Annual Report PDF (8.0MB) - Tullow Oil plc

Directors’ report: Business reviewRisk management and risk factorsManaging risk responsiblyTullow has comprehensive risk management systemsin place, with clear targets and responsibility.Effective risk management is critical to achieving the Group’sstrategic objectives and protecting its people and reputation.Tullow manages and mitigates risk by maintaining a balancedportfolio, compliance with the terms of its licences, theapplication of policies and procedures appropriate for aninternational oil and gas company of its size and scale, andthrough the recruitment and retention of skilled personnelthroughout its business.The Group has a systematic approach to risk identificationand management combining both a ‘top-down’ (driven bythe Board) and a ‘bottom-up’ (originating from the businessunits and operations) review and approval process.Detailed assessment in 2008The Board completed a detailed update of strategy during2008 and a key component of this process was an assessmentof risks critical to strategic delivery. This assessment wascompleted with each Board member and senior managersfrom production, exploration and finance.One of the main outcomes is that responsibility formanaging and monitoring key risks has been assignedto individual Executive Directors and senior managers.Other key outcomes are that risk management is nowintegrated with the Group’s performance managementtools and will be reported on a quarterly basis to the Board.Assigned responsibilityWhile the Tullow Board and Executives have collectiveresponsibility for the management of risk, the Group hasBoard sponsors with responsibility for key risks and theseare outlined here.Aidan Heavey, Chief Executive Officer, has responsibilityalong with the executive team for strategic deliveryconsistent with shareholders’ expectations.Cost and capital discipline is the responsibility of PaulMcDade, Chief Operating Officer and Angus McCoss,Exploration Director. 70% of 2009 capital expenditureis allocated to P&D and 30% to E&A activities. Paul, withthe Head of EHS, Graham Brunton, has responsibility forensuring the Group achieves its EHS targets and maintainsthe security of its employees, contractors and operations.In addition, P&D has direct operational responsibility forthe specific targets to achieve the fast-track developmentof major projects in Ghana and Uganda.Ian Springett, Chief Financial Officer, has responsibility formanaging liquidity and developing the Group’s longer-termfinancing strategy. He is also responsible for external riskssuch as cost inflation and oil and gas price volatility andinternally focuses on ensuring the Group’s processes andsystems develop in line with the increased scale of Tullow.Graham Martin, General Counsel and Company Secretary,is responsible for legal and governance issues, and alongwith Aidan Heavey, he is also tasked with developing andmaintaining successful relationships with governmentsand developing the Group’s political risk profiling process.In each area the Executive Directors are supported bymembers of the senior management team or managerswith key functional responsibilities.Performance reporting processesTullow undertakes a detailed annual business planningand budget process. This includes annual objectives andtargets covering production, development, exploration, EHSand financial performance, which are set at a business unitand asset level with key risks to the delivery of these targetsidentified. Actual performance is reported on a monthlybasis with narrative explaining key variances. On a quarterlybasis senior management assess the Group’s performancethrough a series of reviews with business units. Thesereviews include an assessment of risks to delivery of targetsand performance, and measures being implemented tomanage these potential risks.Dedicated major project managementDedicated teams have been established to managedevelopments in Ghana and Uganda. Project milestoneshave been established with progress reported on anongoing basis. Risk identification, mitigation and monitoringare completed as part of the day-to-day management ofthe developments. Detailed risk analysis is completed withinput from partners as appropriate to identify key risks toproject costs and timetable delivery. Plans to mitigate theserisks are developed, monitored and reported regularly bythe project teams to the Executives and the Board.Appropriate policies and proceduresDetailed procedures support risk management across Tullowand the application and consistency of these procedures isregularly reviewed by the Group’s Internal Audit function.These procedures include:44 Tullow Oil plc 2008 Annual Report and Accounts