2011 Annual Report PDF - Tullow Oil plc

5
Note 20. Financial instruments
Financial risk management objectives
The Group holds a portfolio of commodity derivative contracts, with various counterparties, covering both its underlying oil
and gas businesses. In addition, the Group holds a small portfolio of interest rate derivatives. The use of financial derivatives is
governed by the Group’s policies approved by the Board of Directors. Compliance with policies and exposure limits is reviewed
by the internal auditors on a regular basis. The Group does not enter into or trade financial instruments, including derivative
financial instruments, for speculative purposes.
Fair values of financial assets and liabilities
The Group considers the carrying value of all the financial assets and liabilities to be materially the same as the fair value.
The Group has no material financial assets that are past due. The Group predominantly sells to large oil and gas multinationals
and no financial assets are impaired at the balance sheet date and all are considered to be fully recoverable.
Fair values of derivative instruments
Under IAS 39 all derivatives must be recognised at fair value on the balance sheet with changes in such fair value between
accounting periods being recognised immediately in the income statement, unless the derivatives have been designated as
cash flow or fair value hedges. The fair value is the amount for which the asset or liability could be exchanged in an arm’s
length transaction at the relevant date. Fair values are determined using quoted market prices (marked-to-market values)
where available. To the extent that market prices are not available, fair values are estimated by reference to market-based
transactions, or using standard valuation techniques for the applicable instruments and commodities involved.
The Group’s derivative instrument book and fair values were as follows:
FINANCIAL STATEMENTS
31 December 2011
Assets/Liabilities
Less than
one year
$m
One to
three years
$m
Cash flow hedges
Oil derivatives 10.0 33.1 43.1
Gas derivatives (0.4) (1.1) (1.5)
Interest rate derivatives (4.0) (3.0) (7.0)
Total
2011
$m
5.6 29.0 34.6
Deferred premium
Oil derivatives (47.7) (32.9) (80.6)
Gas derivatives (0.3) (0.3) (0.6)
(48.0) (33.2) (81.2)
Total liabilities (42.4) (4.2) (46.6)
31 December 2010
Liabilities
Less than
one year
$m
One to
three years
$m
Cash flow hedges
Oil derivatives (12.7) (4.9) (17.6)
Gas derivatives (7.0) (7.3) (14.3)
Interest rate derivatives (8.4) (5.2) (13.6)
Total
2010
$m
(28.1) (17.4) (45.5)
Deferred premium
Oil derivatives (18.7) (17.8) (36.5)
Gas derivatives (0.3) (0.1) (0.4)
(19.0) (17.9) (36.9)
Total liabilities (47.1) (35.3) (82.4)
143
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