
the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset’s net carrying amount.
(h) Over/underlift
Lifting or offtake arrangements for oil and gas produced in
certain of the Group’s jointly owned operations are such that
each participant may not receive and sell its precise share of
the overall production in each period. The resulting imbalance
between cumulative entitlement and cumulative production
less stock is ‘underlift’ or ‘overlift’. Underlift and overlift are
valued at market value and included within debtors and
creditors respectively. Movements during an accounting
period are adjusted through cost of sales such that gross
profit is recognised on an entitlements basis.
In respect of redeterminations, any adjustments to the Group’s
net entitlement of future production are accounted for
prospectively in the period in which the make-up oil is
produced. Where the make-up period extends beyond the
expected life of a field an accrual is recognised for the
expected shortfall.
(i) Inventory
Inventories, other than oil product, are stated at the lower of
cost and net realisable value. Cost is determined by the first-in
first-out method and comprises direct purchase costs, cost of
production, transportation and manufacturing expenses. Net
realisable value is determined by reference to prices existing
at the balance sheet date.
Oil product is stated at net realisable value and changes in net
realisable value are recognised in the income statement.
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FINANCIAL STATEMENTS