2011 Annual Report PDF - Tullow Oil plc

Risk management continued
Strategic risk continued
Sustained exploration failure
Performance
indicator
Reserves and
resources organic
replacement
Finding costs per boe
Executive
responsibility
Angus McCoss
Exploration Director
Impact
Failure to sustain exploration success limits
replacement of reserves and resources, which
impacts investor confidence in long-term
strategic delivery.
Policies and systems
GELT, competitive capital allocation process,
clear exploration strategy.
Mitigation process
Board approval of E&A programme. Monthly reporting to the Board
on finding costs per boe and high-grading of Group’s portfolio, with
a view to measuring success of exploration spend.
Continued use of appropriate technologies and technical excellence
in exploration methodologies. South America discovery opens new
hydrocarbon basin.
Progress in 2011
E&A success ratio of 74% was achieved. This included discoveries in
Ghana and Uganda and the significant Zaedyus discovery offshore
French Guiana.
FINANCIAL RISK
Insufficient liquidity, inappropriate financial strategy
Performance
indicator
Liquidity profile
Executive
responsibility
Ian Springett
Chief Financial Officer
Impact
Asset performance and excessive leverage leads
to the Group being unable to meet its financial
obligations. This scenario, in the extreme,
impacts on the Group’s ability to continue
as a going concern, or causes a breach of
bank covenants.
Policies and systems
Financial strategy, cash flow forecasting and
management, capital allocation processes.
Mitigation process
Prudent approach to debt and equity, with balance maintained
through refinancing, equity placing and portfolio management activity.
Regular Board review and approval for financing options. Short-term
and long-term cash forecasts reported on a monthly basis to Senior
Management and the Board. Maintenance of strong banking and
equity relationships.
Progress in 2011
Balance sheet was strengthened through commitment increase
of $1.0 billion agreed with the Reserves Based Lending Facility.
The Group now has total debt facilities of $4.15 billion. Portfolio
management included acquiring Nuon’s Dutch assets, EO Group’s
Ghana interests as well as a number of farm in deals in Africa.
Cost and capital discipline
Performance
indicator
Cash operating
costs per boe
Finding costs per boe
Capital expenditure
and cost management
targets
Executive
responsibility
Paul McDade
Chief Operating Officer
Angus McCoss
Exploration Director
Impact
Ineffective cost control leads to reduced margins
and profitability, reducing operating cash flow and
the ability to fund the business.
Policies and systems
Delegation of Authority (DoA) and budgeting and
reporting processes, project approval process
for all significant categories of expenditure.
Mitigation process
Comprehensive annual budgeting processes covering all expenditure
are approved by the Board. Executive management approval is required
for major categories of expenditure, and investment and divestment
opportunities are ranked on a consistent basis, resulting in effective
management of capital allocation.
Progress in 2011
2011 capital expenditure of $1.4 billion principally on completion of
Phase 1 development of the Jubilee field in Ghana and E&A activities
in Ghana, Uganda and French Guiana.
OPERATIONAL RISK
EHS failures and security incident
Performance
indicator
No significant
environmental
incidents, LTIFR